Why your comp plans aren’t working

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This is a podcast episode titled, Why your comp plans aren’t working. The summary for this episode is: <p><a href="https://www.linkedin.com/in/grahamcollins/" rel="noopener noreferrer" target="_blank">Graham Collins</a>, Chief of Staff at <a href="https://www.quotapath.com/" rel="noopener noreferrer" target="_blank">QuotaPath</a>, knows how to create compensation plans that are simple, logical, and fair. He’s breaking down why your comp plan is broken (and what you can do to fix it).</p><p><br></p><p>Graham is sharing his tips around how you can effectively create, communicate, and scale your comp plans in a way that will keep your reps involved, motivated, and focused on crushing their targets. </p>
The #1 mistake made when building a comp plan
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Speaker 1: Sheena, what would you say is your competitive edge?

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Speaker 2: Easy peasy. All right.

Speaker 1: That was fun.

Speaker 3: My rules about comp plans is that they should be simple, logical, and fair.

Speaker 1: This is Reveal, the revenue intelligence podcast here to help go- to- market leaders do one thing, stop guessing.

Speaker 2: If you're ready to unlock reality and reach your potential, then this show is for you. I'm Sheena Badani.

Speaker 1: And I'm Devin Reed, coming to you from the Gong studios. As a sales rep, I had every type of comp plan under the sun. I had what I liked to the I- don't- really- understand- how- this- works comp plan, and everything in between. I even had the handwritten check comp plan one time. Seriously. I know I'm not the only rep with this experience, which is why I couldn't wait for this conversation with Graham Collins. Graham is the Chief of Staff at QuotaPath, a commission tracking application that helps salespeople understand their compensation. Graham has so many fantastic tips around how you can effectively create, communicate, and scale your comp plans and even dropped some incredible knowledge on me that I had never heard in my six years as a rep, including something about lobster pizza. You'll get it eventually. Here's Graham. Graham, I'm looking forward to our session because today we're going to cover all things sales comp and commissions, something that we have not talked about yet on the show in our two- and- a- half- year stint. So I'm really looking forward to it.

Speaker 3: Likewise, I'm excited.

Speaker 1: So I want to dive straight into it because you told me that you have helped build, I'm going to make sure I get this number right, over 400 sales comp plans. And so, the first thing that jumps out to me is surely you've seen some things go wrong. I know you've got a story for me a little bit later, but what do you see as the most common mistakes teams make when creating and rolling out a new sales comp plan?

Speaker 3: The number one mistake that people make when building compensation plans is to make it too complex. You said you haven't talked about compensation plans in two and a half years. It's such a funny thing because that's the reason that salespeople do their jobs, is to make the money, to make the commission. It's such an under understood thing and something that doesn't get talked about a ton. The complexity of it is the number one mistake that's made by organizations.

Speaker 1: Totally makes sense, because if you asked me the same question, I'd go," The ones I didn't understand would be my least favorite comp plan." Are there any specific examples that can cause that complexity?

Speaker 3: Yeah, for sure. And so, the complexity is the symptom of the bad comp plan, but what actually causes those bad comp plans generally is when organizations have one person build it or one organization build it, because there are so many different facets of compensation plans. I always point to revenue operations as the organization that should own compensation planning, and that's for a couple of reasons. It's because a lot of times they come from a sales background, rev ops, so they have that passion for sales, but they also have that analytical nerd brain a lot of the time. I refer to myself as a sales nerd, so it's okay I can say that. If just the finance organization is responsible for building the comp plan, I say that finance tries to pay salespeople as little as possible, and salespeople try to pay salespeople as much as possible, and rev ops is a good intermediary there. So going it alone, trying to build the compensation plan by yourself, a lot of people do that, and that's how they get in those issues.

Speaker 1: Okay, so we've got complexity, one person or org building it maybe in a vacuum or by themselves. Any other things that our listeners should be out for if they're reevaluating or building a new comp plan?

