Sales Management Association Webcast

© Copyright 2016 The Sales Management Association.

Sales Management Association Webcast

28 June 2016

Presented by

Getting Sales Compensation Right

https://www.linkedin.com/in/david-cichelli-1030a823


https://twitter.com/Alexander_Group


https://ca.linkedin.com/in/kevin-gray-884a1a8


https://twitter.com/IBM


About The Sales Management Association

Slide 2© 2016 The Sales Management Association. All rights reserved.

A global, cross-industry professional association for sales

operations and sales management.

Focused in providing research, case studies, training, peer

networking, and professional development to our membership.

Fostering a community of thought-leaders, service providers,

academics, and practitioners.

Learn More: www.salesmanagement.org

http://www.salesmanagement.org/

Today’s Speakers










© Copyright 2016 The Sales Management Association.

Sales Management Association Webcast

28 June 2016

Getting Sales Compensation Right

Presented by









© 2016 IBM Corporation5

It’s not easy…

territory definitions, account assignments, setting quota, sales roles, plan measures, rates, crediting rules and more…

Getting Sales

Compensation Right

Why are organizations adopting ICM solutions?

Gaining Competitive Advantage

Streamlining the Compensation Payout Process

Driving the Right Sales Behaviors /

Motivation

Providing Visibility to Sellers and Managers

Aligning Corporate Goals with Sales

Incentives

Measuring Sales Quota Attainment and

Performance

Why are organizations adopting ICM solutions?

► Reduced times to set up new plans by 250

hours annually

► Modeling allows simulation

of plan changes or adding

new components prior to

rolling out to clients

► Added 5-6 hours of selling time per rep per

month at a financial services company

► Cross-sell ratio (products

owned per customer)

improved from 2 to 5.66 at

another company.

► Nearly $1 million in reduction and

commission calculation errors and disputes

► Plan management efficiency

gains enhances margins

by up to 25%

ENABLE & MOTIVATE SALES TEAMS

FLEXIBILITY TO ADAPT

BOTTOM LINE IMPROVEMENTS

DRIVE OPERATIONAL EFFICIENCIES

► Payout process reduced from 2 weeks to 2

days.

► Went from hundreds of

spreadsheets with manually

entered data to one simple

system

► Sales Incentive Compensation is the link between corporate strategy and customer-facing activity

► This business process is one of the lowest hanging fruit for savings and efficiencies

► Next generation sales forces will need to rely on data for competitive advantage

Three Axioms

Show me the sales incentive plan …“

and I’ll show you the company’s business priorities”

Many firms still rely on a patchwork

of spreadsheets, email, manual

processes, and outdated legacy

systems to manage and administer

variable comp plans

Cost of errors and

commission overpayments

estimated at greater than

$1 million per year— An IBM customer in

financial services

SPM Maturity Curve

Scaling a Market

Time

CHAOS pre-ICM

STABILIZE the operation

OPTIMIZE decisions & processes

SPM

Co

mp

eten

cy a

nd

Val

ue

Pay for Performance

YTD

Sale

s

YTD Quota Attainment

Boom Bust Analysis

2013 A

ttain

men

t

2014 Attainment

Quota Distribution Top & Bottom Performers

Ranking

1

2

3

4

Rep

Marilyn

Abdul

Steve

Jian

Attainment

183%

121%

98%

42%

# o

f R

ep

s

Quota Attainment %

Manage your sales team

Atlanta | Chicago | San Francisco | Scottsdale | Stamford

Get Sales Compensation Right!

June 2016

David J. Cichelli

Senior Vice President

[email protected]

480.315.5828

© 2016 The Alexander Group, Inc.®

Objectives

Confirm that sales compensation plans are prone to

“classic” problems

Highlight key design principles

Show how growth changes the sales force

Present methods to investigate and manage sales

compensation plan health

Suggest a redesign process you can follow

23


Something is not right…

24

…with the sales compensation plan…


…Evidence Abounds

• Misaligned with Company Goals

• Too Many Plans

• Excessive Pay

• Weird Quota Outcomes

• Field Frustration

• Exceptions Galore

• Legal Issues Pending

Us

Market

Quota Performance

25

Sales Compensation—

Key Concepts


Revenue Growth Model™

RGM is a unifying framework for product, marketing, sales and service resources that

convert go-to-market strategies into actionable go-to-customer practices.

