How Do You Design a Customer-Oriented Sales Compensation Plan?

Several years ago, a down-and-out character was standing at the driveway to our local grocery store holding a roughly printed sign: "Will Work for Food." My comment to my wife was, "What does he think the rest of us are doing?" This may strike you as overly cynical, but the fact is, if the food, shelter and protection Abraham Maslow identified on the first level of his needs hierarchy were fully and automatically covered for each of us, we'd probably spend our days differently (i.e., not working).

And yet, my further observation is that conventional wisdom says, while everyone's work has a compensation component, people who sell for a living face more of one. To wit, a favorite expression among non-sales types is to call sales reps "coin operated." That is, what drives their behavior, establishes their priorities and motivates them to action is money. Too judgmental or cynical? OK, I'll take away some of the spin and simply say that compensation is what you get for renting your behavior.

With that in mind, the question is: What behavior are you looking for?

For senior management, the Big 3 desired results are: increased productivity (i.e., revenue), increased predictability and increased shareholder value (i.e., profitability). The Big 3 for sales management are increased quota and percentage attainment, increased forecast accuracy and decreased cost of sales. But these are outcomes. What behavior does your company want from the sales department to realize those results? What strategy has it outlined? And does your compensation plan align with these?

Take a quick look at numbers from CSO Insights' 2006 Sales Performance Optimization study. This is the 12th year of our study. Figure 1 below shows top objectives for the coming year summarizing the responses from nearly 1,300 company executives. What the responses show is consistent focus on driving the top line (68 percent), followed by increasing sales effectiveness (55 percent) and market share (42 percent). Improving customer loyalty and satisfaction runs a distant fourth at 30 percent.

Figure 1

More to the point for this discussion: Is customer centricity or a customer orientation a component of your sales compensation plan and, if so, how?

This is a key point and strikes to the very center of a company that is doing a good job of connecting the dots between customer centricity and sales compensation. Centive is in the sales compensation business, providing a web-based solution that allows near real-time interaction with the comp plan—both for administrators creating, managing and modeling the plan and for the sales reps checking on how they're doing (and going to do), given their current pipeline, etc.

One of its solutions, Compel, is offered via the software as a service (SaaS) subscription model. Says Phil Trudeau, vice president, Worldwide Sales, "It's fascinating to me to run sales in an environment where you have to continually earn your keep in bits and bites over a long time. The only way this works is to set proper expectations, or the customers will not be around." And he goes on to remind his sales team, "If they're not around, you (the rep) will not get paid."

With a subscription model, companies have minimal exposure, little capital commitment and the ability to simply turn off the service if they're unhappy or feel that the service is not living up to expectations. While there is much more to it, Trudeau outlines two keys to making customer and sales success:

1. Obtain with certainty the strategic objectives of the key buying influences.


2. Set clear expectations about what we can and cannot do to address each of these objectives. Says Trudeau, "It doesn't make sense to mislead the customer."

Centive's own compensation plan and its sales leadership and corporate culture align around this customer orientation. Is it working? Centive is privately-held, so precise revenue figures are not published. However, turnover is low, and Trudeau has impressive growth plans in place to grow the sales team.

Contrast this approach with the responses to our survey question on the clarity of firms' incentive programs and ability to drive behavior.

Figure 2

Two-thirds of firms are generally driving behavior they want, but almost 20 percent are clueless about any connection. Be clear on this: An organization elicits the behavior it rewards.

What behaviors does your senior management desire, your culture reinforce and your compensation plan reward? If they do not aim those in a coherent beam toward a customer that is happy enough to not only remain with you but also to recommend your services to others, you still have plenty of room to improve