Speaker 3: Yeah, so consistency is a big one. A common mistake that I see that is more of a systemic issue is non- parity across compensation plans. What I mean by that is different sales reps who are in charge of the same thing getting paid differently. And so, this is something that I try to shout from the rooftops and maybe it comes off as me being on my high horse about, but what often happens is if you have different compensation plans for different people, the people who are paid the most are going to be the white men. What you end up with is disparity there between women and people of color and their white male counterparts. Obviously, nobody does it intentionally. You're not intentionally going out and trying to underpay those people, but that ends up happening. There are a bunch of Harvard Business Review articles about it and places where you can look into this, and it's true. And so, trying to build these standardized compensation plans where everybody is on an equal playing field regardless of when they started or how good they are at negotiating or whatnot. And so creating levels, creating a clear career trajectory, career path, and standardizing it.

Speaker 1: Is there some sort of audit or evaluation that you do or maybe you consult with folks that do, like," Hey, if you have this many reps, you might want to consider pay parity exercise?" Is there anything like that that you recommend or maybe currently do?

Speaker 3: Yeah, for sure. So obviously, your first sales rep is going to have a very, very different persona than your 101st sales rep. I've been there. I was the second sales hire in my previous organization, was one of the first employees at QuotaPath. So you're going to have that disparity because people come in at different levels or people come in with different responsibilities. And so, once you hit that, putting out a account executive job posting, that's when you should standardize that. So I tend to see that around five. And then from there, oftentimes people create those levels. So you have your account executive and your senior account executive, or you have AE2 and an AE3 or what have you. And so, usually I see it around five, but it can't hurt to create that structure early on because you can always change it if you need to.

Speaker 1: That makes total sense. Okay, so we have covered common mistakes and some how to solve that. What about the things that people get right? What makes you excited when you're like," Oh, you're doing this in your comp plan? Right on, that's exactly what you should be doing."

Speaker 3: My rules about comp plans is that they should be simple, logical, and fair. Some of these comp plan consults, the 400 consults I've done, lasted 15 minutes because they've laid out their comp plan for me, and I'm like," No, you're good, you're good to go. I don't recommend any changes." And so, the big ones for me are, again simple, I have a rule of pizza toppings where if you have more than three different components to your compensation plan, it can get too confusing. If you start adding 15 different ingredients on a pizza, you can't taste it, and you end up having your reps concentrate on the most powerful flavor. They're concentrating on the jalapeno peppers. I'm up in Maine, and sometimes people put lobster on pizza. Lobster's a very delicate flavor, and it's just overwhelmed by all of the other flavors. Yeah. I know, it's not a huge inaudible.

Speaker 1: You saw me grimacing. I don't even put pineapple on my pizza, but I'll allow it. I allow it to happen in front of me. If someone's eating lobster on their pizza in front of me, it'd be hard for me to keep my mouth closed and not say something.

Speaker 3: Exactly, exactly. So avoiding the lobster on the pizza there. So that's the simple side. The logical side is, as a rep, I understand why I'm being paid the way I'm being paid. A lot of the comp plans that I see, there's a two- year accelerator and a three- year accelerator, meaning if you sell a two- year deal, you get a higher percentage. As a rep, if you explain that to me, I get it. I get," Oh yeah, the company wants to lock in a longer contract, so therefore, we're going to pay you more for it." And then fair that it's achievable, it's attainable, and reps feel like they're getting paid an appropriate rate. If the industry's standard is to pay 10% commission and you're only paying 1% commission, well, that doesn't feel super fair unless there's logic behind it because you have a ton of inbound or a bunch of resources.

Speaker 1: Okay, that makes sense. I'm curious, just because you said," Is it achievable?" Do you have a benchmark, an ideal place for participation rate for teams?

Speaker 3: Yeah, this is a question that comes up a lot. There a ton of different ways to go about it. You definitely want your top performers overachieving your quota. I'm a big proponent of accelerators. And so, you want your top performers earning a lot there. I also focus on the underperformers there. Are the underperformers hitting 20% of quota? That's not great. Why are they only hitting 20% of quota? So trying to keep everybody in that 60 to 150 band there. I like the idea of at least 80% of reps hitting 80% of quota. I think that's a fair assessment there because that's how most financial models are built, and most reps would agree that at least hitting 80% quarter after quarter is fair.

