Did you know that salt was one of the earliest forms of variable pay? Yes, that’s right. In ancient Rome, emperors partly paid soldiers in salt as it was a scarce commodity. And its value? As glorious as their fighting forces! The trending buzzword at the end of every month, ‘Salary’ comes from the Latin word ‘Salarium’, meaning payment in salt. But, think about the recurring perils of the person who decided how much salt each soldier would get. I, for one, wouldn’t want to be wearing that hat. Thank God for changing times.
Today, we get to design our own sales compensation plans to reward our top-performing, customer-facing reps’ hard work. These plans are indispensable to boost sales, morale, and overall engagement, which begs the question:
‘Who designs or should be designing these incentives?’ Let’s put this dilemma to rest once and for all.
What Constitutes “Ownership” of Compensation Design?
Before we coronate the roles best-suited to take ownership of compensation design, let’s take a walk through what ownership means. The answer to this question constantly changes based on who you ask. I’ve had my fair share of interacting with various teams involved in incentive compensation, and here’s what I’ve learned so far. Ownership entails four key stages:
Designing the plan
Surprise, surprise! You call the shots on what and how many components make up the plan for various roles. E.g., setting up guardrails.
To make your new sales compensation plan a success, you must get your stakeholders on board from the very beginning. Getting buy-in from the managers and leaders for the design will catalyze behavioral changes and tremendously improve a win’s chances.
Now that you’ve structured a plan and aligned your stakeholders, your next step is to directly involve the relevant payee team members and get their feedback on the plan. Involving them helps eliminate any blind spots in the design and works great to make last-minute tweaks.
Evaluating plan performance
Onto the fun part: determining how your plan has fared. Evaluation of plan performance has to be done from multiple angles: attainment spread of reps, revenue-to-cost ratios, and comparison against initial plans to eliminate biases or seasonality.
The Right Team to Run Commissions
Now that we know what we're looking for, we figure out which team perfectly fits the bill. Our top contenders are RevOps (SalesOps) , Finance and Human Resources. My evaluation of the right team is not based on the capability of the groups in question but more about who is more equipped in the following factors:
- Complexity of design
- Understanding of the payee’s daily challenges
- Relationship dynamics
- Grasp of the technical details (Analytical infrastructure, CRM configurations, etc.)
Based on these factors, we’ve made you a handy table. It gives you a sense of which team is well-adapted to handle the four stages of ownership mentioned above.
I believe this evaluation justifies the findings of the Sales Compensation Trends Survey from the Alexander group. The results show revenue operations (or sales operations) taking the lead by 40% of organizations leaving ownership with them. HR stands at 14%, whereas finance lags behind at 8%.
The application of this analysis makes sense when all three teams exist within the organization. In certain companies, ownership even resides with a combination of these three teams. However, when it comes to early-stage companies, the ownership goes to the team that is established first. This gives further credence that RevOps shouldn't lie in the ‘good-to-have’ bucket and must be considered a critical function from Day 1 onwards.
Acknowledgements : Thanks to Samra Taban for editing the blog. Thanks to Aravindh Natesan for the designs.