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Presented by
© Copyright 2017 The Sales Management Association. All rights reserved.
Sales Management Associa0on Webcast
28 June 2016
Getting Sales Compensation Right
David Cichelli Senior Vice President The Alexander Group [email protected]
Kevin Gray Senior PorKolio Marke0ng Manager IBM [email protected]
© Copyright 2017 The Sales Management Association. All rights reserved.
About The Sales Management Association
A global, cross-‐industry professional associa0on for sales opera0ons 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 prac00oners.
www.salesmanagement.org
www.salesmanagementconference.com
2
16 – 18 OCTOBER 2017 ATLANTA
© Copyright 2017 The Sales Management Association. All rights reserved.
Today’s Speakers
3
David Cichelli
Senior Vice President
The Alexander Group
Kevin Gray
Senior PorKolio Marke0ng Manager
IBM
Presented by
© Copyright 2017 The Sales Management Association. All rights reserved.
Sales Management Associa0on Webcast
28 June 2016
Getting Sales Compensation Right
David Cichelli Senior Vice President The Alexander Group [email protected]
Kevin Gray Senior PorKolio Marke0ng Manager IBM [email protected]
© 2016 IBM Corporation 5
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 opera<on
OPTIMIZE decisions & processes
SPM Com
petency and Va
lue
Pay for Performance YT
D Sa
les
YTD Quota Attainment
Boom Bust Analysis
2013
Atta
inm
ent
2014 Attainment
Quota Distribution Top & Bottom Performers
Ranking 1 2 3 4
Rep Marilyn Abdul Steve Jian
Attainment 183% 121% 98% 42% #
of R
eps
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
q Confirm that sales compensation plans are prone to “classic” problems
q Highlight key design principles
q Show how growth changes the sales force
q Present methods to investigate and manage sales compensation plan health
q Suggest a redesign process you can follow
15
© 2016 The Alexander Group, Inc.®
Something is not right…
16
…with the sales compensation plan…
© 2016 The Alexander Group, Inc.®
…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
17
Sales Compensation— Key Concepts
© 2016 The Alexander Group, Inc.®
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.
REVENUE LEADERSHIP
1 2 3 4 7 5 6 8 9
REVENUE SEGMENTS
VALUE PROPOSITIONS
REVENUE MOTIONS
CHANNEL COVERAGE
TALENT, SKILLS & SUPERVISION
ORGANIZATION & JOB DESIGN
SIZING & DEPLOYMENT
PRODUCTIVITY, QUOTAS & METRICS
PERFORMANCE MANAGEMENT
& REWARDS
REVENUE GROWTH MODELTM
REVENUE LEADERSHIP
STRATEGY STRUCTURE
REVENUE ENABLEMENT: OPERATIONS, PROCESSES & TECHNOLOGIES
MANAGEMENT
19
© 2016 The Alexander Group, Inc.®
Base Salary
Base Salary
Target Total Cash Compensation
Base Salary
Gainsharing Add-On 3x
Uncapped
Types of Variable Compensation Plans
Base
Salary
2x Capped Unit Rate
No Risk Risk
Target Pay Target Rate
Types Of Variable Compensation Plans
20
© 2016 The Alexander Group, Inc.®
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
Security Needs
Reimbursement
Special Compensation
Fixed Compensation
Focused Efforts
Intrinsic Rewards
Sales Compensation
At-Risk Pay
Performance-Based Compensation
21
© 2016 The Alexander Group, Inc.®
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 70
50
Degree of Influence Job A Job B Job C
Low High
10 30 50
22
© 2016 The Alexander Group, Inc.®
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
23
120 10
200
160
30
50
Mix
Upside
90 70 50
Degree of Influence Job A Job B Job C
Low High
10 10 30
30
50
50 100 Leverage
3x
© 2016 The Alexander Group, Inc.®
Growth Phases: Revenue And Profits
Start-Up Volume Growth Re-Evaluation Optimization
Revenue Profit
Phases of Growth
24
© 2016 The Alexander Group, Inc.®
Phases Of Growth: Rate Of Growth Change
Start-Up Volume Growth Re-Evaluation Optimization
Phases of Growth
Reposition
Grow Select
Markets
Grow; Keep Customers
Launch New Products
Control Pricing
Reduce Costs
Re-Think Product &
Market Strategy
Grow
Grow Really Fast
Norm Market Growth
Below Market Growth
Above Market Growth
Top-Line Growth Sales Focus
Scaling Onboarding Priorities
Revenue Diversity
$ Retention New Products
Price and Productivity
Price Mgmt Cost Mgmt
Segment Growth
Segment Mgmt Specialization
25
© 2016 The Alexander Group, Inc.®
Base Plus Bonus/Base Plus
Commission
Multiple Plans
Reward/ Recognition
Phase I Start-Up
Phase II Volume Growth
Phase 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
26
© 2016 The Alexander Group, Inc.®
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
27
© 2016 The Alexander Group, Inc.®
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
28
© 2016 The Alexander Group, Inc.®
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
29
2017 Getting Started
© 2016 The Alexander Group, Inc.®
2017 Getting Started
Preparing for 2017? Get started with these steps:
q Plan Inventory
q Market Pay Analysis
q Pay/Performance Analysis
q Employee Survey
q Job Title Rationalization
31
© 2016 The Alexander Group, Inc.®
Plan Inventory
Gather all sales compensation plans…
32
Job Title Target Pay Pay Mix Upside 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
Revenue 70% Individual Bonus
Profit 30% Individual Bonus
Product Mix 0%
Product Specialist $140,000 85/15 2.5x uncapped
Revenue 70% Individual Bonus
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
© 2016 The Alexander Group, Inc.®
Market Pay Analysis
33
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
© 2016 The Alexander Group, Inc.®
Pay/Performance Analysis
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0%
50%
100%
150%
200%
250%
0% 25% 50% 75% 100% 125% 150% 175% 200%
% o
f Tar
get I
ncen
tive
Earn
ed
% of Quota Achievement
© 2016 The Alexander Group, Inc.®
Employee Survey
35
Competitive TTCMotivates
Overachievement
Challenging, Achievable
QuotasClearly
CommunicatedEasily Track
Comm. Earned Overall Rating3.4 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
© 2016 The Alexander Group, Inc.®
Job Title Rationalization
36
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…
© 2016 The Alexander Group, Inc.®
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
38
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
© 2016 The Alexander Group, Inc.®
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
ibili
ty
Targ
et T
otal
Com
p
Pay
Mix
Leve
rage
Mea
sure
s
Wei
ghtin
gs
Mec
hani
cs
Perf
orm
. Per
iod
Payo
ut F
req.
Quo
ta
Cre
ditin
g
Account Executive Account Manager Marketing Development
Sales Director
Ongoing Services
39
© 2016 The Alexander Group, Inc.®
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
40
© 2016 The Alexander Group, Inc.®
Objectives
R Confirm that sales compensation plans are prone to “classic” problems
R Highlight key design principles
R Show how growth changes the sales force
R Present methods to investigate and manage sales compensation plan health
R Suggest a redesign process you can follow
41
© Copyright 2017 The Sales Management Association. All rights reserved.
Would you please define ICM and SPM?
42
© Copyright 2017 The Sales Management Association. All rights reserved.
Should we examine what competitors are doing when we design our own sales compensation plans?
43
© Copyright 2017 The Sales Management Association. All rights reserved.
Can you give more examples of how organizations are making use of data from their ICM systems?
44
© Copyright 2017 The Sales Management Association. All rights reserved.
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?
45
© Copyright 2017 The Sales Management Association. All rights reserved.
Thank You
Thank You