The Incentive Control Tower: Revenue Operations’ Guide to Monitoring Sales Compensation

Sales compensation plans get designed once per year, talked about at kickoff, and are mostly forgotten until next year’s planning cycle.

But revenue organizations don’t operate on an annual cycle. Prices change. New products launch. Customers shift. Territories get aligned and dismissed. Within weeks, sales teams will gameplan how to maximize their payouts.

If nobody is monitoring activity against the plan, even a perfectly designed incentive plan will slowly start to fall out of alignment.

That’s why Revenue Operations must continuously monitor sales compensation performance. Inside of every modern RevOps organization should be an Incentive Control Tower.

Why Annual Compensation Design isn’t Enough Anymore 

Most compensation plans have followed a fairly standard lifecycle:

1.Design in annual planning
2. Communicate at kickoff
3. Calculate payouts all year
4. Review performance at year end 

Over the past decade, pricing, products, go-to-market strategies, territories, and sales behaviours have shifted at a rapid pace.

As a result, modern revenue organizations experience situations like:

1.A new product launches mid-year, drastically changing the revenue mix
2.Competitors force pricing wars and aggressive discounting
3. Enterprise deals start making up a majority of revenue
4.Leaders realign territories which changes pipeline landscape 

As circumstances change, the initial “architecture” of the compensation plan may no longer serve the needs of the business.

Waiting until next year’s plan to make adjustments means problems will fester until kickoff. Leaders will find themselves resolving manual overrides, fixing commission disputes, and fighting silly-sales-behavior.

But if RevOps teams are continuously monitoring activity against the plan, they can quickly surface these issues.

5 Signals That Indicate Your Incentive Plan Is Out of Control

An incentive control tower closely tracks plan health metrics to understand how a compensation plan is actually functioning.

Here are the five biggest signals that your incentive plan is becoming unbalanced:

1. Increases in Compensation Overrides 

It only takes one or two “generous” leaders to start a trend of approving deal-level exceptions.

Deals that consistently get leadership intervention for overrides are a clear indication that the plan is missing elements that leadership feels are important.

Are enterprise deals getting kicked up to leadership for special commission multipliers? Consider building an enterprise deal feature into your plan.

2. Margin Erosion on Commissionable Deals 

One of the biggest “gotchas” with commission plans is giving reps 100% commission on deals where heavy discounting occurred.

Unless reps are selling to a direct customer, pushing deals through for the sake of commissions can cause margin to rapidly decline.

Tracking margin across commissionable deals can help RevOps understand whether incentives are driving the proper selling behavior.

3. Distorted Quota Attainment Distribution 

A bell curve for quota attainment looks like this:

1.Sales Reps > Quota
2.Sales Reps ~ Quota
3.Sales Reps < Quota 

If most of your reps are far exceeding quota halfway through the year, your quotas might be set too low.

If very few reps are even close to quota, your plan may not be motivating them enough to achieve their goals.

Understanding changes to attainment distribution can help RevOps teams assess whether quotas and incentives are staying relevant.

4. Deal Size / Revenue Concentration Shifts 

How many deals make up the majority of revenue?

Is that distribution changing because of changes in:

1.Product mix?
2.Customer mix?
3.Sales behavior? 

Whatever the cause, significant shifts in revenue concentration can cause spikes in payouts if not planned for.

If RevOps doesn’t stay on top of how many deals are contributing to revenue, they risk losing visibility into future commission costs.

5. Commission-to-Revenue Ratio Trending Up 

Finance loves this metric. 

If commission as a % of revenue begins to creep upward, it’s probably due to:

1.too much acceleration
2.margin compression
3.override culture
4.poor quota settings 

By keeping an eye on this KPI, RevOps can ensure commission costs don’t spiral out of control.

Establishing Your Incentive Control Tower 

Revenue Operations should establish processes to actively monitor these signals on a monthly basis.

Most would fall under the category of monitoring sales behavior and evaluating it against plan intent.

At a high level, the Incentive Control Tower should be responsible for:

1.Reporting on compensation analytics monthly
2.Examining shifts in sales behavior
3. Identifying when sales behavior deviates from plan intent
4. Escalating when plan restructuring is needed mid-year 

Rather than waiting until year end to realize the plan isn’t incenting properly, an incentive control tower works to identify early warning signs and surface options to leadership.

For instance, if margin variance is steadily increasing quarter-over-quarter, maybe it’s time to consider adding commission tiers based on margin percentage?

Leveraging Technology to Monitor Compensation 

Having the right technology to monitor these metrics is a huge accelerant for any RevOps function.

Sales Compensation tools l provide real-time visibility into:

1.payout distribution
2. quota attainment trends
3. commission forecasts
4. plan performance 

RevOps teams should leverage these systems to quickly identify outliers and model the financial impact of plan changes.

Rather than relying on spreadsheets and generating reports manually, compensation intelligence should be integrated into the larger revenue analytics suite.

Elevating Sales Compensation to a Revenue Intelligence Asset

Sales compensation is a tremendous source of insight into the selling function.

It can tell you: 

1.which products sales teams are pushing
2.how they are prioritizing opportunities
3.how pricing changes impact deal velocity
4. where commissions are driving behavior 

When RevOps starts to continuously monitor these metrics, sales compensation evolves from being a payroll function to a revenue intelligence asset.

Tactics for optimizing sales compensation can surface insights into pricing, product strategy, territory design, sales enablement, and more.

Changing from Static Plans to Dynamic Optimization 

Revenue leaders must start to view sales compensation less as a static plan that’s set at the beginning of the year, and more like a dynamic system that must adapt to changes in real-time.

By implementing an Incentive Control Tower, Revenue Operations can help lead the charge to building a system of continuous optimization.

The best companies don’t realize their plans are out of alignment until it’s too late. Solve for incentives before they become a problem.