Hewitt's European Sales Compensation Survey reveals that 41% of the
companies interviewed rate their sales incentive plans as ineffective
or are uncertain of their plans' effectiveness.
Despite this finding, 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. 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. Another interesting finding was the
increased use of long-term incentives to retain top sales talent
through the economic downturn.
"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. 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
Robert Miller continued:
"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.
"When organisations that did make changes (25% of the sample) are
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."Pay Mix
The Hewitt survey also confirmed previous findings that the gearing of
the package (i.e. 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 fixed
to 40% variable. 'Farmer' roles are more likely to have a 70:30 split.
Geography also plays a strong role in this regard, with some countries,
such as the Nordics, typically offering packages with a higher fixed
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%).
Robert 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.
Outlook for 2010
Robert Miler said:
"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
overperformance, and are based on sound target setting procedures."