Top 5 Trends for Sales Compensation

Jamie Riley: This is Jamie Riley with Alexander Group. We are a management consultancy focused on revenue growth and sales compensation. We’ve partnered with e-Reward historically on events focused on this topic of sales compensation and the most recent developments we’ve seen, both from our client work and research.

In this video, I’d like to share with you some of our latest insights on the topic, in partnership with my colleague Matt Bartels, who manages our global sales compensation practice. Matt, thanks for joining. I appreciate you taking some time.

Matt Bartels: Thanks, Jamie.

So we recently had an event with about 800 people that came together to talk about what’s happening in sales compensation from a sort of change and uncertainty point of view. The market and business is really in a point of flux and a point of change right now, and that’s really impacting what people are doing with their sales compensation programs.

Quickly, for background, the Alexander Group is a revenue growth consulting firm that focuses on how to grow the top line with our clients. One of the most important tools in a leader and a practitioner’s toolkit to do that is sales compensation. And Matt is here to talk us through a bit about what we heard in that sales compensation symposium and hopefully give everybody that’s listening to this some ideas about where they can go have conversations with their leadership around the changes you might need to make to your sales compensation program.

Matt Bartels: Yeah, sales compensation is a big deal right now. Jamie, you are correct. And it’s more important than ever. You know how I know? Sales teams are spending over $800 billion now on incentive programs. And in the world of sales performance programs, sales compensation, that occupies the most prominent role because it truly aligns the seller’s efforts with the company’s objectives. It’s always on. It’s like that virtual supervisor that confirms the job performance expectations. Most importantly, it affects people’s earnings and their livelihood. So it’s a very hot topic right now: sales compensation. We had the most people ever come to our symposium last month. So very exciting times. And it really comes around what this whole thing is about the uncertainty. So when you have all of the change that’s happening in the world right now, the change around organizational objectives, around what we’re asking sellers to do, the creation of new types of roles, the adaptation of new working models has lent itself to a precipice here of organizations trying to say, let’s figure out how aligned our sales compensation program is with what we’re trying to do strategically now and with our sellers. And so what we did was we said, okay, what’s the biggest things that are happening in the macro environment that would impact sales compensation?

So everybody’s talking about AI. So we went to AI ChatGPT and we said okay, what’s happening that would be impacting sales compensation? And what came up? Obviously what the title of this review is market uncertainty. So dealing with all of the shifts that are happening in the marketplace and how that’s impacting go-to-market models and the employee programs to support them, the employee experience and flexible work environment. So we know through the pandemic, flexible work environment became a thing. New types of leave of absence policies. Lots of employee experience practices were created. And so now they’re either most organizations have done something, now they’re looking at what the implications are of those. And then finally customer experience and sustainability and corporate responsibility. So those are two major things that could be impacting sales compensation.

When we move from the macro environment to the sales compensation environment, how did that align with what we’re seeing in the marketplace from a compensation perspective? By and large the core plan elements remain the same. So a lot of sales designers, sales leaders, chief revenue officers, HR leaders came into the year relatively optimistic, thinking that about 60% of their folks were going to be at the benchmark of achieving their goals, or better. So the core plan elements remain the same. There was a shift towards profitability. As you know, when capital becomes tight, growth stifles profitability becomes the way to look at things. And that’s what we’ve seen.

The adaptations for planned policies for flex work environments. So terms and conditions have been a major area of emphasis for organizations across the world.

Eligibility. The roles that are actually on an incentive program have expanded the idea of who could be eligible for variable performance pay programs for around marketing, around service, around customer success. We are seeing a trend where folks are putting more of them on some type of a pay program.

Number four around global alignment and corporate consistency. So corporate consistency and global alignment. So global alignment and corporate consistency as organizations came out of the pandemic realized that we have to get our arms wrapped around that $800 billion that’s being spent and understand is it driving the goals that we’re looking for. Is it aligned with what we’re asking our sellers to do in this new environment?

And then finally, how is AI impacting sales compensation from an evaluation standpoint, from a design standpoint, and from an implementation and communication standpoint? Folks are using AI. They’re dipping their toe in the water, so to speak, right now around some elements, around analytics and around improving the communication collateral. Other than that, it hasn’t taken a very prominent role in the day-to-day lives of sales compensation professionals.