Speaker 1: You mentioned," Do reps understand why they're being paid this?" and that was always my thing as a sales rep was, let's say, you get your commission check or it hits your bank account, direct transfer, whatever, and it doesn't look right. If it's too high, you're probably not going to say anything. But if it looks too low, you're going to probably go do some math and try to figure out," Hey, is this the right number?" before you go to finance, rev ops, whoever and contest it. And so, the thing that I always thought about was we're battling information symmetry, which is," I don't really even understand how this works, but I'm going to make a case to someone who made the framework and the equation." It feels unfair, either purposeful or not, probably not, and so, I already feel like I'm at a disadvantage. And so, I know that's not a good feeling that we want our salespeople to have, and so to move forward, my question is, why is it so important to get comp plans right? The trust probably is number one, I'm guessing, at least from my experience, but I'm curious, Graham, what you think there and how you approach that.

Speaker 3: I agree. I think that the transparency is also integral there. That's a major reason that we exist, is that compensation transparency, understanding exactly why you're being paid on every single deal and how you're being paid. I have worked in organizations where people leave because they got mispaid or they thought that they were going to get paid$ 10,000 on a deal, and what happened was they ended up only earning$ 5, 000 on that deal. They hated it, and they quit. And so, that is something to avoid. It's one of the most expensive things you can do is lose a top performer because you underpaid them by$ 5, 000. It's that transparency. You had said," Mistakes that I see during the creation of the compensation plans as well as the rollout of the compensation plans," and the rollout and messaging thereof is just as important, explaining everything about the compensation plan, understanding the extremes, pressure testing it, why are we paying this way instead of just," Hey, this is your compensation plan." If your compensation plan is as simple as you earn 10% commission off of everything, that's easy to explain, but once you start adding in accelerators and decelerator, you better have the messaging around it down pat, and you have to make sure that your reps understand it clearly as well.

Speaker 1: I'm going to use as a segue to the story that I prefaced earlier, because you said once upon a time you rolled out a plan to your team that caused about half of them to leave the company. I want to know what happened, why, and what did you learn from that, Graham?

Speaker 3: Yeah, absolutely. And a lot of that is the framework that I have for evaluating compensation plans now comes from that story. So this was when I worked at a company called TrendKite. It was the organization that I was working for prior to QuotaPath. I ran the sales development team there. I had about a 45- person organization. There were four managers and 40 reps underneath me. The edicts came down from the sales team, sales leadership, finance, everybody above me said," We need to stop focusing on quantity and need to start focusing on quality." Because up until that point, my reps were compensated just every meeting you set, you get 50 bucks. That was great, but we had a really broad ICP, and so anybody could buy it. And because of that, it was hard for us to evaluate what was a qualified opportunity or who was just taking a demo just for taking a demo's sake. And so, we said," All right, let's focus on quality." And here's the issue, mistake number one, I tried to do it by myself. I said," Okay, I'm a director." It was my first time in a director role managing managers. I said," I'm the expert. I have to come up with this by myself. If I ask anybody else, that's a sign of weakness or that they made a mistake." I had just recently moved into this director role. And so, I said," All right, I'll build it." And so, I built this and then didn't run it by anybody. Without getting into too much of a nuance here, I created an overly complex plan. I said that there were three different types of opportunities that you could create. We sold to PR agencies. We sold to brands, and we sold to enterprise brands. Instead of creating some simple system there, I gave each of those a dollar value where I said," Okay, an agency is 9, 000 and a brand is 24,000 and an enterprise is 44, 000," I don't remember the exact numbers there," and your target is$200, 000 worth of qualified revenue." I created this structure where reps didn't really understand it, and I didn't even really understand it either. Because now I look back and I'm like," Well, they could just go whale hunting." All they have to do is set five demos with enterprise organizations and they hit their quota, or 50 with brands and they hit their quota." I'm going to point out all the mistakes here, and this is one that I am super not proud of, which is that I didn't create the clear gates and the clear expectations around what a qualified opportunity means. There was an element of sales rep decision on it. And so, some sales reps would mark their opportunity as qualified at a 5% rate, and some would do it at a 90% rate. The people who would do it at a 90% rate, of course, would get more opportunities from the SDRs because they knew that they would qualify it. And then to make it even worse, the people who identified this and were doing this and giving these opportunities, we had a boys club where it was the men on my team, and they had identified this and they were, again, not intentionally, and this wasn't done intentionally by me, it wasn't done intentionally by them, but giving these opportunities to men on the sales team. And so, what ended up happening is the women on my team were underperforming, and the men on my team were overperforming without merit. And so, my reps went from a very clear, easy comp plan to an unfair, complicated, poorly- built comp plan. Not only did a ton of people quit, we ended up having to PIP and fire a few people as well that probably didn't deserve it because they weren't actually underperformers, they just didn't game the system like everybody else did.

