5 Strategies to Get the Most Performance and Cost from Your Compensation Plan

The very crux of a successful compensation plan is to fuel high-level performance within one’s team, attract top talent, and ultimately accelerate business growth. However, badly constructed schemes usually cause waste, low drive, and cost money without need. Avoiding these problems will entail finding ways to optimize your compensation plan in order to ensure that it does the best job of balancing performance incentives with cost-effectiveness. This article outlines the five strategies that you can implement to achieve a balance, through which your compensation plan maximizes the potential for your team while helping you support your long-term company goals.

1. Align Your Compensation Plan with Key Business Objectives

The first step to optimizing your compensation plan is making sure that it aligns with your key business objectives. This alignment drives focused behavior toward long-term success, as it inspires your team to focus on the right kind of deals—those bringing in recurring revenue or with a high customer lifetime value. Such a motivational approach means that when rewards are at stake and tied to company-wide performance, employees do feel their efforts could be working toward something bigger—thus, instilling purpose and ensuing motivation.

To achieve this alignment, be sure to:

• Clearly Define Your North Star Metric (NSM): Every member must understand what the NSM is and relate it to the overall company’s strategy.
• Identify Key Behaviors: Analyze the actions which contribute the most to attaining the NSM. E.g. focusing on high-value customer acquisition or increasing product adoption.
• Make NSM a Part of Your Compensation Structure: Include NSM in the commission payouts, reward bonuses for achieving specific NSM-related goals, or use as a performance metric for your leadership teams.
• Track Results: Keep an eye on how the aligned compensation plan is impacting NSM performance and make any necessary adjustments.

Remember that aligning your compensation plans to your NSM is something you do through a process of clean communication, analysis of data, and a willingness to change based on results.

2. Implement Commission Floors for Leadership and Customer Success Roles

Another way to tweak your compensation plans is to implement floors for commissions in the leadership and customer success space. Commission floor is the lowest level of sales or revenues a salesperson should have made before they are considered for a commission. This is intended to encourage performance and cost containment, as commissions will not be paid to salespersons who do not perform well.

The commission floor in this respect can be 80% of the quota; that is to say, the teams will not be entitled to commissions unless they collectively succeed with at least 80% of the sales target. But it’s important to make sure that your floor is fair and achievable because no one wants demotivated employees.

3. Use the Modeling Tools for Cost Analysis

The modeling tools work like magic for you as they help in fine-tuning your compensation strategy. These tools assist in simulating different compensation structures, predicting financial impacts, and making a choice toward the most cost-effective and performance-driving approach. Some things you can do with modeling tools are:

• Simulate different scenarios: Test different compensation structures against historical data to see what would have been paid out in past periods.
• Predict financial impact: Assess how changes in your compensation plan will impact overall commission expenses.
• Optimize for long-term sustainability: Determine the long-term financial impact of different compensation structures to select a plan that matches growth without creating unendurable costs.

These tools leave no need to guess in designing the compensation plan, allowing you to make well-considered and sound decisions that will drive peak performance and be financially responsible.

4. Automate Calculations and Payments

Manual commission calculations are subject to errors and delays that cost both your finance team and your sales representatives time and patience. Automating the process of commission payments and associating it with your CRM or ERP will instantly raise the level of accuracy and efficiency.

With automation, salespeople can also view their projected earnings at any point in time. Therefore, having visibility into their commission, helps keep reps motivated. Automating these processes also reduces the administration burden for your finance team, freeing them up to more strategic responsibilities.

5. Make Data-Driven Adjustments With Feedback Loops

A well-designed compensation plan should not be a static document, but rather one that lives and grows with your business. With close monitoring of performance through comprehensive reporting and feedback loops with the team, you’re going to continuously update using data for an optimized plan.

There are few good practices to track this:

• Schedule Regular Reviews: Make time to review the reports on quota attainment, commission payouts, and cost-to-revenue ratio.
• Embrace Feedback Mechanisms: Create forums for your sales team to provide feedback on the compensation plan and identify areas for improvement.
• Conduct Stay Interviews: Engage regularly with the top performers, understand their concerns, and ensure that the compensation plan aligns well with the activities done daily by those top performers.
• Agility and Learning to Adapt: Be prepared to shift your compensation plan as the data comes in and feedback is implemented—this will be key to keeping it functioning at a level that supports performance and business goals.

Conclusion

Performance and cost are crucial components in optimizing your compensation plan to drive success in today’s competitive market. Build a compensation strategy that will enable your team to control costs with business objectives, commission floors, and modeling tools; automate calculations to make data-driven adjustments and drive growth now and in the future. These strategies will help you unlock your team’s full potential and position your organization for continued success.