Deciding how to tackle sales compensation is no easy task.
A participant in our recent partnering executive roundtable asked the group: “Are you in favor of or opposed to creating compensation neutrality for your direct field team?” Without missing a beat (and to my surprise), almost half of the roundtable participants said they were against ‘comp’ neutrality. How could anyone be against something with the word “neutral” in it? If you’re not familiar with the term, compensation neutrality means a salesperson gets paid, or their sales quota is retired, at the same rate if the product is sold by a partner or themselves. How compensation is defined for your direct sales force can help or hinder your partnering efforts and there’s no clear consensus on the right answer.
By default, direct sales representatives typically receive little or no compensation for any deal transacted through partners whether the sales rep was working the deal or not. Encouraging the sales team to work with partners is at the center of the argument for compensating direct sales representatives for partner deals. Salespeople will follow the money. Compensation drives behaviors, and rightly so. We all WANT salespeople to maximize their income because it drives them to close more business. If you’re reading this blog, you believe in the power of partnering. To encourage your sales team to support your partnering efforts, and knowing money is their key motivator, they should be financially rewarded for partner sales. This argument for comp neutrality also minimizes conflicts and encourages collaboration between the sales team and partners, ultimately leading to better customer experiences and increased revenue.
As a vendor, you can’t determine the channel your customer will buy through. A customer is free to choose the right partner or partners for their organization. By not compensating your sales force on deals that flow through partners, you are motivating your salespeople to compete against or even undermine your partners, potentially costing you not only revenue but valuable partnerships. But there are nuances in comp neutrality and there can be issues with how you compensate the rep. There is a difference between what the partner buys the product for and what the customer pays for it – the partners’ margin. If you pay the rep based on the money received from the partner, the rep is less enthusiastic about engaging with partners than if you pay them on what the customer pays. The quota relief a salesperson would get is less if sold by a partner (at a discount) than if sold directly to the customer. As we mentioned, the salesperson is focused on maximizing their compensation.
The argument against compensation neutrality is straightforward: the results aren’t worth the effort. It is very difficult to convince executive staff to alter field sales compensation. And since there is no guarantee salespeople will engage more with partners after the change in compensation, the effort to change isn’t worth the hassle. Partner executives on this side of the argument express their time is better spent educating salespeople on the value partners bring to the organization and the customer, instead of fighting against the compensation structure. They feel salespeople will either see that partners bring value and subsequently work with them, or they won’t. Tweaking the compensation structure isn’t seen as a key driver to making a salesperson partner friendly.
Do you agree with the executives in our channel roundtable that comp neutrality isn’t worth the effort? Or do you think the financial rewards could motivate your sales teams? Share your thoughts with us. If you think “this is a nice problem to have but I need to work on Rules of Engagement first,” give us a call, we can help.
Diane Krakora is CEO of PartnerPath with over two decades of experience defining the best practices and frameworks around how to develop and manage partnerships.
