2008 Sales Compensation Planning Revealed
January 21, 2008
New study indicates incentive compensation increases for sales personnel in 2008.
By Mike McCue
Sales management plans a modest 4% incentive compensation pay increase for sales personnel for 2008, reports The Alexander Group's 2008 Sales Compensation Trends Survey.
The study also notes that sales management expects a 10% increase in revenue for the same period.
Conducted each December, the Survey, in its sixth year, provides a glimpse into several interesting trends. For example, sales departments relentlessly fiddle with their sales compensation plans. As reported in all six years, at least 90% of all companies will make changes to their next fiscal year sales compensation plan, with about 15% of all companies conducting a major overhaul of their program.
"That translates into an average life-span of a sales compensation program to be about 6 or 7 years," says David J. Cichelli, the survey editor and Sr. Vice President of the Alexander Group. "Some companies make major changes more often, but it's doubtful that a company's products, strategy and buyer segments will remain constant too much longer than that," says Cichelli.
During the interim between major overhauls, companies are constantly tweaking the compensation plan. The most common annual changes include performance measures (54%), ramps/accelerators (35%), and rules affecting quotas and sales targets (34%).
As expected, the biggest challenge to any sales compensation plan is setting the right quota. With 55% of the companies reporting quota setting problems, it earned the number one spot of factors negatively affecting sales compensation effectiveness.
Surprisingly, 44% of the companies had to make some mid-year revision to their 2007 sales compensation program.
Over 165 companies completed the survey. Invited companies must have at least 20 sales personnel. Many large companies participate in the Survey each year.
Cichelli drew our attention to additional observations from the Survey. Forty-three percent of the reporting companies give the sales department an objective larger than the corporate forecast. About 40% of the companies say the sales department is solely responsible for the design of the sales compensation plan. And, only 63% use sales revenue as the primary performance measure in the sales incentive plan. The next two most prevalent measures are unit sales and gross margin, both at 9%.
"I would have expected the number of companies using revenue as the primary measure to have been higher than 63%," said Cichelli. "Perhaps the diversity of measures reflects the evolving objectives sales management gives to sellers," speculated Cichelli.
The 2008 Survey also reports on additional trends including staffing, equity programs, car allowances and quota management.
The 2008 Sales Compensations Trends Survey Executive Summary is available as a free download at www.compensatingthesalesforce.com.
Sales & Marketing Management Magazine
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