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Does Your Sales Compensation Program Work?
Rachel Parrinello
Principal
415-276-5664
September 11, 2014
Paul Vinogradov
Vice President
415-276-5670
© 2014 The Alexander Group, Inc.® 2
Welcome!
Introductions – Us and You!
Does Your Sales Comp Plan Work?
AGI Framework and Guidance
Questions and Answers
© 2014 The Alexander Group, Inc.® 3
About Us
Rachel Parrinello Principal, Sales Compensation Practice
Paul Vinogradov Vice President
17+ years of sales effectiveness consulting
Runs AGI’s western region office
Runs AGI’s sales analytics practice
Sales compensation speaker
14+ years of sales compensation consulting
Manages AGI’s sales compensation analytics
Sales compensation speaker
© 2014 The Alexander Group, Inc.® 4
Have You Experienced Any of These Issues?
Compensation budget overruns
Low or bi-modal quota attainments
High sales rep turnover
Compensation plan proliferation
Compensation plan complication
Compensation administration nightmares
Confused reps
It may be time to conduct an holistic assessment of your sales
compensation program.
© 2014 The Alexander Group, Inc.® 5
No. of Roles and No. of Plans – Your Answers
53%
22%
6%
18%
29%
21%
6%
44%
0-10
11-30
31-50
50 ormore
Number of RolesNumber of Plans
Sales forces range in size and complexity. Plan types should
match roles.
© 2014 The Alexander Group, Inc.® 6
Number of Plans to Number of Job Roles
39%
53%
8%
Fewer Plans thanRoles
Same Number ofPlans as Roles
More Plans thanRoles
Source: Alexander Group Webinar, “Does Your Sales Compensation Program Work?”, September 2014
Some organizations may have both job design issues and plan
proliferation.
© 2014 The Alexander Group, Inc.® 7
Degrees of Sales Comp Pain – Your Answers
Compensation challenges are commonplace.
Source: Alexander Group Webinar, “Does Your Sales Compensation Program Work?”, September 2014
3%
10%
75%
12%
9-10 Very High - complete overhaul required!
6-8 High – signs of failure, changes needed
3-5 Medium – some adjustments needed
0-2 Low – plans work well, few complaints
© 2014 The Alexander Group, Inc.® 8
How do companies assess plans today?
3.0%
24.1%
26.6%
30.5%
33.5%
39.4%
43.8%
52.2%
53.2%
Other
Market pay analysis
Product sales results
Employee feedback
Manager feedback
Percent of personnel reaching quota
Compensation costs: percent of revenue
Payouts compared to pay budget
Sales revenue results
Program Effectiveness Assessment Factors (n=203; multiple responses)
Source: Alexander Group Sales Compensation Practices Survey, August 2013
© 2014 The Alexander Group, Inc.® 9
Plan Design Objectives
• Aligns to business goals & sales strategy
• Drives the right behaviors for each jobs
• Links pay to performance
• Motivates higher achievement
• Market competitive to attract and retain the right talent
• Is simple to understand
1
2
3
4
5
6
The sales compensation plan is a valuable management tool to
drive sales results if done correctly.
© 2014 The Alexander Group, Inc.® 10
World Class Sales Compensation Program…
• Linked with fair, equitable and stretch goals
• Effectively communicated and documented
Sale force understands the plan
Sales leadership messages how the plan supports strategy
• Is fiscally responsible and aligns with budget
• Efficiently administrated to provide consistent, accurate, and timely performance and pay information
• Provides the right level of alignment / equity across the organization
• Designed by a collaborative process with key stakeholders from sales, human resources, finance, and sales operations
• Includes ongoing governance to ensure program integrity
The plan’s effectiveness depends on the support of people,
processes, and systems.
1
2
3
4
5
6
7
© 2014 The Alexander Group, Inc.® 11
Assessing Plans – What Data Will You Need?
