• Matthew Haller

Communicating Compensation Plan Changes

Successful rep adoption of new plans hinges on cross-functional collaboration - and a leadership team that sticks together.

A few years ago I worked with a mature startup (roughly 100 primary quota carriers worldwide) to assess their sales compensation program. We worked with their revenue and finance leadership teams to determine any gaps between the company’s go to market strategy and the compensation program, which was largely based on a commission structure - e.g. reps receive a percentage of their total sales - with accelerators built in at different levels of achievement.

Reps were taking the company for a ride.

Over 80% of reps were achieving their target incentives (most well above their cash compensation targets) while the company was only achieving lackluster growth. It was clear that the compensation plan was out of alignment with the company’s financial goals.

With only a few weeks left until the start of the fiscal year, the sales finance team rapidly pulled together performance analyses and recommended raising the threshold for commission accelerators while also taking the commission rates down to account for the higher performance levels of the sales team. Models were built, communication decks were drawn, and leadership approved the changes - all in roughly two weeks’ time.

And the reps revolted.

The sales team refused to work - some threatened to quit (and others actually did). For over a month, the sales finance team sat with 15 of the highest-risk individuals, taking them through their plans individually and showing them how they could earn the same (or more) than they did in the previous year. This work took away from other critical tasks, like administering the previous years’ compensation plan and setting quota for the first quarter.

So what’s the best way to change plans and avoid that negative reaction?

Follow Incentiv’s three key principles of sales compensation communications to maximize plan adoption adoption and minimize risk in sales comp plan communications this year:

Principle 1: Involve Leadership in Compensation Design

Our first principle is to involve sales leadership in your annual sales compensation design cadence. Leadership insight is critical for rep adoption of your new compensation plan, as they are at the front lines of rep performance and motivation, so they (probably) have a number of perspectives on updates for the new plans. Leverage that insight to make updates to your plan features so enhance the overall rep experience!

In some cases, sales leaders don’t want to be involved in the compensation design process - unfortunately, this is common in scaling organizations - the sales leaders are focused on closing the quarter and building the company while actively selling, and thus see sales compensation design as a distraction from the million other things on their to-do list.

This is when it is critical for HR and finance to be partners to the sales leaders by providing a structure around the sales compensation design process, minimizing the time taken away from their day to day tasks to focus on comp, and finally highlight how compensation is a critical lever for rep performance management. After all, the sales leader is the one who ultimately has to design and execute against the sales strategy, so it is in their best interest to ensure the compensation plan is aligned with their goals.

Finally, provide the sales leader with a cheat sheet and easy to understand communications deck to share with the sales team. It doesn’t have to be super complicated, but the deck should review the previous years’ successes, highlight some great deals and momentous achievements, and share the vision for the next years’ worth of sales. Ultimately, the purpose of this deck is to set the stage for why the compensation plan is changing so sales managers can have detailed conversations with their reps about the new plans.

Principle 2: Enlist Your Sales Managers for Support

I am a strong advocate of having sales managers communicate compensation plan details to their sales reps. At the end of the day, sales compensation is a very sensitive subject for reps, and so hearing changes from a familiar face reduces the knee-jerk rejection reaction that is common when plan changes originate from HR or finance representatives.

In order to enable your sales managers to communicate the plan effectively, work with a select team to define the key talk track to sales reps that will maximize the chance of successful rep plan adoption. When defining the talk track, be sure include all relevant structural plan changes as well as any key sales behaviors that are expected to change as a result of the plan.

For example, in my example above, the sales management team would benefited from explaining to reps how they can increase the total value of their book of business by asking for larger investments, accessing a larger budget, or cross-selling products that would ultimately drive more sales and help them make more money than the year before.

Another insight your sales managers will be able to provide is identifying which reps are at risk of reacting poorly to the compensation plans, which can allow finance and HR time to preemptively prepare customized materials for these reps. While churn is a natural part of any growing organization, at the early stage of your business, keeping a seasoned team of sellers on hand to keep the momentum growing into the next fiscal year.

Being prepared for negative conversations will limit the amount of time you will have to spend pulling custom reports together for individual rep conversations.

Principle 3: Don’t Just Communicate - Help Reps Understand

Note that up until this point, we haven’t discussed communicating to reps at all - focusing instead on the steps it takes to prepare for rep communication. Once that foundation has been set, you’re ready to roll out the new comp plan.

Your sales leader will be able to get in front of the sales team, celebrate the previous year’s wins, and highlight the goals for the next fiscal year. Then, the sales managers will sit down with their reps, explain how the mechanics of the compensation plan is changing, and what behaviors will be expected of reps to achieve.

In that conversation, the sales manager should hand out a plan document that explains the measures in the plan, the key crediting rules, and the upside that reps can earn for overachieving. These documents are designed to help facilitate the conversation and supplement the plan terms and conditions (the legalese that protects your business from anyone abusing the comp program) and should be distributed regardless of the compensation management system you have in place. This way, reps will be able to follow along the conversations with their managers and ask informed, relevant questions about the new plan.

Another great tool that companies can employ is a comp plan calculator. This document is nothing more than an excel model with formulas built in to mirror how the comp plan will pay out under different scenarios that the rep can enter on their own.

Deploying these calculators to reps, albeit sometimes time consuming to produce depending on the complexity of your comp plans, can significantly aid the sales manager and the related plan documentation in supplementing the rep’s understanding of the sales compensation plan, drastically reducing the number of questions (and objections) the team experiences.

Finally, give reps a sneak preview into what to expect in the next fiscal year. Will the company be changing its target customer? Will there be new products? What is changing about the new sales collateral? Sharing a little bit about what to expect in the next year significantly reduces rep anxiety about new plans and helps them visualize the way they will approach their customers and overachieve their quota next year.

And when reps overachieve with the right plan constructs, so does the business.

Are you looking to change compensation plans this year? With Incentiv's plan documentation technology, you can route sales letters, track signatures, and even send automated reminders - learn how much time you can save by booking a free consultation!