Sales Compensation: Perverse Incentives

I heard Chris Cabrera, CEO of Xactly, which provides web based compensation management software to companies, talk about sales compensation recently.  He made three simple, powerful points about how you incent your sales team.

Keep it Simple: Do Not Measure More Than Three Variables.

I worked with a start up a number of years ago run by very, very bright founders.  The CEO insisted on developing a comp plan that was insanely complex and diffused success measures across large number of variables.  The result?  The sales team couldn’t figure out if they were making money and would only learn this a month after deals closed, which dispirited them

What Behaviors Do You Want?

Incentive comp is fundamentally about behavior modification: companies provide it because they think that a financial reward will spur specific activities (finding, qualifying and closing deals).  But, company needs vary; with some cash may be king.  Others may be seeking to land logos.  Still others may have one product line may that is a lot higher margin than another, so they may want their sales team to focus there.

You Want Your Sales Team to Game the System

How many times have you had an agonizing conversation with your CEO or CFO about their concern that your sales team not take advantage of the company by gaming the system?  Here’s the deal: you want your sales team to game the system, but you want to make sure that the system they game is one that has them behave the way that will be most beneficial to the organization (See #2 above).

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