Internal Data
Best Practices
Market Data
Strategic
Objectives
Pay Philosophy
Pay and Performance Data
Budget and Cost Data
Field Survey Data
Design Best Practices
Pay Survey Data
Practices Surveys and Research
Operations Surveys and
Research
© 2014 The Alexander Group, Inc.® 12
The Top 12 Sales Comp Analyses
Aligned with
Strategy
1 Job Alignment
2 Pay for Performance
3 Quota Attainment
4 Program Cost
5 Pay Mix
6 Plan Mechanics
7 Plan Complexity
Aligned with
Best Practice
8 Pay Levels
9 Pay Curves
Aligned with
Market
10 Perception
11 Payment Timing Operational
Effectiveness 12 Payment Accuracy
© 2014 The Alexander Group, Inc.® 13
Aligned with Strategy
Job Alignment Analysis
Role Key Accountabilities Plan Measures
Strategic Account Director Overall account growth Sales volume
Territory Sales Manager New accounts New account sales volume
Sales Engineer Solution sales Solution sales
Product Specialist Product mix New product sales
Strategic alignment begins with clear roles focused on the right
output measures.
Strategy Jobs Compensation
1
© 2014 The Alexander Group, Inc.® 14
Aligned with Strategy Pay for Performance Analysis
Pay for performance analysis begins with understanding your
company pay philosophy.
2
Premium Model
Darwinian
105
165
Low
Performers
Median Performers
(@ Target)
High
Performers
75th %-tile
50th %-tile
25th %-tile
Market Tracker
Economy Model
Nice Place to Work
Ma
rket
Co
mp
eti
tive
ne
ss
© 2014 The Alexander Group, Inc.® 15
Aligned with Strategy Quota Attainment Analysis
Threshold Target
Nu
mbe
r of
Sale
spe
op
le
40-45%
of Sellers
55-60%
of Sellers
Excellence
Top10%
of Sellers
Quota Attainment Performance
Bottom10%
of Sellers
Set quotas that result in a positively skewed distribution curve,
where 55-60% of individuals achieve their quota.
3
© 2014 The Alexander Group, Inc.® 16
Aligned with Strategy Program Cost Analysis
Source: Alexander Group Benchmark Database. Costs include all sales and sales related roles that participate in the sales compensation program, including sales
management.
Sales compensation is a material cost for most companies.
4
© 2014 The Alexander Group, Inc.® 17
Sales Incentive as a Percent of Collective Target Incentive 100% 140%
Direct Sales
High Influence
Overlay Sales
Channel Sales
Dependent on level of Persuasion
Sales/Service Hybrid Roles
Sales/Mkng Hybrid Roles
Dependent on Amount of Selling
- +
Leverage Low High
Threshold Use Don’t Use
Quota Attainment Low High
Caps/Decelerator Use Don’t Use
Deployment Not Many Expensive Resources
Many Expensive Resources
Cost of Sales Factors
Pay Philosophy Low High
Measure Mix MBO Sales
Low End High End
Aligned with Strategy
Program Cost Analysis 4
Actual incentive costs over targets vary by company and job
and depend on many factors.
Bonuses/SPIFFs Low Use High Use
© 2014 The Alexander Group, Inc.® 18
Aligned with Best Practice Pay Mix Analysis 5
Key Skills Management Sales-Orientated
Strategic Focus Long-Term Short-Term
Degrees from Client Multiple Tiers Client-Facing
Revenue Influence Low High
Sales Objectives Strategic Volume
Type of Selling Order Taking Prospecting
Number of Sales Few Many
Seasonality Heavy None
Less Aggressive More Aggressive
Target Total
Compensation
0%
100%
70%
30%
50%
50%
90%
10%
Target Incentive
Base
Job Type Service Sales
© 2014 The Alexander Group, Inc.® 19
Aligned with Best Practice Plan Mechanics Analysis 6
Mechanics should match the nature of the sale. Watch out to
not over engineer the plans!
