Sales Incentive Plans are Like Toddler Clothes

My son just turned three. He is the best, smartest, nicest, cutest kid ever. And he is always changing. Did you know that children grow out of their clothes regularly? Did you also know that no matter how much you, or the kid, love the old clothes, they need to go once they no longer fit? Of course, you knew that. And, this is why we get to chat about Sales Compensation.

Hiring a great salesperson is the key to success for many high-growth companies. The Rainmaker, high-earner, big kahuna or closer can change the growth directory for any company, large or small. These great revenues generators do not come cheap. In fact, they may often make more money than anyone else in the company. They may be worth it.

My son had some truly awesome jackets last year. He looked cool and stayed warm. My wife got some great deals, and I may have thrown one or two into the mix myself. We set the bar high during fall and winter and then enjoyed an unusually long, dry and warm summer. Today it cooled down and started raining. A quick inventory showed that only one of his super cool jackets still fit. Luckily, we have Amazon Prime, and something new can be here tomorrow.

When you triple or quadruple in revenue in a single year your top salesperson might also be tripling or quadrupling their pay. They are happy.  You are happy. Hey, just about everyone is happy, but like summer, good things tend to end quickly, and there is no Amazon Prime for sales incentive plans. You simply can’t get a new one tomorrow.

Of course, you can wait a while, and why not? If everyone is happy rocking the boat seems like a terrible idea.

The problem is based on the curse of high expectations. As their pay increases, your rainmaker will get used to their increasing pay levels. Even if they are self-aware enough to know that the gravy train can’t continue forever if you wait too long they won’t know how to survive without all that gravy. They may be making more than the owner or CEO. They may be making WAY more than the owner or CEO. That is seldom sustainable. It may also become impossible to fix.

Getting your top person back to market levels can require cutting 50% or more of their take-home pay. If you are still growing, this can be an insurmountable task. I once spoke to a company who promoted their head of sales to CEO to avoid the painful reality of changing their pay!

Sometimes you meet the parent whose kid is wearing a too-small t-shirt that looks awful. It’s faded, has a few holes and more than a couple of stains or bleach spots. This is the sales program that was left in place too long. You give up fighting and simply hope for the whole thing to fall apart. That way it’s not your fault, it’s theirs. (But, let’s be honest…it’s YOUR fault.)

Act before you see the edges fraying or ankles peeking out from under the hem of their pants. It’s best to prepare the new plan in advance and schedule a finite time to pull the trigger. This allows you to be proactive and control the messaging and implementation schedule. When performed on a regular basis, it will become the expectation and success will follow.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and considered a leading expert on equity compensation issues. Dan has written several industry resources including a recent Performance-Based Equity Compensation issue brief. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”“Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation.

This post originally appeared on Compensation Cafe
Author: Dan Walter-Performensation