It’s almost September. Do you know what your plan is paying for?
It might sound obvious (we’re paying reps to sell our product/service!) but a quick analysis of pay versus performance can be revealing.
So what’s pay and what’s performance? ‘Performance’ looks at different types of performance measures. We might look at revenue, bookings, revenue growth, year-to-year change, performance to quota, or other measures. What’s ‘pay’? Pay may be total pay, total compensation, total incentive pay, or maybe just incentive pay for that particular measure. Basically, once we recognize what the big priorities are in the business, we want to understand what the plan is paying for and make sure it matches our larger strategic objectives.
We recently worked with a company that said achievement of quota was the most important objective of the sales organization. So we looked at the correlation between attainment of quota and incentive pay. But we discovered, however, the company was actually paying for total bookings (or total revenue) for the company. There was a much tighter correlation between what they were paying and total revenue for the company, than there was for attainment of quota.
So we told them, “Guess what? You’re not paying for quota attainment. You’re actually paying for bookings. If quota attainment is still your strategy, you may want to change what you’re doing.”
It’s a simple examination of some facts that, within a little compare and contrast graph, can uncover huge potential pitfalls.
- Are the most important business measures well correlated to pay?
- Are the top earners the top performers?
- Are there aberrations in pay relative to performance?
- Pay Components – Total compensation, total incentive, incentive by measure.
- Performance Components – Bookings, revenue, profit, net growth, quota attainment in total or by measure
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