Speaker 1: It's when you say game the system, and I appreciate you sharing that, Graham, I know it takes a lot of vulnerability and honesty to share that story publicly, but I know you've since learned from it and are helping others by sharing it. But that subjectivity, right, and that gaming the system, anytime there's a system or humans are incentivized to do something, we are always going to find the easiest and/ or the fastest way to get to that incentive.

Speaker 3: Yeah, absolutely. I always encourage comp plan gaming. I'm always like," Yeah, go for it. You want someone to feel like they're gaming the system, but you want to design it that way?" Like," Oh yeah, you do get paid 1. 5 times as much for closing a two- year deal. What do you know? Oh, and it's not that much harder to close a two- year deal. What do you know?" I built it this way to encourage that behavior. And so, decide what that behavior is and build a comp plan that is gameable but in a way that you want it to be gameable. You want people to do that.

Speaker 1: Like Graham mentions here, gamification is a fun and effective way to engage your sales team and get a little healthy competition flowing. According to an article from MarTech Alliance, employees experience a 48% increase in engagement when their job is gamified. And get this, workplace happiness is affected too. Gamified workplaces, see an 89% increase in overall employee happiness. But remember Graham's point, gamification has to be done well in order for you to see results like this. At the end of the day, the best gamification is the kind that encourages your reps to outdo themselves quarter over quarter, not each other. Let's get back into it with Graham. So we're talking about incentivizing behavior, and some of the best, or at least the clearest, changes to my comp plan as a rep was," Hey, the company's going in this new direction." Maybe it's a new vertical, new region, new product." For that reason, we are going to make it really, really lucrative for you to go sell in that place, sell that thing, right?" So tying comp to a strategic initiative. I'm curious, Graham, if you have any examples, stories, or maybe best practices for leaders who want to incentivize their folks to do some specific type of behavior that impacts their organization.

Speaker 3: I say that comp should be the caboose, not the engine. You shouldn't drive your company's strategy around compensation. And I do see this pretty regularly. I'll say," Are you closing any two- year deals?" And they say," Well, no, we're not."" Would you like to?" And they say," Yeah, I mean, we'd like to, but we're not paying more for it, and so we're not going to close any two- year deals." And I'm like," Well, no, don't let the comp dictate what you're going to do. You can always change the compensation. Focus on the company targets and the company goals and initiatives, and then build the compensation around that." And so, how do you modify that? The short answer is that you can make temporary tweaks to comp plans, and I see these all the time, and they're often called SPIFFs or short- term incentives or quarter- long incentives or whatever. And I'm a big proponent of using those because it allows you to test things out. It allows you to say," Okay, for this quarter, I need you to focus on product A." And then that gives us a bunch of data because maybe product A is actually easier to sell. And if it's easier to sell, we probably shouldn't pay a higher commission rate on that, unless it's way more profitable. You have to balance each of these different things. But what you're going to want to do is get a bunch of data on this." Are reps selling this at 15% commission? They are? Well, is that all they're selling?"" Yeah."" All right, well then maybe we need to change that. Maybe 15 is too high. Maybe we want to drop it down to 10," doing those short term things where you say," Let's try it out before you roll it out." Because rolling back a compensation plan change can be incredibly painful. And maybe it's just for a quarter or maybe it's for the first 10 deals sold or some sort of metric there.

Speaker 1: How do you suggest a comp plan changes from like 10 reps to 100 reps, to 1, 000 reps? And feel free to recorrect those buckets there of how you view it.