Jamie Riley: Yeah. You know, the thing that sort of was left on the cutting room floor, if you like, Matt, I think it was for me, it was item number six anyway, was a conversation around cost and the difference between the sales compensation cost and when you’re paying that out versus a corporate bonus. I’ve had a lot of clients recently talking about it feels like we’re spending a lot on sales compensation, but the organization’s not getting paid because we haven’t hit EBITDA targets or whatnot. And it’s a really hard tension. I think it fits into a few of these, but that was sort of the honorable mention from my side. If you like this difference between when do we pay out a sales comp program versus the corporate bonus payout, and why those two things aren’t always the same. That seems to be causing some tension and discomfort in organizations right now.

Matt Bartels: Yeah, I like that goes back to the corporate consistency and then then eligibility. Who is on what. Okay, great. Well let’s jump in then. Let’s look at number one.

Let’s dig into some of the details here on the number one. So when we talk about the sales compensation programs or while there is uncertainty out there, the core elements of the plan remain the same. We do know that there was significant amount of riffs happening across 20 end of 2022 and throughout 2023, but by and large, the sales comp budgets remain the same or have slightly increased year over year. So we saw that basically the budgets for the sales comp remained anywhere between 1 and 9% growth. Interestingly, about 40% of sellers are projected to be at or above goal in 2023. That’s the same number in 2022. However, the one thing that has changed is more organizations are looking for profitability. As the market continues to tighten, capital becomes restrained, growth metrics aren’t happening. Folks are looking to figure out how can we continue to drive profitability in these times. While the uncertainty drove not a lot of top-line growth, and only 40% of sellers projected to hit their goal or above. That means only 40% of sellers should be achieving what they think their target incentive should be. Organizations look to non-core elements. Jamie, can you believe it? Equity spiffs. Other ways to pay those folks. Have you ever seen that happen before?

Jamie Riley: I mean, it’s surprising how quickly those things leak in when the results aren’t there, but oh my goodness, the whole team is going to leave if we don’t have a payout. And suddenly there’s there’s spiffs and award trips and all kinds of things that maybe weren’t happening before.

Matt Bartels: Yeah, I think this is the interesting thing. 80% of companies are still not planning on adjusting quotas. So they’re saying, okay, we know it’s a tough year. Unfortunately, this is sales. There are up years and there are down years. This year we’re going to hold the line by and large when it comes to the goals. So it means that that 40% of sellers achieving or projected to hit their goal probably is going to remain steady. Or is that going to increase?

Jamie Riley: Yeah, I mean, that’s going to remain steady. I think the question will be looking forward as the macro changes and gets a bit rosier, hopefully into the next year. Do you see people able to get more of their sellers to target? For the moment, I don’t think we’re going to see people giving away money through the plan by reducing targets.

So quickly here. If we go through some of the facts that Matt just highlighted, you can see some of the data on the left here. The majority of respondents to this survey, 60 percentage or so, are raising budget for sales comp between 1 and 9%. And some of that is in pay levels. Inflationary environment and needing to raise base salaries and whatnot. This is the point you made just a moment ago, Matt. Around the the percent of sellers that are making it to quota and look it varies industry to industry. But a decent heuristic is about half of your sellers as a benchmark should get to quota. If you just use that as a starting point, I think the interesting thing for me here is if we think about that heuristic historically, actually only 40% of companies are getting to benchmark. Really rosy planning this year, more than half, 60% saying I’m going to get to that benchmark. But in reality, we’re kind of reverting back to the mean. And I think there are some macro things happening there. But I’d be curious from a sales comp point of view, as we think about how plan design should work in an environment where we’re only getting 40% to target, should we be doing things like spiff? Should we be trying to get more people there and get them more money?

Matt Bartels: I think it comes down to the beginning of the year. So when you look at the idea that 60% of organizations felt like they were going to be hitting goal or they would have hit the benchmark, and now it’s only 40%, I think that obviously there were more positive going into the year, and this uncertainty thing has caused the challenges that we all know are happening right now, and it doesn’t look like it’s going to turn around anytime soon.

Jamie Riley: Yeah. And I think the question I get from clients is, well should I do anything? I think on the right-hand side we see most people saying I’m going to stay the course. So if people in the audience are listening to this and worrying that they should make a change, I don’t think they’d be out of alignment with what the market’s telling us that we’re going to stay the course and we’re going to see where we land for the year, and if we need to make a change, we’ll look at it for the next fiscal year.

Profitability. So you mentioned this one. More companies are starting to at least consider adding profitability metrics. There are some industries where profitability is sort of a staple of the plan. You think about a distributor or somebody like that. I think the interesting thing for me is on the right-hand side of this slide, that it’s not just a binary question, do we put profitability in or not? The question becomes, how do we go do it? And at what level do we measure? Were you surprised by anything on the right-hand side here in terms of people, including profitability, as a core measure in the plan? That seems to be increasing year over year. I expected it to be more in the second two buckets around modifiers or sales management or whatnot. I was interested to see the trend around a core plan measure.

