Sales Compensation Past, Present and Future
Anyone who has “carried a bag” in a sales role over the past several decades will tell you that the world has changed. Selling in the past required an intimate knowledge of the company’s products and services and how to apply them, prospecting and closing skills, personal initiative and good verbal communications. In addition, to be successful, you needed to be able to get close to the buyer and have the type of personality that could accept rejection and yet maintain personal drive.
These personal qualities made selling very much an “individual” occupation. Salespeople (primarily men) developed a peculiar persona of the “lone rangers” within the organization that delivered the sales and were treated very differently that the rest of the “staff”. In the past decade, beginning with a basic restructuring of businesses in the early to mid 1990’s, the role and the requirements to sell successfully began to change. During this period, complete layers of management and support positions were removed from the typical organization, essentially flattening the structure and eliminating jobs. From a financial perspective this was a good thing (can you hear the bean counters cheering??).
In the past, recessions affected the organization, but sales remained largely untouched. For the first time, sales in this era became part of the change process. What was the impact? How has it affected the way sales performance is managed? Has it affected compensation? …Several areas of sales were hit very hard with change, from the senior level of management, to the “feet on the street”; few sales positions have remained the same as they were in the past. The change process has however been gradual and progressive, and most sales organizations have not adapted well to the need for change. This is not as simple as sitting down and “tweaking” the current sales compensation plan. It requires a rethinking of the selling process, sales roles and how you reward them.
This article identifies changes to the existing sales paradigm and provides a glimpse of the future for sales compensation.
The Changing Sales Paradigm
The scope of change was been felt at all levels of the sales organization. Not only have people had to change the way they sell, but managers have also had to change the way they manage. The organization structure has changed, strategy has had to be revised, sales roles have changed, additional ones have been created and finally new performance measures have been required to measure sales success. The following are a few examples of the revolution taking place, the impact they are having on compensation and transformations that have taken place:
In an effort to optimize resources and improve profitability, many companies have eliminated regional sales offices, preferring instead to manage from head office and provide resources as required to the field. One impact of this decision has been the limited face time between sales managers and their reports. Remote salespeople have had to become more self-managed, self-directed and rely on their own resources to achieve results. The sales compensation plan has been used as an organizational lever to manage sales behavior and performance. Companies have created compensation plans to achieve growth through incentives on revenue, and focus attention on certain products to drive profitability.
Results have been mixed at best using this approach. The changes though well intended, have instead reinforced short-term selling behaviors at the expense of longer-term customer relationship development. In an effort to maintain an adequate standard of living, sales reps have become more “me-oriented” and reward focused as well as disenfranchised in terms of their relationship with the company.
The decimation of the middle management ranks in the mid-nineties created a wide gap between senior sales management and their first level sales supervisors. In the past, the management “apprenticeship” in traditional hierarchical organizations, taught those moving up the ranks over time, how to create and develop sales strategy and also how to manage the performance of their sales staff. The organizational bureaucracy while often stifling changes, ensured compliance and competency development before assuming a senior role in the sales function.
Over the past 10 – 20 years, most of the architects of these management changes have retired and left the company. In their place, today’s senior managers, who have leapt the middle management chasm to a senior sales role have not developed the required competencies for strategy and performance management. Further exacerbating these issues, sales management compensation programs have a tendency to reward for achievement of profit, while field sales compensation has largely rewarded revenue. This has created conflict situations in the sales organization, and reinforced inappropriate behaviors in sales reps to achieve their goals and still keep their bosses satisfied. Sales Managers also find themselves caught in a compensation and behavior bind, when their superiors in senior management have been focused on short-term earnings results to support their stock options at the expense of good strategic decisions.
Organizations in the past few years have been focused on lowering the cost of doing business. This drive to increase productivity and efficiency spawned the myth that unless you were deep into technology that you were less competitive. In fact, the enabling technology has largely been a failure in delivering improved performance. Field sales people have resisted the introduction of new technology tools because, while they serviced the needs of the corporate/head office organization, they did little to improve the sales or incentive earnings of the salesperson. In fact, they required more administrative effort and non-productive (from a sales perspective), unrewarding results.
Investment in the software, hardware and networking infrastructure should have been complemented with the investment in incentives and reward processes that initiated and reinforced the desired behaviors associated with the use of the technology. If the technology doesn’t make it easier to increase sales, increase payouts on sales incentives or reduce the administrative burden accompanying the closing of a sale…they won’t use it!
Sales strategy has had to evolve to remain relevant to the changes taking place in the sales environment. To address a fragmented customer base with varying degrees of potential and contribution, sales organizations have created multiple sales channels each of which allows the company to match cost-of-sales with revenue and profitability. Direct sales for much of the account base, has been replaced by indirect selling channels (e.g.: dealers, wholesalers, VARS, agents etc.), inside sales and call centers (outbound, inbound/outbound). There has been a significant movement away from a product-focused strategy toward a relationship focus. In the booming nineties, sales growth and sales force expansion led to a specific product focus strategy, where complete sales forces focused on selling one or a group of products. Today, the pendulum has swung back the other way, and the territory sales role has again become more of a generalist sales role. Reps are now selling many or all product lines, often with technical or specialist support when needed to address specific customer needs.
The shift in account assignments and sales strategy has seen a definite move toward less geographical territories and more alignment with customer segments, industry verticals or major accounts. In situations where territorial sales remain, the territories are much bigger (due to lowered headcount) with a substantial focus on new business development.