David Cichelli of the Alexander Group is a – perhaps even the – leading expert on sales compensation. His book Compensating The Sales Force is my go-to resource whenever sales compensation questions come up, and he is a much sought after speaker and instructor on the topic of sales rewards. In my interview with David, he explains why companies need to conduct a comprehensive annual review of their sales compensation plans, and why it’s not too soon to start planning yours.
Q: Some sales executives are constantly tinkering with the sales compensation plan; others feel few changes are best. What’s the right answer?
A: Good question...well, neither is really correct. Sales departments are all about alignment, alignment between customers and product divisions. Both of these variables—for most companies—are in transition. A sales department is constantly fighting to maintain this alignment and thus avoid slipping into obsolence—the opposing force to alignment. The sales compensation program helps enforce this alignment. Thus, once a year, a sales department needs to check its “rigging” to ensure the sales compensation program is retaining the sales force and motivating the right types of sales behavior.
Q: I have heard you say that “tweaks” are bad, but “minor changes” are acceptable. What’s the difference?
A: Well, a “tweak” is best described as a “non-contextual” change made outside a comprehensive design process. It’s these “tweaks” that can cause unanticipated glitches in the compensation plan. Minor changes are acceptable as long as all elements of the sales compensation program are reviewed by a cross functional team of sales, marketing and finance management.
Q: Who owns the design of the sales compensation plan?
A: In our annual survey of sales compensation trends, the results remain pretty consistent year after year. For 45% of the companies, sales management “owns” sales compensation redesign. 25% use a cross functional team. And, 24% assign the re-design task to HR. The remaining 5% is divided between finance and marketing. My preference: I like the idea of a cross-functional design team. That seems to work best.
Q: What’s the biggest mistake companies make with their sales compensation plans?
A: Sales compensation offers many trap doors to fall through, but the most common and negative mistake is using too many performance measures. The rule of “no more than 3” is the best advice. And, these 3 or fewer measures should be related to sales results of the seller. The following measures should be avoided: corporate or division measures, compliance measures and activity measures.
Q: If a company’s fiscal year begins January 1 2008, when should they start their re-design process?
A: Begin your re-design effort at the start of September. Give yourself a month to assess the current plan. A month to do the design work and the rest of the year to document, update your automation support and communicate the program to the field.
Q: How can my readers get up to speed on this topic?
A: Let me recommend a one-day course offered by WorldatWork (www.worldatwork.org) called “Sales Compensation Design.” It is offered three times in the fall at this locations: Princeton NJ on Sept 25th, San Jose CA on October 3rd, and Chicago IL on October 8th. I am the instructor for these classes. Bring the whole design team. It’s worth it!
David Cichelli is Sr. Vice President of The Alexander Group. He can be reached at firstname.lastname@example.org. You can download highlights of his above-mentioned “trends” survey at his web site Compensating The Sales Force.
Thanks, David, for sharing your sales compensation knowledge and expertise with all of us!