Deloitte/Oracle survey: compensation plan complexity is key factor in poor sales performance

by Editor 7/8/2008 12:40:00 PM
Poor performance and complex compensation plans threaten the financial success of sales organizations despite recent improvement efforts, according to a new compensation survey of sales force leaders conducted by Deloitte and Oracle.

More than 40 percent of the 185 respondents reported that their sales forces did not meet last year's sales goals, according to the "2008 Strategic Sales Compensation Survey." And less than half (49 percent) of this year's respondents are "satisfied" or "very satisfied" with their sales force performance, a decline from 56 percent in 2006.

"It's a challenging economic market and sales force effectiveness can make or break a company's financial results," said Michael Herman, national leader for Deloitte's Sales Force Effectiveness service offering. "Companies can't afford to have a sub par sales force and, while we believe sales compensation plans are a key driver to boosting overall sales performance, plans are sinking into a deeper state of complexity."

Less than half -- 41 percent -- of sales leaders are satisfied with their sales compensation program, a sharp drop from 59 percent in 2006. In addition, less than half of the respondents (46 percent) believe their sales compensation plan is sufficiently driving the right selling behaviors -- complexity may be a reason why.

Moving Toward Complexity

Almost half of the survey respondents (46 percent) believe sales force compensation plans became more complex since 2006. Complexity drivers cited include more sales representatives in multiple countries, increased team selling, more complicated quotas and territory assignments and the demand for more precise metrics.

For instance, 52 percent of respondents already have sales representatives in several countries. Fifteen percent have sales reps in six to 20 countries and 10 percent have reps in more than 20 countries. With more sales reps outside the home country, respondents reported that 57 percent of their sales strategies and plans have to be customized to local conditions, which adds to the administrative burden on a sales organization.

"Globalization is a key revenue driver for many companies, but that growth comes at a price if the sales force is managed ineffectively and is encumbered by administrative woes," cautioned Gretchen Alarcon, vice president of HCM Strategy at Oracle. "Sales force leadership must tackle the inevitable challenges that come with global growth and changing market conditions by partnering with such business units as human resources, technology and finance and finding ways to simplify their programs."

A Few Steps Forward

The survey revealed that many companies have taken some steps to make their sales operations more effective. Almost three-quarters (73 percent) are using three or fewer measures of sales performance. Seventy-seven percent conduct a plan review at least annually. Fifty-eight percent also report they are changing plan metrics less frequently than before.

"Companies certainly have taken some steps to address what we call 'the simplicity paradox' of sales compensation since 2006, but there's more to do," commented Michael Vaccaro, a member of Deloitte's Sales Force Effectiveness leadership team.

Deloitte's "SPOT" check methodology, which focuses on strategy, processes, organizational structure and technology, can help organizations in their efforts to improve their sales operations. SPOT is defined as follows:

-- What is the Strategy for the plan design's metrics and mechanics?

-- What Processes are used to administer the sales compensation plan?

-- How is the company Organized to support the sales compensation plan?

-- How is the Technology infrastructure deployed to support sales plan administration?

A more detailed explanation of the "SPOT" framework and additional findings of the survey can be found in the full report at www.deloitte.com/us/2008SalesCompSurvey or by contacting bjosey@deloitte.com

About the Survey

The survey included 185 respondents from companies across a wide range of industries. Forty-six percent of respondents work for companies with annual revenues at or greater than $100 million, while 54 percent work for companies with annual revenues under $100 million.

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Deloitte | Oracle

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