What Your CEO Needs to Know About Sales Compensation

May 14, 2024 | 5 minute read
Nick Vautier
Director, Product Management
Text Size 100%:

Sales compensation is a strategic lever that directly influences the growth, alignment, motivation, and success of a company. It plays a crucial role in driving company growth, and the strategy behind it serves as the primary means of communicating corporate strategy and culture to sellers.

Why the CEO should care about sales incentive compensation

Why do companies spend tens or hundreds of millions of dollars each year on incentive compensation? Only salespeople and company executives have compensation so tightly aligned to performance. The compensation plan is the second most effective lever to corporate growth, surpassed only by overall corporate strategy. It motivates the sales organization more than any other single factor and trumps leadership messages, sales strategies, sales management, and sales training. There is only one hard connection between the corner office and the customer’s office— sales compensation—and this is why the CEO should care about sales incentive compensation.

Why the CEO has to care about sales incentive compensation

Incentive compensation spans multiple disciplines—finance, human resources (HR), sales, information technology (IT)—each with different opinions about what makes for a a good compensation plan. Finance wants a cheaper plan. HR wants a plan that is easier to administer. Sales wants to increase sales. Only the CEO has the authority to define the corporate strategy and ensure sales compensation, and the entire organization, are aligned.

Effective CEOs should ask the right questions about sales compensation Navigating the details of sales incentive compensation goes beyond just the dollars and cents. Each aspect is crucial when creating a solid and strategic compensation plan. CEOs should ask the right questions when it comes to sales compensation:

  • Will it motivate the right behavior? Compensation, at its essence, is a motivational tool.
  • What are the returns vs costs? Compensation has a predictable range of costs and an expected range of returns.
  • Does it align with corporate strategy? Strategy should drive research and development, corporate structure, pricing, and sales compensation.
  • Will we be able to recruit and retain top talent? The plan should be competitive.
  • Is it easily understood? Minimize complex rules and exceptions.

Successful executives need to consider tools and processes to support effective sales compensation

Modern tools can streamline compensation planning across multiple disparate systems, ingesting data from any data source, allowing for flexible plans that can be easily modified using reusable components. This improves transparency by providing clear plan documents and detailed pay sheets. Implementing a compensation system isn’t merely about the tools however. It's about addressing and resolving systemic issues encompassing tools, data, and processes. It’s about asking the critical questions: Should compensation be based on bookings or earnings? Is it more strategic to pay multiple people for a single deal, or should you split deals? How do you implement caps to prevent payment excesses?

The overarching goal is about alignment— synchronizing computer systems, departments, and lines of business to ensure sales strategies seamlessly integrate with broader strategic goals, and ultimately increasing sales and the bottom line.

Oracle can help pick the right tools for the right job

When faced with the challenges of legacy sales compensation tools, clients turn to Oracle Sales Performance Management (SPM) for solutions. Oracle is uniquely positioned to recommend the right tools for the job. Unlike other vendors, not everything looks like a nail to us, as we have more than a hammer in our toolbox. We have enterprise-grade sales planning applications, customer data management tools, territory and quota management capabilities, and a complete suite of sales incentive compensation solutions.

Sales compensation planning is both an art and a science

But if the plan’s message isn’t clear or to their liking, sales reps will interpret it in their own financial interest. As a corporate leader, you’ll get what you measure and what you pay for—and it may not always be what you expect.

While its impact can be direct, the compensation plan is a fine blend of art and science that has long sparked conflicts within companies. Everyone has an opinion about sales compensation and everyone thinks they’re an expert, yet few agree on the best approach to drive performance toward the company’s objectives. Sales, sales operations, HR, and finance regularly engage in battles over the right path forward.

Oracle has unique experience aligning sales with corporate strategy

Many downstream compensation issues are caused by upstream data sources that may not be in the compensation team's wheelhouse. At Oracle, our unique perspective spans marketing, sales, sales planning, finance, HR, as well as incentive compensation. We have worked with many Fortune 500 companies who struggle with multiple backends, messy customer masters, and questionable data quality. We have deep and wide domain experts who can guide companies on the intricacies of aligning sales force automation (SFA) territory rules with compensation crediting rules, which can be especially complex in high-tech companies with matrix team-selling organizations.

When faced with the challenges of legacy sales compensation tools, clients not only turn to Oracle SPM for solutions. The adoption of a new system goes beyond tool enhancement; it's an invaluable chance for holistic improvement. This involves refining processes, integrating data systems, aligning diverse business lines, and setting achievable goals for the entire sales organization to better align with corporate strategy. Customers rely on Oracle and our implementation providers to validate the go-to-market approach and compare it with similar companies.

Download our eBook on incentive compensation strategies todayLearn more about Oracle Sales Performance Management (SPM)

Oracle SPM solutions lead the charge in enabling organizations to create a balanced compensation plan that aligns with their strategic goals. Oracle SPM’s advanced analytics and modeling capabilities provide transparency and accuracy in compensation calculations, ensuring that sales representatives understand how their efforts translate into rewards. The platform facilitates clear communication, allowing for the dissemination of compensation details and fostering trust within the sales force. Its dynamic nature supports continuous evaluation, adapting to market changes in real-time. This adaptability not only helps to retain and motivate a high-performing sales team, but also to avoid common pitfalls associated with compensation management. Oracle SPM's adherence to compliance standards further ensures that compensation plans meet legal requirements, mitigating the risk of financial penalties and reputational damage. In essence, Oracle SPM is a comprehensive solution that empowers companies to manage their sales compensation with confidence and agility.

Download the ebook now

Nick Vautier

Director, Product Management

Director, Product Management for Sales Performance Management and CX Sales

Previous Post

The Top 5 Customer Data Use Cases B2B Marketers Need to Know

Jake Spencer | 5 min read

Next Post

Infographic: Adopting AI & Automation in the Service Lifecycle

Rick Shimko | 1 min read