Now is the time when companies with December 31 fiscal years start thinking about next year’s compensation plans. And sometimes, so does your salesforce. So this month I want to warn you about…
Deadly Sin #17 – Communicating next year’s comp plan details before the current year is over..
Every comp plan can be “gamed” in ways that the company doesn’t like. It’s unavoidable – entire doctoral dissertations in economics, mathematics, and the behavioral sciences have been written proving it. No matter how cleverly and thoughtfully you’ve designed your comp plan to avoid “gaming” during the year, one “gaming” loophole that’s hard to avoid is situations where your salespeople can earn more money by letting business slip into the next year. That can occur when the enterprise uses accelerated comp plans, and some reps feel they have little or no chance of earning those higher rates in the current year. This situation can also occur in companies with large all-or-nothing bonuses (see my recent post on that subject).
You can’t completely prevent this type of “gaming,” but one way to put a damper on it is to avoid disclosing exactly what next year’s comp plan is going to be. Sandbagging is a less attractive strategy when your salespeople aren’t certain that quotas will be the same next year, or the accelerators won’t be reduced, or that all-or-nothing bonus will still be offered.
Do you want your salespeople “gaming” the comp plan? You bet you do! After all, the whole point of incentive compensation is to motivate people to act in the enterprise’s interests even as they are acting in their own. But if you’re going to play poker, be aware of your “tells”!