The Strategy Behind Sales Compensation Planning February 01, 2008
By Jeremy Cohen
Has your organization underestimated the strategic importance of effective sales compensation planning? If so, you may want to take a gander at some eye-opening new research from Aberdeen Group.
Aberdeen surveyed more than 130 companies to identify the strategies, capabilities and enablers that best-in-class firms are using to improve sales productivity, as well as to effectively manage compensation plan design and administration.
The research showed that the pressure to increase market share is driving top organizations to focus resources on increasing sales productivity through improvements in compensation management, and that a key success factor was organizations' ability to align plans with strategic goals.
"Aberdeen's findings support Makana Solutions' belief that effective sales compensation planning is critical to ensuring that sales activities support corporate strategy," says Elizabeth Cobb, chairman and CEO of Makana Solutions, a developer of on-demand software for sales compensation design. "Yet surprisingly most companies do not have visibility into how their comp plans work together."
"Organizations are pressured by increasingly complex compensation plans, and best-in-class performers are adopting automated plan design to keep variables in check and ensure a smooth roll-out process," said Gretchen Duhaime, senior research analyst at Aberdeen Group. "Our research shows that the planning process is strategically important. We recommend that companies automate their compensation plan design."
The Aberdeen Group research shows that 100% of best-in-class organizations—that is, the top 20% of aggregate performance scorers—have a compensation plan design initiative in place, demonstrating that top performers recognize the strategic importance of automating the sales comp planning process. In fact, Aberdeen identifies streamlining compensation plan design as one of three recommended "steps to success."
Best-in-class organizations have implemented organizational processes that support compensation management technology adoption, and fully 90% have improved plan alignment with strategic goals, year over year. The report states that compensation plans should be optimized for organizations' business drivers, and 80% of best-in-class organizations strive to align performance targets with business goals.
The Aberdeen report noted that, although only one-third of best-in-class performers included in the study currently use a compensation plan design solution, 44% more plan on implementing such a planning solution within 12 months.
Finally, 85% of best-in-class performers plan to integrate plan document workflow into their compensation management solution, automating the task of distributing plans and collecting approvals for every individual employee.
For more information on the Aberdeen report, visit www.aberdeen.com.
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