Spot the parts of a pay plan that push reps to sell the wrong way.
Find the pay plan your team works under now, or the draft you are preparing, and go through each part asking the question lesson 7.2, "The parts of a sales pay plan", finished on: if a rep did exactly what the plan pays for and nothing else, what would they do? A handful of designs produce most of the harmful answers, and you can learn to recognise them.
Take a company that rolls out a pay plan with a generous bonus for every new client. Six months in, it has more new clients than before, and the plan is judged a success. Later, fewer clients renew, three long-standing accounts go over to a competitor, and the support team cannot keep up with clients who bought something that was never right for them. No one set out to produce these results. The plan paid for one behaviour and the team delivered that behaviour. Behaviours a plan encourages or discourages by accident are its side effects, and the ones that do most damage are usually invisible in a sales report.
Suppose all of a rep's variable pay is earned from new business. Existing clients then earn them nothing. Account reviews, conversations about renewing, and helping a client sort out problems after the contract is signed all become work with no pay attached, and each hour spent on them is an hour taken from work that does pay. Most reps keep doing some of it anyway, because they are professional or because they like the people they serve. Near the end of the month, though, when a renewal call competes with a prospect who could sign this week, the renewal call usually waits.
Over months, renewals start slipping, long-time clients feel ignored, and some leave. Sales figures seldom record this, since keeping those clients was nobody's paid job.
Where retention matters, three fixes are available: pay a share on renewals, count renewals toward quota, or move account management to a separate role that has its own pay. The right choice depends on how your team is structured. In every version, a named person needs to be paid to look after existing clients.
A booking is a signed order. When the whole of the variable pay is released at signature, and none of it comes back if the client cancels shortly afterwards, the plan rewards the signature itself and says nothing about whether the client stays.
Three behaviours tend to follow. Reps push deals to close before the buyer is ready. They skip confirming the client's problems, since that takes time and could reveal that the product doesn't fit. And some agree to terms or make promises they know are a stretch, because if the client later cancels, the rep loses nothing.
You can correct this in one of two ways. One is a clawback, which lesson 7.2 introduced: variable pay is recovered when a client cancels soon after signing, under rules written down clearly in advance. The other is to hold back part of the variable pay and release it once the client has stayed for an agreed period. With either, the rep carries some of the cost of a bad sale as well as the reward of a good one.
Wei Ming, a sales leader putting together a draft plan, pulled last year's cancellations. Looking at clients who had left within three months of signing, Wei Ming found that more than half had signed during the last week of a month. The number came from the team's own records and a small set of deals, so Wei Ming treated it as something to look into further and stopped short of calling it a finding. Even so, it gave them reason enough to write a clawback into the draft.
Some plans try to reward every behaviour at the same time. Picture one with separate rates for six products, a bonus for new logos, a multiplier on multi-year deals, a deduction when a discount goes past a set threshold, and a team kicker paid if the region reaches its target. Every one of those parts was sensible on the day it was designed. Put together, they make a plan no rep can keep in their head.
Reps in that position spend time working out their pay that they could spend selling, and their trust in the plan drops. Someone who cannot calculate what they've earned tends to assume the plan was built to underpay them, and they dispute each statement. The larger loss is that the behaviours each part was supposed to encourage fade out, because no one can see which action leads to which payment.
Check a plan against two time limits. A rep should be able to explain it to a friend in two minutes, and work out their own pay for a month in five. If either takes longer, remove parts until both are possible. For most teams, three or four parts cover what matters most.
Pay is partly a legal matter in some industries, and in Singapore financial advice is the clearest case. The Monetary Authority of Singapore (MAS) sets out a balanced scorecard framework for financial advisory representatives. It allows a representative's variable pay to be affected by non-sales measures, such as how good their advice is, as well as by their sales.
Team leaders of representatives have to work inside that framework and inside their firm's own policy. Read the current MAS documents on the MAS website, and your firm's policy, before you change anything. For the framework in detail, see lesson 5.1, "Why pay depends on more than sales", in the course "Selling financial advice in Singapore".
Other industries have their own rules about how salespeople may be paid or how products may be sold, and employment law covers every pay plan in every industry. Whatever field you are in, send a new plan to HR or the compliance team for review before the team sees it. Lesson 7.4 includes this step as well.
Work through the plan one part at a time and put two questions to each part: which behaviour does it reward, and which behaviour does it make less attractive? Set your answers beside your sales process from module 4 and the culture you want, which module 9 deals with. Look hardest for side effects that a sales report would never show:
clients being neglected products sold to people they don't suit deals moved earlier or later to land in a better pay period reps avoiding work that matters but earns them nothing
In the activity below, you'll review a sample pay plan and list two behaviours it might encourage that you don't want. For each one, name the part of the plan that causes it.
Read through a sample pay plan and write down two behaviours it could encourage that you do not want.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).