Speaker 3: Oftentimes what happens when you go from 10 reps to 100, 100 to 1, 000 is there's more nuance to the comp plan, and they get more and more and more complex. It's a good proxy of saying, however many people are on your sales team is probably how many pages your comp plan is. I see 30, 40- page comp plans, and I'm like," Why? Why is this..." And it's like," Well, we have all of these products we sell or all of this nuance." But that doesn't have to be the case. Some of the simplest comp plans or the best comp plans I've seen are at those larger organizations. The first thing is don't make it more complex just because you feel like you have to. And then the second thing is, obviously, what you end up with are oftentimes higher quota- to- on- target- earnings ratios as the organization grows. What I mean by that is, early on, you sub a million dollars, you have two sales people, maybe your reps are making$150, 000 a year. Their quota may only be three times their on- target earnings. Then that's because they don't have the marketing resources. They don't have the management. They don't have the enablement, the rev ops, the tools, all of those kinds of things. And so, as you scale, those multipliers tend to go up. Yes, it's true that quotas always increase. It's like, well, obviously the quota next year is going to be higher than this year. Again, this comes down to messaging on somebody as like, we have to explain to the team why their quota is increasing. It has to be like," Yes, your quota is going from a 3X to a 4X. Here's why. We've invested in additional product, additional marketing, additional enablement. And because of that, our customer acquisition cost is going up. And because of that..." Commissions are often one of the highest things that you pay out on a deal behind maybe marketing or support, but commissions are one of the highest things, individual rep commissions, and so those gradually inch down as you grow as well.

Speaker 1: I was in sales for six years and never had anyone explain that to me the way you just did, not even at a high level. It wasn't this blunt, but what you hear is," Quotas go up, what are you going to do about it? That's the way of the world." I'm curious because you're doing all these consults, was there one surprising thing you heard, learned, said, what was it?

Speaker 3: I'll give you a negative surprising thing that I've heard a few times, which is every once in a while I have a sales leader or a finance leader say," I don't want my reps to understand how they're being paid." I've nearly hung up on people after that, because that's such a different viewpoint than I have, that if you understand how you're going to get paid, then you will do the things that people want you to do. And so, I think that that was the worst one I've seen. Another surprising one is that so many comp plans are built with good intentions, and then the person who built it leaves, and the next person comes in and says," This plan works fine, right?" And doesn't really take a look at it and says," Okay, great, maybe we'll look at it next year." And then the same thing happens the following year. And then the same thing happens the following year. And so, oftentimes it's like," Oh, why is this our comp plan?"" Because it's always been our comp plan." Versus taking a critical eye and seeing... and some slightly controversial advice that I often give is discuss the comp plan with your reps as you're building it, like," What do you like about this comp plan? What don't you like about this comp plan? What do you understand? What don't you understand?" What do they focus on, and where do they feel like they can win?

Speaker 1: Well, and I think, too, if you set expectations like," Hey, this is not a democracy here. It's not going to be a voting system for how this thing gets built, but I do value your input, and we'll take it into consideration." I think, too, and then closing the loop of imagine sharing it with your team," Hey, it's done, and we're rolling it out. By the way, Graham, really appreciate that insight you had about X, Y, Z. We did it. We included that. Hey, Devin, really liked the idea about 1, 2, 3. We didn't end up doing it, and here's why." I feel like that even alone would be like," Wow, I'm heard, and this is a team. We're all here building this together."

Speaker 3: Yeah, absolutely.

Speaker 1: Final question, how would you describe sales in one word?

Speaker 3: Imperative.

Speaker 1: Oh, that is a first. I was leaning towards," This guy might say commission." But why imperative?

Speaker 3: It's just an imperative thing to get right within a company. Without the sales, the company doesn't exist. Getting the compensation is required for the sales team to be happy. You need your sales people to be happy to sell. You need your sales team to sell to continue to exist as a company.

Speaker 1: I like it. Graham, I like you, I like what you're up to, and I like what QuotaPath is doing for sales folks and revenue leaders, so thank you truly for hanging out and sharing your wisdom and expertise with us.

Speaker 3: Yeah. Happy to be here. Thanks for having me, Devin.

Speaker 1: If you want more resources on how to thrive as a sales leader in every stage of growth, head over to gong. ao. And if you liked what you heard today, give us a five- star review on Apple Podcast, Spotify, or wherever you're listening.

DESCRIPTION

Graham Collins, Chief of Staff at QuotaPath, knows how to create compensation plans that are simple, logical, and fair. He’s breaking down why your comp plan is broken (and what you can do to fix it).


Graham is sharing his tips around how you can effectively create, communicate, and scale your comp plans in a way that will keep your reps involved, motivated, and focused on crushing their targets.

Today's Host

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Devin Reed

|Head of Content Strategy
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Sheena Badani

|Sr. Director, Marketing

Today's Guests

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Graham Collins

|Chief of Staff, QuotePath