Sales compensation: The 6 components of strong communication
It’s the end of the year, and all you’d like to think about is how to coast your way into well-deserved holidays and celebrations. But before that, you just have this huge todo-list to finish, and somehow, there are unknown evil forces that prevent it from getting checked off.
The latest addition to this sisyphean workload came out when your boss casually pinged you on Slack, asking: “Are we ready to communicate the new compensation plan to the sales team?
The sales compensation plan”.. yes, you’ve been working on it for weeks, maybe months. You know that a lot of people are watching: Human Resources, Finance, Operations, and.. every last member of the sales team.
Every year, the rollout of the new compensation plan is a major event. It’s going to set the policies, practices and mechanics of the sales engine for the next four quarters.
Communicating the new compensation plan is also a great opportunity. It’s the perfect moment to communicate next year’s strategy , tell the sales team what is going to be important, and tell them what isn’t. A good compensation plan casts clarity and purpose, helping sales reps fully understand and adopt the new rules of the game so they can surpass their objectives..
You might start to think “Oh, this can wait, I’ll schedule a 30min kick off meeting with the sales team and that’ll do“
Failing to communicate the compensation plan effectively can have a number of negative consequences. First, instead of diffusing positive energy, unclear communication can spawn a good deal of suspicion which, in turn, leads to uncertainty and frustration. Instead of looking at the big picture, a few team members might focus on pinholes in the new plan. You might hear questions like:
How am I going to track my performance? When are the accelerators going to kick in?
Are there interdependent events that can impact how much we’ll be making?
The plan has changed, but am I a winner or a loser? Will I be able to make more money?
The last thing we want is having to re-examine the plan and cause another round of back-and-forth with the executive management team. This could delay the final rollout by weeks, and ultimately putting Q1 at risk. It’s crucial to have everyone on board and ready to kick start Q1 with the speed pedal pushed all the way down.
The 6 components of strong communication
“A goal without a plan is just a wish.” — Antoine de Saint Exupéry
Having a well-designed communication plan can significantly increase chances of the sales team being committed to the new plan and the company’s strategic objectives.
There are 6 components that make up a strong communication game plan.
First, a schedule.
This sounds a bit obvious but each company will have its own unique timeline. Backward planning works wonders for that. Start by identifying key milestones and work backward to set an appropriate schedule. Make sure everyone included in the plan rollout is aware of the schedule and is signed off on it. Food for thought: Should the plan be live before or after the end-of-year and/or the previous plan is terminated? There’s no clear answer to that. Although the end of the year can be quite busy, with very little room for anything else but closing, we recommend not to postpone the rollout of a new plan too far down Q1. The sooner the sales team can start executing, the better.
A consistent message from the top down
Like every employee, sales representatives want to know what senior management values the most. The launch of the new sales compensation program is a superb chance to inspire the sales team. Everyone is going to pay close attention to the announcement, so take this opportunity to enrich and amplify the message. An effective sales leadership message can resonate throughout the organization and set the tone for the year.
The topic is quite broad and we’ll probably write a whole post about it. Communicating the new compensation is likely to rely heavily on communication material, depending on the extent of the plan update and the size of the organization. Some example materials to prepare are:
messages from the sales leadership (see above);
resources for field managers, who will probably be the first recipients of questions coming from sales contributors
additional presentation material, which can include plan details related to scoped field context.
a formal email to announce the plan;
plan documentation (we’ll cover that in a separate post – stay tuned);
Field managers are generally the ones most exposed to feedback flowing from sales members after the new plan announcement. A good way to support them is to organize a full-day or half-day training. Spend time detailing the plan and rehearsing what they’ll need to communicate to their team.
After the new plan is introduced, team members will likely want to read more about it, on their own. Save a section in your knowledge workspace or corporate wiki. The documentation can cover:
the general philosophy of the compensation plan (how the company compensates against the market, what are the strategic objectives that shaped the plan updates);
administrative details (effective dates, who is eligible to earn commissions specified in the plan, etc..);
the compensation components (base salary, commissions, rewards, etc..);
how commissions are calculated (provide examples);
how commissions are paid;
description of special incentives (if the plan include such incentives);
a glossary of terms, because well… all those sales acronyms. We don’t want any room for misinterpretation)
It’s important to note that the state or country you are operating in might enforce several requirements when it comes to compensation (e.g. signed acknowledgement of the compensation plan). On purpose, we’ve decided to exclude legal considerations from this post. Make sure to seek legal counselling to ensure the company is abiding by any legal requirement.
This is our favorite part 🙂 Remember, a good compensation system is understandable, clear and fully transparent. Everyone eligible for the compensation plan should have access to an always-ready platform where sales representatives can understand and examine:
how much are the total payouts for each month;
what are all the transactions and deals taken into account for a given compensation statement;
for each deal, how much is the commission, how it is calculated and, most importantly, what is the payout schedule. Commissions with a payment schedule lasting several months are hard to track.
any adjustment made to a commission, with a clear documentation and comment from management;
motivational information (quarter-to-date progress, year-over-year percentage change, peer comparison, etc..)
Don’t underestimate the benefits of having a real-time dashboard (for example directly connected to your CRM ). Displaying real-time performance and payout information is an incredibly motivational feature for salespeople. (check out Palette’s data connectors).
Any company, no matter the size, should carefully plan and execute the implementation and communication of the sales compensation plan. You are explaining to the sales team what is the strategy, what are the objectives, what matters and how sales representatives can excel at their job. Don’t rush it.
Communicating the sales compensation plan is much more than an administrative event. Use it to inspire your team to success.
Don’t underlook the risks of a low-level communication plan. There’s nothing worse than starting Q2 behind numbers because Q1
Make sure all levels of sales management are included in the process and are signed off on the communication schedule.
Rely on managers to personalize messaging and get everyone on board
Provide a best-in-class reporting system where sales contributors can track their performance and payouts.