A Few Words About Kristin
At Sales Cookie, we automate commissions for companies with billions in sales. In this blog post, we interview Kristin Gutierrez. Kristin has18 years of experience in technology sales. She is a highly accomplished Vice President of Sales at United Language Group and is a champion for Outcomes-Based Leadership. She won a Stevie Award in 2023 on Thought Leadership for her Outcomes-Based Framework to Drive Complex Sales. She has served in a variety of roles at NetApp, Vista, Lionbridge Technologies, Translations.com, SDL International, etc. You can find her LinkedIn profile here. For more sales compensation wisdom, don’t hesitate to reach out to Kristin. Kristin, thank you for giving us an opportunity to learn about sales compensation from you.
What is your preferred commission structure? Why?
Kristin has extensive work experience working in technology companies and is a champion for outcome-based leadership. In most companies, commission structures can be assembled using the same basic components (ex: accelerators, tiers, quotas, bonuses, guarantees, etc.). However, with so many options, designing a commission program that is efficient, inspiring, and comprehensible presents many challenges. Below, Kristin provides some useful best practices you can use when designing a sales compensation program.
- Use an equal-weight 50% / 50% base vs. variable compensation model.
- The base component should match the industry, selling experience, and current role.
- Quotas should be fair and based on length of experience within the current company. They should be proportional to the book of business assigned to each rep.
- It does make sense to reward hunters (for new business) higher than farmers (for renewals), because the former is often harder.
- Create plans with multiple tiers and no caps.
- Tier-based accelerators make sense because many reps “dream big” and want to exceed quotas.
- Artificial caps can throttle rep enthusiasm and penalizes hard work. Caps are counterproductive and reduce motivation, so avoid them if you can.
- Pay commission based on money received.
- Use paid invoices as a basis for commissions (not hypothetical revenue from “closed won” deals).
- This also reduces the chance of commission claw-back (ex: vs. paying commissions over deals closed with unrealistic amounts).
- Pay commissions based on revenue (not profit).
- Outside of discounts (which can be granted case-by-case), profit is largely outside their control. Reps usually do not control base costs.
- Plans based on profit are much more complicated to manage, and harder to understand because more calculation logic goes into them.
How Often Should Commission Structures Be Refreshed?
Talking to many of our customers, we often encounter fluctuating commission structures. For instance, a company may begin the year with a profit-oriented incentive plan, but discover mid-year that sales reps are reluctant to offer discounts, leading to lost revenue. Sudden changes to the structure can harm sales rep morale, causing feelings of instability, or the perception that management is trying to restrict compensation. We spoke to Kristin about ways companies can best manage changes made to incentive plans to avoid those issues.
- Kristin wishes compensation was not revisited within the year.
- A solid commission structure should not have to change every year.
- In some cases, there are enough pertinent changes (ex: economy, market, competition, product changes) to justify a redesign.
- Reps appreciate it when quotas and plans are 100% ready before the year starts.
- Unfortunately, many companies have a bad habit of re-designing incentive plans during the first 1-3 months of the year.
- If plans need to change, then it is important to plan ahead and prepare ahead of the next fiscal year.
- And always release the current year comp plan before commissions take effect for that year. i.e., if you are paying 2 months in arrears then the 2023 comp plan should be finalized no later than March so that January commissions can be paid end of March.
Do You Think It’s Useful To Benchmark Inventive Plans?
Given the abundance of commission structures and intense competition, is it useful to leverage some type of benchmark when creating new commission structures? Benchmarking empowers organizations to compare their sales compensation with similar ones (ex: within the same segment) to ensure theirs is “in line”. From our observation, only a small number of companies utilize benchmarks when designing sales compensation programs. Is this an overlooked opportunity to build better commission programs?
- Benchmarking against your industry is imperative.
- There is a fight for sales talent. This fight can only be won if top talent can be attracted.
- Benchmarking makes it possible to at least match the competition, and then offer something different.
- To avoid a 1:1 money-only comparison with competitors, add peripheral benefits such as SPIFFs, benefits, sabbaticals, etc.
What Causes Commission Errors?
At Sales Cookie, we find that approximately 10% of past payouts were in excess once we deploy automation. Commission mistakes and overpayment especially can have serious consequences. One obvious problem is that commission errors create accounting and compliance issues. Also, reversing already released payments is often difficult, leading to financial loss. Finally, having to “fix” payouts can trigger negative emotions, such as rep distrust and dissatisfaction.
Kristin’s take on what causes commission errors
- Overly complex plans
- Plans tend to be more complex than truly required. Exceptions and one-off rules often obscure the main goal of the plan.
