What are the Pros and Cons of Strategic Initiatives in Sales Compensation?

Sales Comp Strategy Pros and Cons

Strategic Initiatives are not for every organization or for every sales role. They work most effectively when used to ensure that not only do the sales get made, but also they are executed in a particular manner or focused on the appropriate customer.

What are the pros for using Strategic Initiatives?

Some of the positives for the use of Strategic Initiatives in a sales compensation plan are:

Behavioral

They support the qualitative delivery of sales execution with desired behaviors and using processes that deliver better long-term results. The intent is not to force conformity and take away from the creativity or personal selling skills of the salesperson. Best practices research has shown however, that planned implementation of a formal approach to business development (with demonstrated historical success) that can be replicated across accounts, delivers improved results. Getting consistency in sales behaviors (e.g.: account management processes, CRM implementation etc.) also is critical in achieving better execution on customer management, resource deployment and integration of new salespeople or sales forces in mergers and acquisitions.

Focus

Strategic Initiatives help to create focus not only on delivery of short-term financial results, but also on longer-term strategic deliverables. If sales activities focus solely on the delivery of quarterly numbers, then each future quarter will be as hard to deliver as the preceding one. However, the right combination of short and longer-term sales focus will result in improved short-term results and easier delivery and sales growth in future quarters.

As well, to achieve incremental or exponential growth versus just maintaining existing sales levels necessitates targeting and delivery of accounts with significant potential. Executing against these types of customer opportunities often requires a considerable investment of time and effort without much in the way of actual sales. If the sales compensation design, rewards for short-term revenue or gross margin delivery, then to achieve my expected level of earnings, as a salesperson, I will focus on those accounts and opportunities that can be closed now at the expense of those that have significant long-term growth potential. Is that the focus that you want them to have? No, …but that is what the compensation plan is communicating that the organization wants.

Addressing Territory Specific Issues

Strategic Initiatives provide management with a major lever to address territory specific sales issues or objectives. Some organizations opt for common Strategic Initiatives that are the same for all territories. Others create unique measures that precisely deal with problems or opportunities in each territory. The difficulty with this approach (although not a show stopper) is ensuring that territory specific initiatives are equitable in terms of effort required and contribution to the organization and that each can be measured and rewarded accurately and fairly. Unique Strategic Initiatives also require greater administration. One compromise option is to create one or two common initiatives (at the national and/or regional level) and then a third that is specific to the salesperson and their territory.

While adding some additional complexity and administration to the sales compensation environment, territory specific measures can create the focus on sales and customer issues that differentiates sales success from mediocre performance. These are not insurmountable problems, but they require management attention and a framework or structure to ensure equitable treatment.

 

Sales Comp Strategy Pros and Cons

 

What are the cons against using Strategic Initiatives?

Strategic Initiatives are not easy for sales organizations to implement or manage. That is why many sales forces don’t use them. They require work to be effective.  While the sales organization may be in dire need of the benefits that can be gained from the use of Strategic Initiatives, if senior management, field sales management and the salespeople are not prepared to dedicate themselves to the development and implementation process (for the first few years!!), then it is not advisable to tackle them in your sales compensation plan.

The cons that bode against the use of Strategic Initiatives are:

Consistency

Strategic Initiatives are tough to utilize unless you can get consistency in the criteria for evaluation (from rep-to-rep), measurement (from manager-to-manager) and payout. This is also the reason why performance management has not been the hallmark of the sales organization. “If they deliver the numbers, then their performance is good…if they don’t, then they are gone”. If this is the culture and organization philosophy, then in the long-term you will have bigger and significant long-term retention problems. Short-term results can be realized with a “sink-or-swim” philosophy, but this approach results in regular turnover in the sales force.

In the future, with the supply of well-qualified, skilled salespeople expected to dwindle and the expectations of the sales role anticipated to grow in terms of skills and knowledge, keeping good sales performers will be critical to organization success. It is therefore imperative that you develop sound evaluation systems for sales that include not only results but also quality in their delivery.

If the process for development and implementation includes clear, well-communicated guidelines and requires a review and sign-off by senior management, many of the consistency difficulties can be avoided. If however, you cannot get consistency on the measurement of Strategic Initiatives, then implementation should be shelved until you can.

Program Administration

Many organizations do a reasonable job at the design and development part of the sales compensation equation, however, they lose considerable credibility when months after implementation, they cannot assess performance against objectives with any accuracy or certainty. Strategic Initiatives require more administrative overhead and systems to track and report on performance (sometimes significant in the beginning). Stakeholders in the administration process include salespeople in the field, sales management, finance, payroll and human resources. The result for many companies…they tend to payout without demonstration of performance. Doing this, they miss the opportunity to use Strategic Initiatives for what they are intended…to initiate and reinforce strategic results. The time, resources, systems and financial requirements for program administration should not be viewed as a cost, but rather as an investment in the improvement of sales execution and long-term organizational performance.

Sales Management

Lack of management support and participation is the primary reason why these performance measures fail. The reason lies in the definition of the sales management role. What is the strategic role of sales management? Is it to solve the problems of their salespeople? Is it to take on and execute the difficult tasks that the salesperson is struggling with so that the required quarterly results are achieved? Is it to sit in meetings and make customer decisions that should be made by field salespeople or their first level sales managers? If so, then sales management is doing their job.

This should not be their role. Sadly however, it is common in many of today’s poorly functioning sales organizations. The primary function of sales management should be to create an environment where salespeople are directed and motivated to deliver short and long-term sales results. Strategic Initiatives are one tool to help management achieve this goal. However, they require sales management to take an active and committed role in their design and implementation, monitoring and evaluation and feedback to the participants.  If management has a short-term focus on the business, or do not see sufficient value in Strategic Initiatives to invest their personal time and effort, then their use is ill advised.

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