By Kristen Hayer
One of the questions I hear most often from customer success leaders is, “What kind of compensation plan should I provide for my CSMs?” My answer is always “It depends.” – the typical non-answer you’ll get from any good consultant or MBA! However, here’s what it depends on, and a framework for thinking about compensation in general.
Variable Comp vs. Salary Only
Many people argue that as trusted advisors, CSMs should not have a variable component to their compensation plan. I disagree. I think that most CSM teams benefit from a variable plan as long as it is based on clear goals that align with the company’s mission and initiatives. People are motivated by money (see my recent post on variable comp), and variable plans can be one of the best ways to drive the behavior you want from your team.
That said, if either of these things are true you should avoid variable comp: 1. Your metrics and goals are unclear or 2. Your executive team does not support variable comp in general. A team with unclear goals will be frustrated by having a portion of their compensation impacted by something they can’t influence, and if you try to push through a variable plan with an unsupportive executive team you’ll end up fighting for every penny your team earns. In both of these cases you should offer a salary that is slightly above average (in order to compete), and consider contests or SPIFs as ways to drive desired behavior on your team.
Bonus vs. Commission
Let’s assume you have made the decision to have a variable component as a part of your team’s comp plan. The next decision you need to make is whether it should come in the form of a bonus or commission.
Commission is terrific for things that are incremental, easy to measure and directly related to revenue (cross-sell, add on features, paid training). To work well, commission should be a logical percentage of the value of what was sold, and should be uncapped. The best commission plans reward employees at a higher rate once they have exceeded their goals. Keep in mind that commission doesn’t need to be limited to things that are sold for money: If the value of getting customers through an unpaid training program is that they stick around for an extra year, it’s valid to pay commission to the CSMs that sign them up.
Bonuses are a good option for goals that are challenging to measure, project-based or team-based. In order for a bonus plan to work, the expectations for earning the bonus should be clearly defined and communicated to members of the team at the beginning of the bonus cycle. Since bonuses are often paid on a quarterly or annual basis, it is also important to regularly communicate with team members about how they are pacing against their bonus plan. This helps to keep the good behavior you are trying to drive top of mind.
Some of the most effective compensation plans for CSM teams include a combination of commission and bonus, because CSM goals tend to include a mix of selling and project-based work. If you have a blend of goals consider a variable plan with a blend of commission and bonus.
Annual vs. Quarterly vs. Monthly
Once you’ve decided how to structure variable comp for your team, you’ll need to decide on the term of your plan. It helps to think about 2 factors as you make this decision – the plan structure (commission vs. bonus) and the seniority level of the role (CSM, lead, manager).
The structure of the plan can help you to determine how often it should pay out. In general, commission plans are based on short-term goals like sales this month or renewals this quarter. If your plan is primarily commission-based, choose a term that corresponds with the goals it is based on. Bonus plans, as I mentioned earlier, tend to be based on goals that are quarterly or annual. Again, choose a payout timeline that corresponds to the goals you’re trying to drive toward.
Another factor to consider when deciding on the term of your plan is the seniority of the role. Front-line employees (CSMs, account managers, support reps) are expected to drive short-term wins and typically have short-term goals. In order keep these team members focused on and excited about their goals, the variable payout should be more frequent. On the other hand, more senior team members are often driving toward long-term goals (improving customer satisfaction this year or decreasing churn this quarter). To keep these team members focused on the big picture, the payout timeline for their variable comp should be longer.
Once you make these decisions, you can move on to deciding on dollar amounts and writing up the plans. This is also a good time to have a chat with your finance team about your ideas. They can help you understand how other teams in your organization have set up their compensation plans, and will often have great feedback on things that have worked (or not) in the past.
Need help building a highly effective compensation plan for your CSM team? The Success League is a consulting firm that works with executives who want to unlock the retention and revenue a top performing customer success team will bring to their business. www.TheSuccessLeague.io