- Many sales organizations embed unnecessary “bells and whistles” or “special treatment” logic in their commission structures.
- Ambiguous sales data
- Bad data will always prevent commission calculations from being correct, but it can be identified and corrected.
- However, ambiguous data is worse because it requires more effort to resolve and clarify.
- A good example would be a sales record which does not clearly specify the rep, but rather a team as the owner. This requires some effort to clarify.
- Different interpretations of the plan’s terminology
- Sometimes, standard commission terminology is not well-understood by rep (ex: What is a “recoverable draw”? What do you mean by “quota retirement”? What are “sunsetting commissions”? What is a referral?).
- It is easy for reps to misunderstand important concepts, such as how credits are calculated for the purpose of quota attainment, or whether tiers are cumulative vs. non-cumulative.
- Providing a clear description, including examples for different scenarios and concise definitions can help reps better understand the terminology and calculation mechanics.
- Incorrect inputs
- Human errors are of course common (ex: incorrect rate, quota, etc.)
- Programming the automation solution correctly is equally important.
- There needs to be a focused effort on testing and validating outputs.
Kristin feels that some of these problems are easier to identify and fix as compared to others. This is aggravated by the fact that sales reps don’t always know who to ask or talk to regarding compensation plans. Having a designated person who can explain plans and commission logic can help a lot.
Who Owns (Should Own) Sales Compensation?
Commission management is a responsibility assumed by different personnel depending on the organization. It could be the Vice President of Sales, the Chief Financial Officer, a hired accountant, the payroll department, etc. We sought Kristin’s opinion on who would be the ideal owner(s) to assume this role.
- Commission management should be a shared service between Finance & Sales Operations.
- Finance should be involved due to the large amount of money involved.
- Sales Operation should hold people accountable (ex: data quality is good, quotas are locked and loaded, etc.).
- Organizations are maturing from a Sales Operations perspective.
- Although there has been progress, Sales Ops is a hard role to recruit for and train for.
- Many SaaS companies have grown up organically and cobbled together a bunch of technologies and processes that work for their business.
- When they bring in an experienced Sales Operations hire, this person cannot understand the company’s business, how things are tracked, credited or commissioned on, etc.
What’s the real-world impact of commission errors on businesses and individuals (ex: morale, liability, attrition, etc.)
We created Sales Cookie to solve commission headaches. We started working on commission automation because some top reps in our previous organizations quit over commission issues. We knew that only automation could provide the transparency, accuracy, and real-time access reps were looking for. So, we asked Kristin about her own experience with commission errors, and their impact on business and morale.
- Reps get frustrated when there are repeat errors.
- Reps understand there will be occasional commission errors.
- Frustration starts when errors are repeated but are not getting fixed.
- It is easier to lure new sales talent than to make commissions work.
- When reps don’t have confidence in the company’s ability to correctly calculate and pay their commissions, they leave.
- To keep attrition low, proper execution of commissions is very important.
- Losing good reps is expensive due to hiring & training costs, a disrupted pipeline, morale impact on others, etc.
Can You Provide Additional Tips?
Kristin advises organizations to:
- Reduce the number of commission plans
- Avoid one-off variations.
- Keep the number of plans to the minimum possible.
- Simplify and streamline commission structures
- Eliminate ambiguity.
- Define all key terms and ensure that all leaders in Sales Leaders, RevOps and Finance as well as sales reps are on the same page regarding what the plan entails and how it is measured.
- People change roles often and roles and responsibilities can be ambiguous. Account for that in the plan.
- Eliminate conflict.
- Eliminating exceptions is in everyone’s best interest!
- Eliminate all special treatment from compensation plans.
- If you want to compensate top talent or compensate fast starters differently, do it outside mainline plans. For example, give them an extra bonus mid-year – this avoids creating ambiguity and exceptions within mainline plan.
- Sales reps talk to peers about compensation, so it is important to avoid miscommunication and reduce the chances of them harboring negative opinions.
- Eliminate ambiguity.
- Ask for feedback from the field
- Ask reps what motivates them and if there a feature or component missing in the plan that is important to them – ex: referral bonus?
- Maintain early and ongoing communication.
- Have a meeting with the entire Sales organization so that everybody can ask questions.
- Reinforce with lot of upfront calls with the Sales teams.
- Have an open-door policy.
Kristin, thank you for talking to us about sales compensation. Here at Sales Cookie, we live and breathe commissions, so we are familiar with some of the pain points you shared with us! To automate your commissions, click here. To reach out to Kristin, click here.