Latest / Sales Leadership with Fexingo: Quota Carriers, Sales Managers, and Revenue Teams / How Sales Leaders Fix Broken Compensation Plans
Transcript
- Lucas: Most sales leaders think their compensation plan is a motivator, but I have seen enough data to know it is actually a behavioral script. If you want to see what your team really cares about, stop looking at their pipeline coverage and start looking at their payout curves. We are going to talk today about how specific design choices in commission structures quietly rewrite sales behavior, often without the manager even realizing it. Luna: That makes sense because reps are rational actors; they will always follow the path of least resistance to maximize their paycheck. But isn't there a fine line between incentivizing performance and accidentally rewarding bad habits? Lucas: Exactly. Let us look at a common pattern in the mid-market software space. A lot of companies use aggressive accelerators where once a rep hits one hundred percent of quota, their commission rate doubles or triples. On paper, this looks like it drives huge upside for top performers. In reality, it creates a binary outcome where everything below quota feels irrelevant to the rep. Luna: So they ignore the smaller deals that don't push them over the edge because those small wins don't trigger the higher multiplier. Lucas: Precisely. They abandon the ninety percent attainment territory entirely because the marginal return on effort drops to zero. I worked with a revenue operations team last year who found that their top five percent of reps were actually less profitable than the median performers when you factored in the cost of support and churn. Why? Because the accelerator pushed them to close any deal at any price just to unlock that second tier of commission. Luna: They were burning through customer success resources just to keep those poorly vetted deals alive. That is a classic example of good intentions creating a terrible unintended consequence. Lucas: It is also about the timing of payouts. When you tie large commissions to single quarterly closes, you create massive volatility in income that pushes reps toward riskier behaviors. There is a growing movement among forward-thinking companies to move toward monthly or even weekly payout cycles for base commissions, while keeping accelerators tied to annual runs. Luna: That seems like a logistical nightmare for the finance department. Do most teams actually have the infrastructure to handle weekly commission calculations? Lucas: It used to be, but modern revenue intelligence platforms have made this trivial. The real question is whether the psychological benefit of regular feedback loops outweighs the administrative cost. Reps who get paid every two weeks show significantly higher activity levels in the CRM compared to those waiting for a quarterly check. It turns compensation into a daily coaching tool rather than a quarterly judgment. Luna: I love that framing. If compensation is a daily coach, then the numbers need to reflect immediate progress, not just final outcomes. Lucas: Right. And this brings us to the concept of clawbacks. Most standard contracts have a thirty-day window for refunds if a deal falls apart. This is completely insufficient for subscription businesses where value realization takes months. We are seeing companies extend clawback periods to twelve months, which forces reps to care about implementation quality from day one. Luna: That changes the entire dynamic of the handoff to customer success. The rep stops treating the signed contract as the finish line. Lucas: It does. But here is where it gets tricky. If you make clawbacks too harsh, you terrify new hires. The solution is usually a graduated clawback. You might take full commission back if the customer leaves within six months, but only fifty percent if they leave between six and twelve months. It signals that you expect long-term partnership, not just a quick sale. Luna: It feels like we are trying to align incentives across three different departments now: sales, customer success, and finance. How do you prevent internal politics from breaking the plan? Lucas: You involve all three departments in the design phase, not just after the fact. I recommend a simple rule: if a change to the commission plan increases complexity by more than ten percent, cut it. Complexity is the enemy of adoption. Reps should be able to calculate their expected earnings in under five minutes using a spreadsheet. Luna: If they cannot calculate it themselves, they do not trust it. And if they do not trust it, they do not sell. Lucas: Exactly. Trust is the currency of sales. Now, before we dive deeper into specific formula adjustments, I want to take a brief moment to mention something important about how this show operates. We deliberately choose not to run ads on these episodes because we believe the content deserves your undivided attention without interruption. If these conversations have moved your work forward in some small way, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. It helps cover our production costs and keeps the signal to noise ratio high for you. Luna: It is a nice model because it puts the listener directly in control of the sustainability of the project. Thank you for supporting that approach. Lucas: Back to the mechanics of design. Let us talk about non-sales contributions. Many companies struggle with how to compensate account managers