Revising your comp plan? Here’s how to ensure it’s successful
- Management & Leadership, Prospecting, Sales, Wellbeing
- Cody Short, QuotaPath
- Estimated Reading Time: 7 minutes
In previous years, companies promised sales reps lucrative on-target earnings (OTE), regardless of whether or not they were actually attainable.
Think: $350K OTEs… with only one rep of 40 actually reaching goal.
Today, that’s not the norm.
Now, companies are actually delivering on high-value OTE plans because if they don’t, sales reps will jump ship for the company with the better and more attainable payday.
As a result, companies have started evaluating their compensation plans more carefully (and frequently) to ensure plans are competitive and realistic.
QuotaPath get asked a lot how often you should reevaluate your compensation plan.
Our recommendation? At least, once a year. However, if you work for an early-stage company with constant changes to the sales cycle, contract values, pricing, and more, you should review plans every quarter.
Below, we’ve outlined what metrics to evaluate, how to test changes before implementing them in the plan, gathering feedback, and rollout of changes.
What metrics to evaluate to tell the efficacy of your comp plan
RevOps, Finance, and Sales leaders typically base compensation plans on the business’s revenue goals. Sometimes, they create plans that focus on profitability of the company, knowing that not everyone will meet quota.
When that happens, we often see businesses adjust their plans between Q3 and Q4 to boost rep attainments.
However, Rosalyn Santa Elena, Founder and CRO of The RevOps Collective, suggests that leaders review comp plans year-round instead of just in the latter half of the year.
“If you think about every quarter or month, when you’re assessing payments, my advice would just be as you’re assessing payments and attainment, have those discussions in terms of the comp plan structure,” Rosalyn said during a webinar. “Are you achieving the goals that you were expecting to see? Are you trending toward the things that you were expecting? This will allow for the business to stay current with profitability and retention of sales reps.”
Another RevOps leader, Jessica (JP) Zangre, said most companies will be in a good spot if 80% of their reps hit quota.
But for smaller companies or startups, JP said these businesses should strive for 100% quota attainment to ensure business success.
To do this, consider incentivizing your reps to reach quota faster by compensating higher on multi-year deals. This driver helps both the rep and the company by securing larger annual recurring revenue upfront while the rep earns larger commissions.
Comp plan musts
Avoid caps
For most sales reps, capped commission plans are a no-go. What if a rep crushes quota right out of the gate? With a cap, your rep isn’t incentivized to keep going.
Tie your plan to measurable actions
Compensation plans should tie to a measurable action. If you pay higher rates or bonuses on larger deals or longer-contracts, track if your compensation adjustment inspired new selling behaviors.
Standardize your plans
Everyone on the team with the same title should have the same compensation plan. This allows for everyone to be paid equitably.
Our Chief of Staff Graham Collins said, “Based on a bunch of research, if you don’t pay everyone on the same comp plan you end up underpaying women and people of color. The easiest way to prevent that is by standardizing your compensation plan.”
Test changes before permanently adopting
To see how an adjustment will play out before implementing, test it. You can do this by running a SPIF, which is a short-term element within a compensation plan.
For instance, some SPIFs to test might include:
- Different rates for different products — launch a new product, pay a higher rate on it
- Different industries — you give an extra 5% on SaaS deals
- Upfront payments — you want to see if your reps can get people to pay up front so you agree to pay them an extra 1% for Q4 if their customers do.
If it changes behaviors in the way you intended it to, then add it to your next comp plan.
Partnering with sales to create a healthy feedback loop
Another way to evaluate your existing comp plan involves collecting feedback from your reps.
Do they like it? Do they understand it? What would they change? Are they motivated by it? If not, what would motivate them?
Your reps, especially your more senior ones, can provide context and raw feedback to help you determine if your existing or upcoming plans will be successful.
Ryan Milligan, QuotaPath’s RevOps Sr. Director, recommends meeting with every rep for one-on-ones monthly. At these sessions, he always checks in to get a pulse on comp.
This helps boost trust, transparency, and alignment when it comes to sales compensation.
How to handle mid-year changes to a comp plan
Lastly, changing a compensation plan in the middle of the year can be a challenge, especially if a rep is used to a plan. But, as mentioned earlier, transparency is key.
Invite your reps to a meeting and communicate consistently and clearly as to why the plan is changing and how it can be rewarding to the rep; Explain the math and logic behind the changes.
Allow your reps to ask questions and address their concerns. The more open and upfront you are, the more receptive they will be to changes.
About QuotaPath
QuotaPath’s easy to use platform empowers RevOps, Finance, and Sales Leaders to maximize revenue, drive the right selling behaviors, and rewards sales reps fairly and competitively. Our compensation and commission tracking software automates sales comp plans progress and payments and provides reps real-time and forecasted earnings data.
To learn more about QuotaPath’s sales compensation tool and how it can work for your team, book a time with us today.
