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Building An Effective Sales Compensation Framewok
CIPD – London May 7 th, 2010
Paola Gheis
1
CIPD Sales Compensation May 7, 2010 Paola Gheis2
Content• The Sales Management System
• Why using Sales Incentive Plans (SIP)• SIP Eligibility and roles’ review within the sales strategy
• Sales Comp Design Fundamentals• Some SIP design fundamental and criteria for choosing them
• How to Ensure SIP Alignment to Sales Strategy Over Time• SIP stakeholders• SIP learning process
• SIP Evaluation• How to build the tool kit for a SIP review with sales leaders• SIP assessment: some critical questions
• The Communication Process• Some critical aspects• A recommended model
• Bibliography
The Sales Management System• Why using Sales Incentive Plans (SIP)• SIP Eligibility and roles’ review within the sales
strategy
CIPD Sales Compensation May 7 Paola Gheis3
CIPD Sales Compensation May 7, 2010 Paola Gheis4
The Sales Management System
Sales Management System TM
E N A B L I N G T E C H N O L O G I E S E N A B L I N G T E C H N O L O G I E S
Sales Coverage Strategy Sales EffectivenessCustomer
Accountability
Segment Definition &
Targeting
Sales Strategy
Channel Design
Organization Resource Deployment
Performance Metrics & Tools
Goals & Compensation
People Management Programs
& Selection& Job
Design
• Revenue and Profit goals
• Business Growth Expectations
• New Markets Selling
• Maintenance selling, etc.
• Go-to-Market Strategy
• Indirect, direct, retail, etc.
• Global, regional
• High touch, low touch
• Product specialist, generalist, tele-sales
• Account assignment
• Territory assignment, etc.
• How many?
• Revenue
• Volume
• Product mix
• Etc.
• Plan design features
• Pay mix, upside, MBO
• Costs & affordability
• Communication: content, planning
• Payout calculation
CIPD Sales Compensation May 7, 2010 Paola Gheis5
Why Companies Use Sales Incentive Plans and What are the Objectives?
• Drive sales growth & profitability• Align rewards tightly to sales results for individuals and sales
teams• Create performance differentiation and sustain a performance
culture• Drive individual accountability (while balancing team effectiveness
as necessary)• Drive motivation by offering (attractive) above target incentives• Focus employees’ behavior to sales priorities with key metrics• Provide flexibility to align sales behavior with market dynamics• Create a win-win situation for the company and employees
Sales people drive the company’s top line (and often impact the bottom line)
CIPD Sales Compensation May 7, 2010 Paola Gheis6
Eligibility to Sales Incentive Plan
• The Sales Incentive Plan are designed specifically for sales employees who are directly involved in selling and persuading a defined customer to buy
Sales Process
1.Role activity generate an eventual business results but is not accountable for Orders or Revenue Generation2. Role is focused on customer identification and understanding of its business needs but persuation activity is not yet the focus of the role3. This stage of the sales process requires customer contact but this is not the predominant activity
Customer Identification
Lead GenerationLead Qualification
Roles NOT eligible to Sales IncentiveRoles may be eligible to variable pay
Pre-salesProposal / Negotiation
Close
Customer Persuasion
1. Sales person with accountability and responsibility for customer orders2. Sales person with responsibility for persuading a customer to buy3. Primary focus of the role on the persuasion phase of the sales process4. Requires consistent customer focus and contact 5. Quantitative measures of success are defined and available for all targets
Role eligible to Sales Incentive
Customer Support
Customer Service
1. Role has extensive customer contact but the contact is not necessarily with the buying decions maker2. Accountability is typically around customer satisfaction metrics rather than orders and revenue3. Focus of role is around customer satisfaction and not persuasion to buy
Customer Fulfillment
Roles NOT eligible to Sales IncentiveRoles may be eligible to variable pay
CIPD Sales Compensation May 7, 2010 Paola Gheis7
Sales Roles – Sales Strategy Matrix
• This is a useful tool to help clarify the primary differentiation (R,P,C) between sales roles
Buyers
Conversion Selling
“Grow Base”
Conversion Selling
“Grow Base”
New Market Selling
“Develop Markets”
New Market Selling