Matt Bartels: Yeah, I think the thing on this one, adding it to a core plan measure that’s going to be at the higher level of the organization. But the idea that profitability is the emphasis or the focus is the core element here, and it is going to continue to be increasingly part of the core plans going forward. So that’s that’s an interesting takeaway.

Jamie Riley: The rest of the data we’ve been looking at has been largely from our Sales Compensation Hot Topics Study that we run sort of in the July-August timeframe. This is out of our profitability study, where we focus on what are the things that set apart top-quartile revenue organizations. What are the things that they do? And one of the things that we’re seeing is they are working on creating, let’s call it seamlessness between the marketing, the sales and the post-sales environments. Because the buyer journey cuts through all of those. And if that’s the setup, the question becomes that we’re hearing a lot of, well, how do I incent those other non-sales organizations, marketing people and the postland people to work together well with the sales people? And you can see on the right-hand side we’re seeing some pretty classic marketing and customer success-type people going on to at-risk variable plans. I mean, maybe we should start calling this go-to-market compensation instead of sales compensation. I don’t know, what do you think, Matt?

Matt Bartels: I mean, it is interesting. So traditionally there are some historical conventions that are being challenged in the marketplace. And traditionally, in order for somebody to be on an at-risk incentive program, you would have to say yes to three of three things. One is it customer-facing? Two, does it have measurable goals? And three, does it actually persuade or ask for the order, actually have that persuasion capability? And that made sense, right? If you put something at risk, you would want them to be able to have the ability to influence and earn it back. Well, what has happened is that role of persuasion now has expanded. And it isn’t just one person that is persuading. It’s the group, the individual, the collective. So these other roles now that might not be directly asking for the order but are consequential in the actual persuasion of the client organizations are looking for them to have a little bit more skin in the game. So the most prominent of them is the customer success manager and that makes a lot of sense. That one has taken the highest percentage of organizations, putting them on some type of an at-risk program. And that trend is including up. The other ones, the marketing roles and the service roles, it’s still a minority of the organization, but again, the trend is moving up for them as far as putting them on some type of a variable program.

Jamie Riley: And the term that we use when we’re talking about being on a variable program is eligibility. And those those criteria that you laid out just a moment ago. That’s the test we use when we work with clients as to whether a job is eligible or not. And the reason I use that term is the question that we asked in the study we were just referencing is, is this job eligible for a plan essentially? And you can see the customer success managers, about half have their CMS on a sales incentive plan. So you’re looking at the percent of companies that have that role on an at-risk plan. Now the designs vary a lot, right? Matt, do you have a favorite here? Is there one design that you really like for a CSM? What do you think?

Matt Bartels: No, no. It’s like asking what’s your favorite value proposition? It’s the one that works.

Jamie Riley: Yeah. Of course I thought you were going to give me what, your favorite dog or something like that. But I take your point on the value proposition. I think the point is, this is a question that people with sales incentive design responsibility should be asking. Because if you’re not asking it the executive teams are going to because this is the direction the market is heading.

We’re seeing marketing and service, Matt, as you talked about starting to get pulled on to these plans as well now. My sense is this is more of an emerging trend than it is a full-fledged trend. But somewhere between 15% and 20% of companies are seeing marketing roles and or service roles on these kinds of a plan. I still am curious how much of that is people outside of the sales organization looking at the sales incentive plan and saying that kind of upside would be nice, and then they’re going to get on it and go, wow, this is really hard because it’s at risk. I don’t know if this is a solidified trend yet, but it’s certainly something happening. I don’t know what’s different.

Matt Bartels: I mean, it’s unique. I mean, the idea is obviously everybody wants to be on a variable program when things are going good, but when things are not going very well, it’s then it goes back to that whole how much do you actually have influence over what you’re how you’re getting paid. I think the interesting thing here is, yes, it is a trend and it’s moving forward. And you can see and it’s a philosophical discussion for organizations of whether they want to do this or not. But to me, the interesting thing is if they do it, they’re kind of doing it. Like from a payments perspective, it’s 75/25. It’s 70/30. Like they’re going in and saying, okay, we’re going to do this. It’s not a 90/10 type of a plan where very little is at risk. So I think this is an emerging practice and it’s a philosophical discussion I think the organization should have.

Jamie Riley: Yeah, that was the exact example I was going to use. This isn’t a 90/10 add on bonus. Nice if you get it kind of thing. This is real money on the table for people that haven’t been working this way historically.

