Almost half (41%) of European employers believe their sales incentive plans are ineffective or are uncertain of their plans’ effectiveness, according to research by Hewitt Associates.
Its European Sales Compensation Survey looking at sales workforce incentive practices in 138 organisations across 15 European countries and 20 industry sectors, also found 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 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.”
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 sales force on margin, introducing more role specific plans rather than a one-size-fits-all plan design, modifying the accelerators for out-performance under their plans or introducing a cumulative rather than a month to month measurement system.”
The survey also confirmed previous findings that the gearing of a 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 component.
When it comes to setting targets, 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 sales force 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.
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.
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