Sales compensation is always a hot potato – and especially so at this time of the year when pay outs for last year or quarter are due and the next year’s sales compensation plan is announced. PWC have recently conducted a survey into executive bonuses which give some interesting pointers for sales compensation plans.
The PWX survey of 1,106 executives from 43 countries gives some illuminating pointers into that there is something deeply flawed about the current model of executive pay. Put at its simplest, executive pay has risen dramatically over a period when, in hindsight, the Western economic model has not been at its most successful. Surely something must be wrong?
Whilst the PWC survey relates to the politically sensitive bonuses received by high-flying bankers, its findings apply with equal force to sales compensation schemes. The PWC report’s main findings are:
- Executives are risk-averse: Most people chose fixed pay over bonus of a higher value – only 28% chose the higher risk bonus.
- Complexity and ambiguity destroy value: Fifty percent more executives choose a clearer pay package than a more ambiguous one of the same or potentially higher value. Two-thirds more executives prefer an internal measure they can control (such as profit) as opposed to an external relative measure (such as total shareholder return).
- The longer you have to wait the less it’s worth: Executives value deferred pay significantly below its economic or accounting value – a deferred bonus is typically discounted by around 50% over three years.
- It’s all relative – fairness is fundamental: Most executives would choose to be paid less in absolute terms but more than their peers – only a quarter choose a higher absolute amount, but which is less than their peers.
- People don’t just work for money: Participants would take a 28% pay cut for their ideal job.
- The key motivation of a long-term incentive plan is recognition: Fewer than half of executives think that their long-term incentive plan is an effective incentive. But two-thirds of participants value the opportunity to participate in their firm’s long-term incentive plan.
Here’s what to do next
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