The fourth thing you talked about was global consistency. And this is a real topic here in Europe because it’s not even just a global question. It’s also a regional question. If we’ve got organizations and sellers and marketing people in different countries, how much do we leave at the edges and how much do we try to centralize and at least have a view towards what’s happening, even if we’re not controlling all the plan designs? I think what this data would indicate is that the vast majority of companies do work centrally, and they do try to drive some visibility into what’s happening at the edges. It does come down a bit to your definition of plan design centrally, right? Are we selecting detailed metrics or are we are we saying, look, you really ought to be on a revenue metric? And however you define that, it’s up to you. So there is, I think, some grayness even in the definition of centralization.

Matt Bartels: Yeah. I think we go to the next slide. I think the question is to what level of consistency are you looking for? At a minimum, you should be talking about the program itself, not just the plan. The program is all of these elements here in a consistent way. You should have common terminology, a common set of ways of evaluating the effectiveness of the program. And then you have to determine to what extent do you want those elements to be local or centralized. And so at a minimum, you should be thinking about all of these elements in the same way and having a common language around them.

Jamie Riley: Yeah. What I’ve seen with clients is even having that common framework and that common language, if the design still lives at the edges, having a single way that you’re thinking about it allows you to identify what’s working, right? We could say, wow, the UK did something differently than France did and that seems to be driving results. Should we go do that in other places? So it at least allows us to learn from one another. Because the amount of times that. I’m sure you’ve lived this too, Matt, you come in and you say, what are your account managers doing? And people are talking past one another because they don’t even mean the same thing when they say account manager, right?

Matt Bartels: I’ve had leaders in violent agreement with each other, violent agreement. And because one person saying commission and one person saying bonus, they actually in their mind think they’re thinking the same construct, but they’re using two different terms and they’re actually agreeing with each other, but they’re not because they don’t have the similar way of talking about it.

Jamie Riley: No, I think that’s exactly right. Last topic I think for this conversation was around AI. So all things AI. Matt, what’s happening here? Are we outsourcing plan design to ChatGPT? What are we doing here from an AI and sales comp point of view?

Matt Bartels: Yeah. So we did a survey of individuals. If we go to the next slide and look at AI, the results of it. So we looked at the different the three different elements of analytics of implementing the plan or actually designing the plan and how folks believe that AI is going to impact that. The short of it is folks are unsure. They just are not sure exactly how it’s going to be used. They think that obviously it could be leveraged for improving the effectiveness, the speed, the depth of the analytics that are used in the assessment portion of it. They just weren’t sure on how and the creation of some of the content that maybe some of the planning documents, the cleaning up of the the communication collateral. But outside of that, that’s kind of what the sentiment of the room was. It was more of a wait and see and also a little bit of a not sure of how good or how bad this could be for us. So it’s like a test and learn, but dipping the toe in the water tactic.

Jamie Riley: Yeah. I don’t think in the conversation I’m having heard anybody that’s lost their job to AI yet in sales comp design. And I think more practically speaking, the analytics one makes sense. The rest of it it’s all about matching strategy and need to tactics right. And I think that’s what’s going to be something that’s hard for ChatGPT to do anytime in the near future.

Last thoughts here. What would we leave people with? The one that comes off to me that we talked about is this link between budget and performance and the quota planning. So how are we analyzing how effective our sales comp plan is being? And then what are we doing around the annual quota planning? Only half of companies getting to that benchmark. That’s tough. It means people aren’t getting paid. And is that a quota-setting problem? Is that a macro problem? I think that’s something that is really worth anybody that’s listening to this, getting their their hands around. I don’t know anything in particular come off to you on this slide.

Matt Bartels: No, just it’s just we are in a significant time of change from a macro perspective, from a micro perspective, from a compensation perspective. Generally speaking, if you have a change in what’s happening to your customer base, if you have a change in what you’re trying to do strategically as an organization, if you have a change in what you’re asking your sellers to do, that would warrant a review of any one of those things, would warrant a review of the sales compensation program to look for alignment. I would I think we can safely say that all three of those things are happening for the majority of organizations out there.

So I mean, we are in a again, I know it’s been said before, but this is a serious time of change in the compensation program, has to stay contemporary to help continue to drive those goals, strategic goals around growth and profitability.

Jamie Riley: Thank you everyone. I hope you found this content useful. If you are interested in more information, you can visit www.AlexanderGroup.com, where we have a variety of resources on sales compensation, including our latest research and insights. You can also visit e-reward.co.uk to find information about events moving forward on the topic of sales compensation, including those in partnership with Alexander Group.