Why Your Sales Compensation Plan May Not Be Properly Identifying Top Performers
The ability of a sales compensation plan to correctly identify and reward a sales force’s true top performers is critical to motivating and retaining not only those top performers, but the sales force as a whole. If sales representatives feel that the sales compensation plan is not properly recognizing and rewarding performance, they become disenchanted with a system in which their performance does not matter and, accordingly, are not energized to work hard, costing the company sales. In this blog post, we will explore the importance of accurately identifying a sales force’s top performers and discuss three common types of metrics that lead to results that fall short of identifying the best performers.
Metric Type 1: Volume Change and/or Percent Volume Change Versus a Baseline
Oftentimes, top performers are identified as those who grew the most versus a baseline, be it actual volume growth or percent volume growth. The limitation with measuring performance in this way is that percent volume growth is biased in favor of small volume territories while volume growth is biased in favor of large volume territories. Either one of these metrics does not properly identify the best performers.
Many believe that combining these two growth metrics eliminates the bias because the two biases offset each other. However, the biases typically still remain and, even for cases in which combining the two metrics does off-set the large and small volume biases, it can instead create a bias in favor of medium volume territories.
This bias becomes even more challenging when sales are declining.
Metric Type 2: Market Share Change Versus a Baseline
Another metric that does not properly identify top performers is market share change versus a baseline. Consider the performances of Tina and Tom below:
| BASELINE MARKET SHARE | NEW MARKET SHARE | MARKET SHARE CHANGE | |
| TINA | 14.8% | 15.2% | 0.4% |
| TOM | 6.3% | 7.0% | 0.7% |
Who is the better performer? We would probably conclude that Tom’s performance is superior to Tina’s because Tom’s market share increase is almost double that of Tina’s. However, what if we were to consider that the maximum market share achieved by any territory was 15.2%? We may now consider Tina to be the better performer since reaching this high level of market share is not an easy task. It is difficult to tell who should be identified as the better performer.
Alternatively, consider the performances of Wendy and Will below:
| BASELINE MARKET SHARE | NEW MARKET SHARE | MARKET SHARE CHANGE | |
| WENDY | 24.6% | 22.2% | -2.4% |
| WILL | 9.2% | 8.5% | -0.7% |
Who is the better performer? For declining sales, it is difficult to tell. Thus, market share change is not the best metric to utilize for a declining product.
Metric Type 3: Size of Volume and/or Market Share
The challenge with measuring performance based on a territory’s actual volume or actual market share is that representatives are not being rewarded for performance, but for territory circumstances. A representative in a territory with high volume and/or high market share says more about what the territory has achieved over time as opposed to how the current representative in the territory performed in the most recent plan period. Rewarding on size of volume and/or size of market share rather than the representative’s actual performance is highly biased relative to pre-existing territory conditions.
Identifying Top Performers
The correct way to identify the best performers is to design a sales compensation plan that takes into account factors such as sales opportunity, current sales levels, number of accounts, time necessary to retain current customers, time available to prospect new customers, etc. These factors cannot just be considered in isolation, but must be considered together; for example, two territories could have the same current sales levels but different levels of sales opportunity, so what would be considered excellent performance for one would not necessarily be considered excellent performance for the other. Considering all of these factors will ensure the sales compensation plan is equitable across sales territories and properly identifies and rewards the best performers.
Conclusion
Ensuring that the sales compensation plan properly identifies and rewards its true top performers is critical to driving the behavior of not only those top performers, but the sales force as a whole. A sales force that trusts the sales compensation plan to properly recognize and reward their efforts is motivated to continually push and strive to be the better performers. In contrast, a sales force that does not trust the sales compensation plan to accurately identify top performers—whether it is due to change versus a baseline or pre-existing territory conditions—is demoralized, demotivated and not pushing as much as they could be, costing the company sales.
