Company strategies are shifting toward a more comprehensive customer experience. It’s only natural for the sales process to evolve. Because the customer experience heavily influences purchasing decisions, salespeople must provide the CX that is desired – and, in today’s world, practically expected. In this new normal, variable compensation is critical to keeping sales professionals motivated and engaged.
What Can You Do to Develop a Viable Variable Compensation Plan?
It is critical to understand the best approach for effectively implementing these programs. In general, you can obtain some key aspects required for effectiveness. These are some examples:
Presentable –
Effective pay plans require open communication. You should also document the plans for future reference.
Precise –
Clear execution of these plans is required. All employees should be aware of the pay programs. They should also be consistent with the company’s compensation philosophy.
Tiered –
Variable pay plans vary according to the organizational department. The pay for the sales department, for example, differs from that of the executive management. A tiered system incentivizes sales representatives based on their roles, from managers to leaders.
Controllable –
The team should have control and authority over the evaluation activities used by the firm. They must also have control over the outcomes. Controllability implies that you have achievable goals for the crew. Setting tasks that are beyond a worker’s reach and capability is pointless.
Metric-driven –
This is another factor to consider when developing effective variable pay plans. It is preferable to enable measurable performance that supports regular reporting. You also want it to be relevant to the company’s overall goals. The metric-based aspect can refer to a company’s profit initiatives or goals to improve company culture.
Using these factors, you can create an effective plan that benefits your business. Aside from avoiding the challenges mentioned above, effectiveness encourages employees to use the programs positively while increasing sales, calculated with the help of the best sales compensation software.
In the absence of an effective variable pay program, employees may view the rewards as personal goals. As a result, they prioritize quantity over quality. The factors listed here enable you to achieve viability while also balancing company and employee output.
Also Read: The Benefits of Creating and Using a Process Flow Chart
Are there any Disadvantages to Variable Compensation?
With every advantage, there are some drawbacks to be aware of:
According to research, removing rewarding elements after they have been installed results in a significant decrease in performance. This isn’t due to the withdrawal of the reward per se. The root cause of poor performance is usually a lack of communication about why changes are made and how they are justified. The reasons are not always clear to those who are affected. People may feel betrayed, leading to acts of defiance.
Variable compensation can also have negative consequences if not used correctly. There is no one perfect method for correctly setting up variable pay because success is dependent on multiple variables. Unattainable goals, quotas, and KPIs are generally considered demotivating. Contrary goals between roles and departments can also lead to more silos and less collaboration within an organization, slowing overall growth and ultimately worsening the overall customer experience.
Finally, variable compensation must be simple to understand and always transparent.
Salespeople must understand what they are paid for, how much they are paid right now, which deals contributed to achieving their goals, how they contributed to the payment amount, how they are doing in terms of KPI fulfillment, and where they have gaps that can be filled quickly to earn more money.
Simply put, because of the rate of change in business and society, variable pay is becoming more important than ever before, and companies that ignore it will fall behind.
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