My colleagues have been quite articulate in talking about a lot of the fundamentals in developing commission and compensation plans.  The plan needs to reinforce your strategies and priorities, the behaviors you expect from sales people, and other things. 

I have been the beneficiary and victim of bad incentive plans, and I have victimized sales people with bad incentive plans.  I thought I would tell a story about victimizing a team of sales professionals, creating chaos and disorder through a bad plan.

I was running the sales organization for a large high tech company.  We had very technical products, most of our sales people were electrical engineers and, to be honest, we were all a little nerdy.  I assembled a team of sales managers, a few sales people, my controller and a consultant, to design the incentive program.

I set some guidelines, I wanted people to be incented to a fast start for the year, I wanted to have balanced performance across several categories of products, I wanted to incent over quota accelerators, and a few other things.  They met for a few weeks, designed a program, simulated it to make sure it wouldn’t violate our budget, and presented the final commission plan to me.  Here it is:

Pretty cool!  (Remember we were an engineering oriented company.).  I looked at the equation, and gulped a little.  Some of it made sense, I saw the Fourier series and started to get a little confused, and I was really concerned about the imaginary numbers (the last set in the equation).  But I figured, it’s sales, there has to be an imaginary number or two in the calculation.

The team presented it to me, they had a 127 nice PowerPoint charts that showed me they had incorporated all the design parameters we wanted, that it would motivate the performance and behaviors we wanted and reinforced our key strategies for the year.  They convinced me it was the right commission plan.  I guess I was too embarassed to admit that I really didn’t understand it, so we published it at our sales kickoff meeting.  Always the cheerleader, I told them how fantastic it was, I went through the design principles, it only took me 57 charts to explain it.  I concluded with the mantra of all sales executives presenting the commission plan:  If you hit or exceed your numbers, you’ll make a lot of money!  Boy I wish I were on a plan as rich as this!  (Isn’t that kind of the obligatory statement we have to make?).

There was a little rumbling and complaining—but isn’t that a sales person’s job, we always have to complain about the new commission plan.  They went back to their territories and went on about their jobs.  After a few months, I started wondering, why aren’t we seeing the behaviors we wanted.  We had wanted a radical shift in what they were doing, but they seemed to be doing the same things they were doing before.  What was wrong?  Here we were 30% of the year had passed, and we weren’t getting the behaviors and focus we wanted.  The overall numbers were OK, but some of the key things we wanted them to be doing weren’t happening.

Well, it doesn’t take a PhD in Math to figure out what was wrong—-well, in hindsight, actually it did!  Maybe that was the problem.  We had made the commission plan so complex, the sales people didn’t know where they should spend their time.  As they saw potential opportunities and tried to make that calculation all of us do (What’s my ROI on investing in this opportunity?), they couldn’t figure it out.

Our error was the plan was way to complicated.  It wasn’t clear what they should be doing and where they should be investing their time.  They couldn’t look at each deal and say, “Am I doing want management wants me to do?  Am I selling what they want me to sell to the right people?  Am I investing my time in the right opportunities?  Will I get the return on my investment in this opportunity that gets me the commission I want.

Perhaps, this case was extreme, but it’s not unusual.  Too often, I see management putting in place plans to do everything–and they end up doing nothing.  We have to have absolute clarity about what we want our people to do.  We have to know how we want them to behave.  We have to translate the few critical things into a commission plan that is easy for them to understand.  As they look at an opportunity, they ought to be able to say, investing in this is what my management wants me to do and will get me the commissions I want.  People do what we measure them on and what we pay them on.  Are we incenting the right behaviors and is it so simple and crystal clear that people can easily execute it?

Write me if you want to know what we did to fix this mess!