“Develop Markets”
Maintenance Selling
“Protect Base”
Maintenance Selling
“Protect Base”
Leverage Selling
“Penetrate Accounts”
Leverage Selling
“Penetrate Accounts”Customers
Prospects
Current New
Products
Conversion focus
Penetratio
n focu
sRetention focus
Sales Comp Design Fundamentals
• Some SIP design fundamental and criteria for choosing them
CIPD Sales Compensation May 7 Paola Gheis8
CIPD Sales Compensation May 7, 2010 Paola Gheis9
Sales Compensation DesignDesign Fundamentals
Upside
Base
Target Incentive
Pay Mix
Target Incentive
Upside Pay Incentive Program
Tota
l Ta
rget
Cash
CIPD Sales Compensation May 7, 2010 Paola Gheis10
Pay Mix and Upside
0%
100%
75
25
50
60
40
80
90
10
20
Low High Extent of Upside Potential
Targ
et
Co
mp
ensa
tio
n
Target
Target
Base
Upside Earnings
10
CIPD Sales Compensation May 7, 2010 Paola Gheis11
Sales Incentive Plan Pay Mix and Upside Criteria
Less Aggressive Pay Mix/Upside More Aggressive
Added Value Sales FocusPrice
Many Co. Employees Customer Contact Sales Person Only
Many Reasons Buy DecisionSeller Driven
Weak Line of sight Strong
Non-Predictable results Forecast Ability Predictable Results
Emerging Market Mature
Country/Region Level of measure IndividualCompanies may determine a streamlined choice of plan variations for:
Choice of simplicity of plan administration and communication, easiness to manage compensation in case of mobility across roles, affordability, etc.
How to Ensure SIP Alignment to Sales Strategy Over Time
• SIP stakeholders• SIP learning process
CIPD Sales Compensation May 7 Paola Gheis12
CIPD Sales Compensation May 7, 2010 Paola Gheis13
Compensation Plans are Dynamic Programs
Because the drivers (market forces, company strategy, etc.) are constantly shifting, job definitions evolve. As job definitions change, the compensation plan must also change to support the new selling roles.
Because the drivers (market forces, company strategy, etc.) are constantly shifting, job definitions evolve. As job definitions change, the compensation plan must also change to support the new selling roles.
Change DriversObjectives and
Strategies Job DefinitionCompensation Implications
Market Forces
Competition
New Products
Technological Change
Marketing PrioritiesMarketing Priorities
Sales StrategySales Strategy
Product/Service
Mix
Product/Service
Mix
Customer Coverage
Requirements
Customer Coverage
Requirements
Customer Responsibility
Product Responsibility
Process Responsibility
Measures
Weights
Leverage
Funding
Measurement and Tracking
CIPD Sales Compensation May 7, 2010 Paola Gheis14
Man
age
proc
esse
s to
tra
nsla
te
sale
s ou
tcom
es in
to in
cent
ive
payo
ut
Drive sales performance
Provide plan feedback
Drive sales priorities, coach sales,
ensure SIP understanding within
team
Pro
vide
lead
ersh
ip o
n sa
les
stra
tegy
, ap
prov
e pe
rfor
man
ce
met
rics
and
SIP
des
ign
Drive pay competitiveness and consistency with company pay
philosophy
Consu
lt on S
IP a
fford
ability
Drive
targ
et se
tting p
roce
ss
SIP Stakeholders
CIPD Sales Compensation May 7, 2010 Paola Gheis15
Sales Incentive Plan Learning Process
Process Start
SIP Evaluation• How to build the tool kit for a SIP review with
sales leaders• SIP assessment: some critical questions
CIPD Sales Compensation May 7 Paola Gheis16
Effectiveness
Is SIP driving the desired behavior?
Informational interviews
Field surveys
Efficiency
Are we getting the
results we are paying for?
Interal SIP performanc
e data
Competitiveness
How is the plan design relative to
the market?
Salary surveys for $ data
Networking clubs for
qualitative data
CIPD Sales Compensation May 7, 2010 Paola Gheis17
Key q
uesti
on
Data
Sou
rce
Building a Tool Kit to Evaluate & Review SIP with Sales Leaders
Is SIP Driving the Desired Behavior?• Periodic interviews and surveys in the field needed to support the
assessment:• Define relevant population segment depending on organization size and
model: • GMs• District Mgr (first line sales mgrs)• Field Sales Employees• Etc.
• Design questions for managers around sales priorities and assess SIP is not driving disruptive behaviors:
• Is the sales force spending time on pushing product X (performance data analysis also provides insights to this question)
• Is SIP ensuring the necessary collaboration among your sales reps• Etc.
• Ask Sales Employees if:• They understand the plan• Is SIP supporting the objective of the job and if not why• Etc.
