Five Ways to Manage Change in Your Incentive Compensation Plan

When introducing any incentive compensation plan changes, consider these five steps to keep the sales team engaged and eager to meet their goals.

At a time of constant change and ever-growing competition, a company’s sales compensation plan is one of the most powerful tools it has to improve sales performance by influencing sales behaviors. To be most effective, company leadership must ensure an agile approach to help the sales organization adapt to rapid changes in the market, competitive landscape and the company itself. But introducing any changes to how salespeople are compensated can be met with significant resistance, and if not handled properly, can lead to resentment, lower productivity, and higher turnover among the sales team at a time when they are needed most.

Still, incentive compensation plans are shown to have a strong and immediate impact on selling behaviors, making it crucial that any changes to the compensation plan must be well thought out and communicated from leadership down through the entire organization. How can this be accomplished? Consider the following steps to set the right example and help the sales team not only prepare for change but embrace it and emerge successfully.

1. Anticipate what needs to change: To remain competitive, organizations should seek to change their incentive compensation plans regularly. But it’s important to do so in alignment with the dynamics of business reality. One of the biggest mistakes is assuming that any changes will remain in place throughout the year or even multiple years, without paying attention to what may change in the future. Instead, any changes or new processes should be designed through a series of “what-if” scenarios.

Some questions to ask include:

• What kinds of plan rules lend themselves to frequent exceptions?
• What kinds of exceptions are valid?
• Are the processes being designed to handle exceptions?
• Are there new plan rules that management considers tentative and likely to change?
• Are there alternate plan rules or measures that might be considered if current plan rules or measures fail?

But it’s not just about the changes to the compensation plans themselves; leaders must also anticipate changes in other processes and systems that can impact incentive compensation management. An example would be the introduction of a new HRIS system that may change how a transaction is credited to a sales person.

2. Communicate change across the organization: Although the need for change will often be clear, what’s more challenging is actually implementing those changes. Key to success is having a clearly defined change management process, which entails thorough checklists, a master plan for making changes, published timelines for data processing and workflow procedures, and a well-defined escalation process for how various changes will be brought to the appropriate levels of management. Whether a change is a simple matter of re-crediting a transaction or involves more complex structural changes in data or systems, leadership must over-communicate and ensure everyone knows how the change will impact their daily roles.

3. Address the known and unknown issues: Every organization has a cycle for calculating and communicating incentive compensation results, whether on a daily, weekly, monthly, or quarterly basis. For this processing cycle to be most effective, leaders must prepare their organizations for the known and unknown issues that care arise in order to minimize risks and any delays or errors. One common challenge stems from the need in many incentive plans to process data from prior periods along with the current period, leading to confusion over which transactions should be credited for which period. However, with clear business rules, proper planning, data validation, and results checking, such instances can be minimized.

4. Parameterize the incentive compensation management system: Being able to adapt to change easily should be a key requirement of any incentive compensation management system. This can be done by effectively using parameters to greatly reduce the time to make common changes and remove the need for hardcoding. With good parameterization, it becomes faster and easier to make future plan changes, while resulting in improved accuracy and numerous other related benefits.

5. Look to automate key processes: Many of the systems and processes used to manage incentive compensation grow organically and are touched by many hands over the years. This leaves a patchwork of manual, labor-intensive processes that increase the risk of delays and inaccuracies. The key to finding and fixing problems quickly is to step back and design an automated process. This will allow compensation analysts, who might otherwise spend a whole day sifting through reports to find errors and other issues, to shift from merely maintaining the system to being a proactive business partner who spends time on value add activities like performance analytics to help the sales organization proactively identify and adapt to unexpected changes.

A sales compensation plan should work to continually engage and motivate the sales team and keep them in alignment with company priorities. But any changes to how salespeople are compensated can have a serious impact on that delicate balance, resulting in increased administrative costs, lost revenue opportunities and resentment and increased turnover of your best sales talent. That is why the companies that can anticipate change and have a comprehensive strategy to address it from the top down will be best suited for success when they need to update their incentive compensation plans.

About the Author

John Ristuccia is Vice President, Professional Services for Optymyze. In this role, he leverages more than 17 years of experience helping businesses transform their sales processes and improve operational efficiency and sales effectiveness. He currently helps clients in a variety of ways, from planning and strategy through solution deployment to ongoing program and relationship management. In addition to his professional services expertise, he is experienced in software product development, marketing and business development.