Typically, organizations associate the term “compensation governance” with evaluating executive pay. But there’s no reason why governance principles shouldn’t apply to sales organizations too—and many leading sales organizations agree, especially as sales are becoming increasingly complex.
Why all the complexity? Because sales organizations are struggling to attract new customers. Customers are engaging sellers later in their buying journey. In our 2023 survey of 600 sales professionals, more than 80% told us that sales cycles have increased. “The longer customers wait to approach a seller, the fewer opportunities sellers have to distinguish themselves from the competition,” says Joe DiMisa, Senior Client Partner, Sales Effectiveness & Rewards Advisory Leader at Korn Ferry.
When customers do engage with sellers, they’re sometimes disappointed, leaving sales organizations to find new ways to engage with customers and reconfigure their sales processes to improve effectiveness. As a result, sales jobs have become more challenging—and sales leaders are strengthening their sales compensation programs to incentivize productivity and performance.
In these challenging times, governance can be the foundation for a robust, sustainable sales compensation program. A well-structured governance program helps sales leaders maintain the integrity of plan operations, overall design parameters and ultimately, the cost of sales. It can eliminate a patchwork of compensation policies and sales incentives based on guesswork and ensure that changes in compensation align with company strategies and values.
In short, a strong governance program strengthens compensation plans over the long run.
A strategic approach to sales pay works best
Each business unit in a sales organization may have its own ideas about how to set incentives and quotas and how to measure success. It may appear that sales managers are setting these numbers on a whim, which can lead to seller confusion and frustration.
When a sales compensation plan doesn’t yield the expected results, sales managers often change course, changing the metrics, adding more money to the plan or resetting goals. These knee-jerk reactions aren’t the right approach. Layers of different compensation plans, none of which share a consistent compensation philosophy, payout, cost or target, only make the problem worse.
Instead, sales organizations need to align with their company’s overall culture and policy. That means sales leaders should follow company guidelines for budgeting, goal setting and award determination and, above all else, align with the organization’s compensation philosophy.
The importance of a collaborative approach to sales compensation governance
According to DiMisa, “the strongest compensation governance programs are collaborative.” Instead of allowing a single team to dictate the terms of a compensation policy, organizations should gather a team from sales operations, human resources, finance and other interested internal organizations that should be involved in designing and aligning the governance program. This approach allows the entire organization to manage the pace of change by outlining common rules, practices, levels and communication requirements when customizing compensation plans for different areas of the business.
The organizational benefits of a compensation governance plan
For organizations new to the concept of governance, an initial challenge may involve convincing all stakeholders that governance can codify what’s essential rather than controlling individual business units. Establishing common aspirations about the purpose and advantages of governance is crucial to getting buy-in from all groups involved.
Some primary goals that programs with robust sales pay governance have identified include the following:
- Developing, designing, monitoring and enforcing effective and consistent sales incentive plans that align with organizational objectives
- Providing a uniform approach throughout each compensation plan design phase, from assessment to development and implementation
- Ensuring that corporate cost parameters, target levels, legal requirements, regulatory compliance and risks are identified and managed effectively
Offering essential logistical support, rules, timing and accountabilities for the assessment, design and implementation of best-practice incentive compensation plans