CIPD Sales Compensation May 7, 2010 Paola Gheis18
Are We Getting What We Are Paying For?• Acquire intelligence on plan costing and its relation to the revenue
achieved• Target Incentive Paid % vs. Total Net Revenue Achieved
• This basic metric should be broken down by the relevant organization segments
• Global, regional, country, district, etc.
• Correlate % of incentive paid for each plan metric to the results achieved for that particular metric goal. Example:
CIPD Sales Compensation May 7, 2010 Paola Gheis19
Metric Product X
Product Y
Product Z
Weight 50% 40% 10%
Revenue Achieved 96% 130% 73%
Incentive paid 106% 170% 60%
• What is each product maturity and strategic relevance?• Is the field force trained to sell product Z?• Is 10% weight relevant enough to focus sales to Product Z or are sales employees shopping
the plan?• How is the quota set for Product Y
A few questions to interpret the data in the example table:
Is SIP Attractive (or too attractive) Relative to Competition?• Salary surveys provide compensation data on base, target and actual
cash• Helpful to set compensation levels by role and to design certain element of
the plan mechanics (e.g. pay mix)• Sales practices surveys is another source to enhance intelligence on
plan design• Networking with comp colleagues and setting up benchmarking clubs
with a rigorous method of exchanging qualitative information is a very good source to gain market insights on incentive design practices
• All of the above help to assess how to position your plan design payout potential relative to the market of reference
CIPD Sales Compensation May 7, 2010 Paola Gheis20
The Communication Process• Some critical aspects• A recommended model
CIPD Sales Compensation May 7 Paola Gheis21
•Business relevant: link plan elements to sales strategy•Clear: highlight what has changed and what is the same•Complete: details on a separate addendum all plan features•Flexible: include disclaimer stating that SIP is subject to change in the future
Business Relevant, Clear,
Complete, Flexible
•Explain rules of the game before the game starts•Best performing organization can communicate SIP and quota goal by the first two weeks of performance period
On time
•SIP is part of the sales management process
Must come from the business
CIPD Sales Compensation May 7, 2010 Paola Gheis
22
Critical Elements of Communication
Senior Management •Sales Kick off meeting: Present sales strategy and priorities and key targets to be achieved part of SIP
Direct Manager•One-to-one meeting with sales employee. •Emphasize key business priorities within territory/account assigned•Ensure SIP details are understood and explain how plan can be maxed out
Tools •Sales employee simulate plan payout at different level of achievement with available tool to understand plan mechanics and earning potential
CIPD Sales Compensation May 7, 2010 Paola Gheis
23
A Recommended Communication Process
Bibliography
CIPD Sales Compensation May 7, 2010 Paola Gheis24
A few good books to get started on Sales Comp
A Few Good Books to Get Started on Sales Comp• The Channel Advantage. Going to market with multiple sales
channels to reach more customers, sell more products, make more profit. Laurance G. Friedman, Timothy R. Furey. Butterworth Heinemann. 2001
• Compensation the Sales Force. David J. Cichelli. Mc Graw Hill. 2004• The Complete Guide to Sales Force Incentive Compensation. How to
Design and Implement Plans That Work. Andris A. Zoltners, Prabhakant Sinha, and Sally E. Lorimer. AMACOM. 2006
• Compensating New Sales Roles. How to Design Rewards That Work in Today’s Selling Environment. Jerome A. Colletti, Mary S. Fiss. AMACOM. 2001
Paola Gheis’ Bio and Contact Details
CIPD Sales Compensation May 7, 2010 Paola Gheis26
• Paola Gheis is a seasoned HR professional with 15+ years of experience acquired in blue chip companies such as Nokia, Agilent Technologies and Hewlett-Packard.
• Paola has a large experience in developing and implementing strategic performance-base HR programs and sales compensation programs and a solid experience in change management, business consulting and talent management. Her professional activity has been deployed in multi-cultural environments with geographical responsibilities ranging from local roles for the Iberian market to European and Global responsibilities covering EMEA, Asia Pacific and Americas.
• Paola got educated in Italy and the United States with a B.S. in Economics and an M.S. in Industrial Relations. She lived in seven countries, speaks five languages and traveled in any continent to work on her projects.
• Paola currently lives in Barcelona, Spain, and can be reached at:• Email: [email protected]• Cell.: +34 648 01 3914• Linkedin profile: http://es.linkedin.com/in/paolagheis
CIPD Sales Compensation May 7 Paola Gheis27