SALES COMPENSATION
Two-fifths of European sales incentive plans are not working, says Hewitt
As many as 41% of companies in a European-wide survey by Hewitt Associates rate their sales incentive plans as ineffective or are uncertain of their plans' effectiveness. Despite this, only 30% of companies made changes to their sales plans during the first half of 2009, with many organisations remaining unsure of the impact of these changes in terms of driving the business.
Robert Miller, senior reward consultant at Hewitt Associates, said: "The low perceived effectiveness of sales plans, despite a relatively small number of companies actively making changes to them, was a surprise element of the results.”
He added: “The findings reveal that most organisations have opted to change their targets to reflect economic conditions, but have stopped short of fundamental plan design. Many are adopting a wait-and-see approach before committing to any significant restructuring of sales plans.”
When organisations that did make changes were examined, the study found the "usual suspects":
measuring and rewarding the salesforce on margin
introducing more role-specific plans rather than a one-size-fits-all plan design
modifying the accelerators for "outperformance" under their plans or introducing a cumulative rather than a month-to-month measurement system.
%ADVERT%
Long-term incentives
Another notable finding was the increased use of long-term incentives to retain top sales talent through the economic downturn. As Miller explained: "Changes around targets were predictable. However, it came as a surprise to see that long-term incentive plans were used in 41% of the companies surveyed.”
Overlay incentives
Another striking finding was how few companies actually tinkered with their plans through "overlay" incentives – temporary incentives that operate on top of an existing sales plan - such as an additional award of 8% of salary for hitting a target. Miller said: "We expected to see more initiatives aimed at top talent such as overlays specific to this group and higher accelerators for out-performance or higher incentive caps.”
Pay mix
The survey also confirmed that the gearing of the package - the proportion of pay dependent on meeting targets - is influenced by the role of the individual sales person. For example,
“hunter” roles typically have a more aggressive gearing, such as 60% fixed to 40% variable
“farmer” roles are more likely to have a 70:30 split.
Geography also plays a strong role, with some countries, such as the Nordics, typically offering packages with a higher fixed component.
Setting targets
When it comes to setting targets, Hewitt’s survey showed that the most common factor remains the previous year’s actual sales results (29%), followed by market potential (23%) and sales history (17%).
Miller said: "Good practice is defined by a clear and consistent process that usually has some level of bottom up, or salesforce involvement. Most plans also allow for changes to targets but it is here that caution is required. An interesting finding of the survey was that over 40% of plans allow a change to targets for any situation beyond a salesperson's control. This wide degree of discretion could damage the credibility of a sales plan if it is perceived that the target setting and target management process is unstructured or vague.”
Measurement
Sales incentive plans typically include between one and three metrics. Hewitt’s data reveals:
the main performance measure is revenue, which is used by over 70% of organisations and is consistently the most popular measure across sectors.
other common measures include unit volume and margin.
customer satisfaction is used in 23% of plans.
A final word
"As organisations begin to understand how they will emerge from the downturn, and adjust their market strategies and product mix accordingly, we will see changes to the design of sales plans. These changes will, in all probability, reflect those we have seen in the past following market upheavals; that is, ensuring that plans are role specific, have the right metrics, provide decent accelerators for over performance, and are based on sound target setting procedures." - Robert Miler, senior reward consultant at Hewitt Associates.
Want to know more?
Title: European Sales Compensation Survey, Hewitt Associates, January 2010.
Survey details: The survey looks at sales workforce incentive practices in 138 organisations across 15 European countries and 20 industry sectors.
Availability: To purchase the report contact Hewitt Associates in London, tel: 0207 7939 4000, email: enquiries@hewitt.com.
Hewitt Associates provides “leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges”. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. It employs approximately 23,000 associates. For more information, visit www.hewitt.com.