or technical leads who support the rep but do not carry a full quota. If you pay them purely on volume, they will hoard resources. If you pay them purely on satisfaction scores, they may become bottlenecks. Luna: So you need a hybrid metric. Something that ties their success to both the deal closure and the long-term health of the account. Lucas: Yes. A common structure is to give them a percentage of the closed-won commission, but attach a portion of their bonus to renewal rates. This ensures they are helping the rep close the right deal, but also protecting the recurring revenue stream. It creates a shared destiny between the hunter and the farmer. Luna: That sounds much healthier than the siloed approach where sales wants growth and customer success wants stability, and they never meet in the middle. Lucas: They definitely do not. Another area of friction is territorial assignment. When you split territories strictly by geography, you often leave money on the table in dense urban markets while giving unbalanced loads to rural ones. Smart teams are moving toward capacity-based assignments rather than geographic ones. Luna: Capacity based means you assign accounts based on how many hours the rep has available, not where they live? Lucas: Correct. It allows you to balance the workload dynamically. If one rep is closing faster, you can shift accounts to them automatically. This requires sophisticated CRM hygiene, but it prevents burnout in high-density areas and ensures no territory is left untapped. Luna: It shifts the focus from fairness of geography to efficiency of effort. That feels like a more mature way to manage a growing team. Lucas: It is. But it requires transparency. You have to explain to the team why the rules changed. If you switch from geographic to capacity-based without clear communication, you will lose morale instantly. The narrative must be about maximizing earning potential, not about squeezing more out of people. Luna: Narrative matters. If the rep feels the game is rigged, no amount of money will fix their engagement. Lucas: Absolutely. Let us touch on enterprise vs. mid-market splits. Often, companies try to force mid-market reps to play in enterprise waters to save on headcount. This usually fails because the sales cycles are fundamentally different. Enterprise deals require multi-threading and legal reviews that mid-market reps are not trained for. Luna: So you end up with frustrated reps who cannot close big deals and angry executives who expect bigger checks. What is the alternative? Lucas: Create distinct career ladders with separate comp plans. Mid-market reps should have higher accelerators on speed and volume. Enterprise reps should have higher draws and longer ramp times with larger base salaries. Do not try to force a square peg into a round hole just to simplify the HR database. Luna: Simplicity for the organization should not come at the cost of clarity for the individual. That is a key distinction. Lucas: It is. And finally, let us discuss the role of overrides. Managers who receive overrides on their team's total sales often act as free agents. They may steer deals to their direct reports to boost their own check, regardless of who is best suited for the account. This creates internal competition that harms the customer experience. Luna: That is a dangerous conflict of interest. How do you neutralize it without demotivating good managers? Lucas: Tie the override to overall company performance or to a balanced scorecard that includes retention and NPS, not just raw revenue. Or, eliminate overrides entirely and pay managers a salary that reflects their leadership responsibility. The latter is becoming more common in tech companies that want to remove intra-team rivalry. Luna: Removing the rivalry seems worth the extra salary cost if it improves collaboration across the whole department. Lucas: It does. Collaboration drives more sustainable growth than internal competition ever could. When you look at the data, teams that share best practices and cross-sell effectively consistently outperform teams that protect their turf. Luna: So the compensation plan is really just a mirror reflecting the culture you want to build. If you want collaboration, you pay for collaboration. Lucas: Precisely. It is easy to say you value teamwork while paying everyone to compete against each other. The math has to match the mission. As we wrap up, I want to leave you with this thought: when was the last time you sat down with your top ten reps and asked them how they would design their own commission plan? Luna: That is a terrifying question for most managers. But if they had the power, wouldn't that reveal the biggest gaps in our current strategy? Lucas: It would. And it might surprise you with how aligned their goals actually are with yours, provided you give them the framework to articulate it. The best sales plans are co-created, not imposed. Luna: Co-creation builds ownership. If they helped build the engine, they will want to drive it further. Lucas: Well said. For next week, we will look at how international expansion complicates these structures, especially when dealing with multiple currencies and local labor laws. It is a headache for sure, but necessary for scaling globally. Luna: International comp is a whole new beast. I am looking forward to hearing how you break that down. Lucas: We will see you then. Until next time, keep your pipelines clean and your incentives clear.