When was the last time you reviewed your sales compensation structure?
If it’s been too long, you may be losing effective team members as a result. Having the right sales compensation plan is crucial for distributors. It’s not only a major revenue driver, but it can also motivate sales reps to behave in a way that aligns with company goals.
Unfortunately, many distribution companies have outdated or inconsistent compensation plans due to acquisitions, market shifts, and evolving business strategies. These companies need to overhaul their compensation structure in order to stay competitive.
Of course, changing a compensation structure can be a high-risk, high-reward endeavor, and companies often get hung up on the “high risk” part. What if the change disrupts the salesforce? What if it causes top performers to leave? Is it better to just stick with the status quo and hope that everything turns out fine?
Properly restructuring your sales compensation plan can be worth the risk, and we have a real-world example to prove it. Recently, a large, multi-industry distribution company we work with acquired many smaller companies with more than 50 different sales commission plans across 130 outside sales reps. We helped that company navigate a successful sales compensation overhaul with no attrition. Here’s how:
The Challenge: A Complex, Outdated Compensation Structure
The company’s patchwork of compensation plans meant there was no consistency across the business, which in turn led to:
- Operational inefficiencies from managing so many different payout structures
- Misalignment between sales incentives and company goals
- A lack of transparency, which made sales reps confused and frustrated
- An unhealthy variation of costs relative to GP produced by the sales reps
External market pressures, including inflation, shifting cost structures, and changing customer expectations further highlighted the need for a modernized approach to compensation.
Company leadership knew that something needed to change, but they also knew that if they didn’t handle things correctly, it would lead to significant attrition among their top performing sales reps. They feared that a botched transition would cause 25-50% of the sales team to leave—and for good reason. Sales reps are typically skeptical of changes to compensation because they assume it will result in lower earnings. The new plan would need to be transparent, fair, and aligned with company objectives without negatively impacting employee morale.
The Strategy: Implement a New Compensation Plan Without Losing Talent
We created a five-step approach to creating and implementing their new plan.
1. Thoughtful Planning and a Long-Term Approach
Leadership knew that when changing the way compensation works, you can’t afford to rush things. They bought into the process and took over a year to develop and implement the plan. This allowed our team ample time for testing, refining, and communicating changes to the sales team. We also took care to anticipate and model many different scenarios, ensuring fairness and predictability.
2. Creating a Cross-Functional Team
To lead the transition, we assembled a diverse project team, including:
- Sales leadership with industry expertise.
- HR specialists to address employee concerns and compliance.
- Finance and payroll experts to ensure accurate financial modeling.
- Data analysts to improve reporting and transparency.
This team also included representatives from the acquired companies to ensure that cultural differences were considered while formulating and implementing the plan. Leadership knew that without input from these newer additions to the company, adoption would be much more difficult.
3. Leveraging Data and Transparency
A major part of the new plan involved giving sales reps greater transparency into the data that drives compensation. We worked with the leadership team to introduce real-time commission dashboards using Power BI and gave reps self-service access to commission reports, reducing the need for constant back-and-forth with management.
As a result, the new system eliminated manual commission tracing and saved over 1,000 hours in administrative time. This level of transparency also alleviated skepticism among the sales team, as they could now see every detail of their earnings, including invoice-level data.
4. Involving Sales Reps Early in the Process
Instead of dictating a new compensation plan, leadership interviewed a dozen key sales reps early on to take the team’s temperature. These interviews covered:
- Frustrations with the existing plan.
- Aspects of the existing plan that they valued and wanted to keep.
- Areas where compensation and sales behaviors were misaligned.
Due to their genuine involvement in the process, the sales team felt heard, which led to increased buy-in during the rollout.
5. Gradual Rollout and Pre-Selling the Change
We introduced the new plan three months before going live, giving reps a chance to understand and adjust to the change. Sales managers received in-depth training before the announcement and were prepared to address questions and concerns from the sales team.
The sales team were provided a detailed compensation guide, which explained how the new plan worked, addressed common scenarios, answered likely questions, and provided side-by-side comparisons of earnings projections under the old and new plans. Reps could even use a modeling tool to unput their projected sales numbers and see how much they would personally earn under both plans.
The Results: A Smooth Transition with Zero Attrition
Despite initial fears, not a single salesperson left the company due to the compensation change. Normal turnover (retirements and relocations) continued, but there was no disruption caused by dissatisfaction with the new plan. The company’s thoughtful, inclusive approach to plan development and implementation ensured that it never felt like the transition was being imposed on them.
Of course, it helped that the company’s goal was not to cut pay, but to better align incentives with company objectives. Sales reps who met their targets under the old plan earned the same or more under the new plan. And because the new structure emphasized goal attainment, it ultimately provided greater upside for the high performers they were worried about losing.
Our new plan also increased efficiency and trust in the system. Sales reps no longer had to spend valuable time manually tracking their commissions or emailing managers for clarification, and the real-time dashboard created a self-service system that reduced administrative workload overall. Managers could also provide better support to their teams using the clear, relevant data that they could now access in real time.
Key Lessons and Best Practices for Changing Compensation
This success story can teach distributors a few things about how to change their own compensation plans. We found four major takeaways:
- Change management is critical. Involve all stakeholders as early as possible to build trust and reduce resistance. Put as much effort into communicating the new plan as you did designing it.
- Transparency is non-negotiable. Salespeople are naturally skeptical of compensation changes, so provide real-time access to commission data and side-by-side comparisons of the old and new plans. Otherwise, they’ll be inclined to bail.
- Incentives must align with business goals. Any compensation plan should incentivize desired sales behaviors rather than penalizing reps. Clearly define performance targets and rewards to motivate growth.
- A gradual rollout prevents disruption. If possible, introduce the plan before implementation and train managers before the announcement so they’re ready to support and reassure their teams. Additionally, provide tools for reps to model their earnings under the new plan so they can be certain about its positive impact.
Final Thoughts
Restructuring a sales compensation plan is a high-risk initiative, but when done correctly, it can earn high rewards, improving alignment, efficiency, and transparency without causing disruption or talent loss. Consulting with experts who’ve guided others through the process successfully is an important first step in the process.
This case study proves that thoughtful planning, data transparency, and strong communication can lead to great success. If your company is looking to modernize its compensation structure, take a strategic, employee-centric approach—one that makes sales reps feel valued, motivated, and fairly compensated for driving company growth. A seamless and fruitful transition is sure to follow.