1 2 3 4 75 6 8 9

REVENUE

SEGMENTS

VALUE

PROPOSITIONS

REVENUE

MOTIONSCHANNEL

COVERAGE

TALENT, SKILLS

& SUPERVISION

ORGANIZATION

& JOB DESIGNSIZING &

DEPLOYMENT

PRODUCTIVITY,

QUOTAS &

METRICS

PERFORMANCE

MANAGEMENT

& REWARDS

REVENUE GROWTH MODELTM

REVENUE LEADERSHIP

STRATEGY STRUCTURE

REVENUE ENABLEMENT: OPERATIONS, PROCESSES & TECHNOLOGIES

MANAGEMENT

27


Base

SalaryBase

Salary

Target Total

Cash

Compensation

Base

Salary

GainsharingAdd-On3x

Uncapped

Types of Variable Compensation Plans

Base

Salary

2x

CappedUnit Rate

No RiskRisk

Target PayTarget Rate

Types Of Variable Compensation Plans

28


Target Total Compensation

Target Total

Compensation

Benefits

Sales Expenses

Recognition

Contests/Spiffs

Over Target

Incentive Pay

Target Incentive

Pay

Salary

Outstanding Pay

Retention/Non-Sales Pay

SecurityNeeds

Reimbursement

SpecialCompensation

FixedCompensation

Focused Efforts

Intrinsic Rewards

SalesCompensation

At-Risk Pay

Performance-BasedCompensation

29


Pay Mix

Pay mix reflects the job’s

degree of individual influence

within the deal and considers

market benchmarks

Jobs with the most influence

on the purchasing decision

have a more aggressive pay

mix

100

Plan Elements: Pay Mix

Mix

90 7050

Degree of Influence

Job A Job B Job C

Low High

1030

50

30


Plan Elements: Leverage

Leverage

Leverage (upside opportunity)

reflects the job’s degree of

individual influence on

attaining quota, and considers

market benchmarks

Jobs with the most influence

on the purchasing decision

have a higher upside earning

31

120

10

200

160

30

50

Mix

Upside

90 7050

Degree of Influence

Job A Job B Job C

Low High

1010 30

30

50

50

100 Leverage

3x


Growth Phases: Revenue And Profits

Start-UpVolume

Growth

Re-

EvaluationOptimization

Revenue Profit

Phases of Growth

32


Phases Of Growth: Rate Of Growth Change

Start-UpVolume

Growth

Re-

EvaluationOptimization

Phases of Growth

Reposition

GrowSelect

Markets

Grow; KeepCustomers

Launch NewProducts

ControlPricing

ReduceCosts

Re-ThinkProduct &

MarketStrategy

Grow

GrowReallyFast

Norm

Market Growth

Below

Market Growth

Above

Market Growth

Top-Line

GrowthSales Focus

Scaling

OnboardingPriorities

Revenue

Diversity

$ Retention

New Products

Price and

Productivity

Price Mgmt

Cost Mgmt

Segment

Growth

Segment Mgmt

Specialization

33


Base Plus Bonus/Base

Plus Commission

Multiple Plans

Reward/Recognition

Phase I

Start-Up

Phase II

Volume GrowthPhase III

Re-Evaluation

Phase IV

Optimization

Contests

Base Plus Commission

Regressive/Managed

Payouts

Add-On Bonuses

Ramped Commissions

Salary Level Job Families

Uncapped

Commission

No “Glue”

“Glue”

Sales Compensation—Phases

34


Target Total Compensation—Market Data

...Medians and Averages Alone are Meaningless

Total W-2 Compensation

Percentile Our Data Survey Data Our Pay as Percent of Survey

10th $145,000 $130,500 111.0%

25th $152,000 $149,000 102.0%

50th $160,000 $161,000 99.0%

75th $165,000 $172,000 95.9%

90th $175,000 $210,000 83.3%

10th 25th 50th 75th 90th$130,000

$140,000

$150,000

$160,000

$170,000

$180,000

$190,000

$200,000

Percentile

Total W-2 (Thousands)

Our Data Survey Data

$210,000

35


Performance Measures—Policies

Just Say “No” To:

• More than three measures

• Corporate galactic measures

• Activity measures

• Wishful thinking measures

• Compliance measures

• Can not measure measures

36


Performance Levels

Threshold 100%

Number of

Salespeople

30-40%

of Sellers

60-70%

of Sellers

Excellence

Top

10% of

Sellers

Quota Performance

● 60 to 70 percent achieve or exceed quota

● Top 10 percent of sellers earn or exceed excellence pay

● Bottom 5 to 10 percent enter performance improvement program

Bottom

10% of

Sellers

37

2017 Getting Started


2017 Getting Started

Preparing for 2017? Get started with these steps:

