Sales Commission Plan Structure: What’s Best?

Cost of Attrition

There is an interesting new study out from Accenture entitled, “Optimizing Sales Effectiveness to Achieve High Performance: 2011 Sales Performance Optimization Study.”

Besides having an impressively long name, the study delivers good insight into an issue that is near and dear to the hearts of call center managers the world across…that is, what is the best way to incentivize your call center sales force?

Here is the key finding when it comes to compensation structure:

For two years running, sales representatives receiving between 1 and 15 percent variable compensation yielded the highest percentages of quota, whereas those receiving between 41 and 60 percent delivered the lowest performance and the highest attrition rate.

Interestingly, this study confirms previous research done by CallMe! and others. Specifically, there is significant research that shows sales compensation packages are directly linked to a company’s ability to attract and retain key sales talent. New offer yield and agent retention increase linearly based on how well a company’s compensation packages meet sales employees’ preferences.

So, what are these preferences? Here are four keys to optimizing a sales compensation plan to attract and retain sales agents:

  • Agents assign the highest value to base pay. However, they also want to be paid based upon their performance. Individual-based components are much more powerful than team or company-based components.
  • Plans with 100% variable pay are not valued. Importantly, plans that are all commission are negatively valued. Call center agents tend to avoid companies with these plans, and are much more likely to leave when another opportunity arises.
  • When it comes to variable pay, there is a “sweet spot”. Analysis shows that sales agent’s perceived utility from a compensation plan peaks at certain levels of variable pay. Likewise, there is also a tipping point beyond which perceptions drop rapidly and companies find it much more difficult to attract and retain talent. (See the finding from the Accenture study above)
  • Sales employees do not value systems where all employees receive equal pay raises. The perceived value of a pay plan jumps considerably when top performers’ pay increases are higher than average performers’. Interestingly enough, the marginal utility of differentiating pay increases diminishes beyond a certain point – that is, it really doesn’t pay to keep giving the best performers raises beyond a certain point!

So, with all of that said, what does your call center do? What have you found to be the best commission structure for your inside sales force?