Tuesday Tuneup- #54
Your comp plan is the problem
Happy Tuesday everyone!
I was talking to my sister last week (who works in a totally different industry) about some challenges her company is facing because of the activities of the sales team.
In short, the way the sales team is incentivized is bad for the company. Sales can win, while the company loses…. bad news. It’s compounded by the fact that management can also win, while the company loses….. really bad news
This is actually a VERY common issue and nearly 100% of the clients we work with have some critical flaws in their comp plans that we address early on.
Here’s the big ones we see, so that you can hopefully avoid the same.
1. Incentivizing Unwanted Behaviors
When a sales comp plan is poorly structured, it can encourage behaviors that don’t align with the company’s long-term goals. For example, if the plan prioritizes short-term wins (Contract signing) over long-term customer relationships (Deals actually getting installed), reps may push hard for quick closes without considering retention or customer satisfaction. This can lead to high churn rates and damage your brand reputation. Similarly, if sales reps are compensated only on new business and not on upsells or renewals, they may neglect existing customers, leaving revenue on the table.
2. Vague or Missing Components
Sales reps are money focused and If they don’t understand exactly how their commissions and bonuses are calculated, they may feel uncertain about their earnings, leading to frustration and disengagement. Sales professionals thrive on clear, direct goals—without them, motivation plummets. Additionally, a lack of transparency breeds distrust between reps and leadership, leading to lower morale and increased turnover (not to mention it can get you sued). Get out your comp plan and look it over. Is EVERYTHING in there? What if they are no longer employed? What if the job cancels? What if the sales rep mislead a customer? Think through as much as you can and get it handled up front.
3. Capped Commissions
One of the biggest mistakes companies make is capping commissions. While it might seem like a way to control costs, it actually discourages sales reps from going above and beyond. If a salesperson knows they’ll stop earning after hitting a certain threshold, they may slow down their efforts rather than continuing to push for more sales. Often times, they’ll hold of sales this month, to roll them into next month. A term called “Sand bagging”. Instead of capping commissions, companies should consider tiered incentives that reward ongoing achievement and encourage continued effort. For example, once a rep does X,Y,Z… comp actually goes UP! This gives them something to strive for.
4. Overcomplicated Structured
Sales reps should be focused on selling, not on deciphering a complicated compensation structure. When comp plans include too many variables, tiers, and conditions, it can become a distraction. If reps are constantly second-guessing how much they’ll earn from a sale, they may waste valuable time crunching numbers instead of closing deals. A great example of this in the construction world is profit based comp plans where the sales rep has to understand all the COGS of the business in order to understand what they get paid.
5. Inconsistent Payouts
A sales compensation plan is only as good as its execution. If commissions are paid late, bonuses are inconsistent, or changes are made without proper communication, sales reps will lose trust in leadership. Somebody told me a long time ago “You don’t F**k with peoples money” and he was right. Pay on time or you will lose everyone with options.
6. Lack of Flexibility
The best sales comp plans evolve alongside the business. If a company grows, shifts its market focus, or changes its sales strategy, the compensation plan must adapt as well. A rigid structure that doesn’t adjust to new priorities can result in misaligned incentives and demotivated sales reps. Regular reviews of the comp plan ensure that it continues to support both business goals and rep performance. It’s totally fine to change the comp plan, just be fair about it and open.
How to Fix a Broken Sales Compensation Plan
If your sales team is experiencing any of these issues, it’s time to reevaluate your compensation plan. Here are some key steps to take:
Align incentives with business goals – Ensure that your comp structure supports the behaviors you want to encourage, such as long-term customer relationships and upselling.
Simplify the plan – Keep the structure easy to understand so reps can quickly calculate their earnings.
Reward top performers fairly – Make sure high achievers are properly compensated and have the opportunity to earn uncapped commissions.
Communicate clearly – Be transparent about how commissions and bonuses are calculated, and ensure payouts are timely and accurate.
Regularly review and adjust – Business needs change, and so should your comp plan. Regular assessments help keep it effective and motivating.
Want to discuss your sales comp plan? We’re here to help. Reach out to us to learn how we can optimize your structure for maximum performance.
and until next week….. HAPPY SELLING!