Plan Inventory

Market Pay Analysis

Pay/Performance Analysis

Employee Survey

Job Title Rationalization

39


Plan Inventory

Gather all sales compensation plans…

40

Job TitleTarget

Pay

Pay

MixUpside Measures Weight Quota Formula

Global Account

Manger$250,000 80/20

3x

uncapped

Revenue 50% Individual Bonus

Profit 30% Individual Bonus

Product Mix 20% Individual MBO

Key Account

Manager$175,000 70/30

3x

uncapped


Profit 30% Individual Bonus

Product Mix 0%

Product Specialist $140,000 85/152.5x

uncapped


Profit 0%

Product Mix 30% Individual MBO

Territory

Representative$110,000 60/40

3x

uncapped

Revenue 100% None Commission

Profit 0%

Product Mix 0%

Telesales

Representative$85,000 70/30

2.5x

uncapped

Revenue 60% Team Bonus

Profit 0%

Product Mix 40% Team Bonus


Market Pay Analysis

41

Market Data Company Data

10th $ 122,000 $ 132,000

25th $ 135,000 $ 143,000

50th $ 146,000 $ 148,000

75th $ 162,000 $ 155,000

90th $ 182,000 $ 170,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

10th 25th 50th 75th 90th

Market Data Company Data


Pay/Performance Analysis

42

0%

50%

100%

150%

200%

250%

0% 25% 50% 75% 100% 125% 150% 175% 200%

% o

f T

arg

et

Incen

tiv

e E

arn

ed

% of Quota Achievement


Employee Survey

43

Competitive TTC

Motivates

Overachievement

Challenging,

Achievable

Quotas

Clearly

Communicated

Easily Track

Comm. Earned Overall Rating

3.4 3.6 2.8 3.7 3.1 3.2

24% 18% 23% 15% 21%34%

-13% -9%-28%

-10%-23% -19%

-5% -9%

-13%

-4%

-10%-5%

51%49% 31% 53% 36%

38%

7% 16%

4%

19%

9%

5%

Illustration


Job Title Rationalization

44

Actual Title Platform Sales Job

Global Manager

Enterprise Seller

Corporate Asset Manager

Key Account Manager

Kellogg Account Manager

Region Sales Executive

Senior Sales Representative

Account Manager

Customer Leader

Sr. Account Manager

Sales Manager

Territory Representative

Customer Success Manager

dRox Application Seller

Region Support Seller

Sales Specialist

You Need An Action Plan…


Design Process—Phases

Phase II: Align. Meet with senior executives to ensure sales effort alignment

with strategic objectives. Document the company’s sales compensation

principles for use in the development of the revised sales compensation plans.

2

Phase IV: Implement. Guide sales compensation staff to create an

implementation strategy, plan documentation, training and roll-out campaign. 4

46

Phase III: Design. Work with a task force of key sales compensation

stakeholders to design and cost new sales compensation plans for each job.

Phase I: Assess. Gather and assess current sales compensation practices,

including: sales objective, job definitions, time allocation, market data and pay

and performance data.

3

1


Sales Compensation Design: Putting It All Together

Business

Objectives

Sales Strategy

and Structure

Job Design

Corporate

Compensation

Philosophy

Cost Modeling

Administration

Documentation,

Communication

and Rollout

Ongoing

Evaluation

Confirm Design Execute

Elig

ibilit

y

Ta

rge

t T

ota

l C

om

p

Pa

y M

ix

Le

ve

rag

e

Me

as

ure

s

We

igh

tin

gs

Me

ch

an

ics

Pe

rfo

rm. P

eri

od

Payo

ut

Fre

q.

Qu

ota

Cre

dit

ing

Account

Executive

Account

Manager

Marketing

Development

Sales Director

Ongoing Services

47


Work Chart: Phases And Timing

1 2 3…

Interviews

Executive Meetings

Task Force Meetings

Staff Meetings

Gather and Analyse

Information

Design/Revise Strategy, Roles, Programs and

Practices

Implement New Solutions

Assess

Align

Design

Implement

Confirm Principles

and Vision

Stakeholder

Approval

48


Objectives

Confirm that sales compensation plans are prone to

“classic” problems

Highlight key design principles

Show how growth changes the sales force

Present methods to investigate and manage sales

compensation plan health

Suggest a redesign process you can follow

49

Define ICM and SPM


Would you please define ICM and

SPM?

Sales Comp Design


Should we examine what

competitors are doing when we

design our own sales compensation

plans?

Leveraging Data from ICM Systems


Can you give more examples of

how organizations are making use

of data from their ICM systems?

Subscription-based Businesses


Where would I find best practices in

compensation for subscription-based businesses,

where the goal is retention of current purchases

within current accounts, but no cold-calling,

prospecting, or new customer acquisition?

Questions and Discussion


Enter your questions in the

“Questions” box on the right hand

side of the webinar application

window.

Did we run out of time before we got to your

question? Presenters can follow-up with you via

email. Feel free to submit more questions if

you’d like an offline response.

© Copyright 2016 The Sales Management Association

Thank You.

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Sales Management Association Webcast