Commission versus Bonus Formula (mechanic)
Links, hurdles, gates, multipliers (modifiers)
Booking vs. Revenue (primary credit event)
Single Year vs Multi-year (credit value)
Recurring vs. Non-Recurring (trailers, renewals)
© 2014 The Alexander Group, Inc.® 20
Aligned with Best Practice Plan Complexity Analysis 7
Unnecessary complexity kills comp programs. How do you
score on the K.I.S.S. scale?
Number of plans compared to number of jobs
Number of payees compared to number of plans
Number of measures per plan
Use of team vs. individual measures
Number/type of crediting events and rules
© 2014 The Alexander Group, Inc.® 21
Target Total Compensation
Corporate Philosophy
Internal Job Worth
Relative Equity Between Jobs
Internal Pay Data
External Market Data
Management Judgment
Aligned with Market Pay Level Analysis 8
Job Job
Match
Current
TTC
Benchmark
TTC
Delta New TTC
1 Territory Rep 114 $90,000 $105,000 $15,000 $100,000
2 Named Account Manager 218 $120,000 $145,000 $25,000 $140,000
3 Global Account Director 321 $180,000 $172,000 ($8,000) $180,000
© 2014 The Alexander Group, Inc.® 22
Aligned with Market Pay Curve Analysis 9
0%
100%
200%
300%
400%
500%
0% 50% 100% 150% 200%
% o
f Ta
rge
t In
ce
nti
ve
Threshold
Target
Attainment of Goal
Upside
Excellence
Decelerator
Cap
Threshold: Minimum level of performance. 90% of populations should achieve Threshold performance
Target: Expected level of sales performance. 55-60% of populations should achieve Target performance
Excellence: Outstanding level of performance. Only top 10% (90th percentile) should achieve
Upside: Pay for 90th percentile performance for above quota performance
Leverage: Upside represented as a multiple of at-risk pay (e.g., 300%)
Decelerator: Declining incentive payout rate
Inflection Point
No Threshold
© 2014 The Alexander Group, Inc.® 23
Operational Effectiveness Perception Analysis
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
Strongly Agree Agree Disagree Strongly Disagree
-13% -9%
-28%
-10% -23% -19%
-5% -9%
-13%
-4%
-10% -5%
51% 49% 31%
53% 36%
38%
7% 16%
4%
19%
9% 5%
Survey the sales force once a year to track perception.
10
© 2014 The Alexander Group, Inc.® 24
Operational Effectiveness Payment Timing Analysis 11
For the primary sales performance measure, payments are made how many days after the
close of the measurement period?
7.5%
14.0%
32.0%
36.0%
10.5%
> 60 days
Between 46 and 60 days
Between 31 and 45 days
Between 16 and 30 days
Within 15 days
Payout Timing—Days After Measurement Period Close (n=200)
Payment should be made as close as possible to period end.
Best practice is less than 30 days.
Source: Alexander Group Sales Compensation Practices Survey, August 2013
© 2014 The Alexander Group, Inc.® 25
Operational Effectiveness Payment Accuracy Analysis
Source: Alexander Group Sales Compensation Practices Survey, August 2013
The accuracy of the incentive calculations are:
3.0%
12.1%
70.2%
14.6%
Unacceptable number of adjustments
Acceptable number of adjustments
Mostly accurate with few, minor adjustments
Very accurate with no adjustments
Calculation Accuracy (n=198)
Payment accuracy should be paramount. Mistakes can be
costly. Best practice is less than 1% of budget.
12
© 2014 The Alexander Group, Inc.® 26
Create a Scorecard to Guide Design Effort
Aligned with
Strategy
1 Job Alignment
2 Pay for Performance
3 Quota Attainment
4 Program Cost
5 Pay Mix
6 Plan Mechanics
7 Plan Complexity
Aligned with
Best Practice
8 Pay Levels
9 Pay Curves
Aligned with
Market
10 Perception
11 Payment Timing Operational
Effectiveness 12 Payment Accuracy
© 2014 The Alexander Group, Inc.® 27
Closing Remarks
Convene a design team with the right stakeholders
Develop a work plan of activities and events – typical
process takes 8-12 weeks depending on # of jobs &
payees and degree of change
Develop a scorecard to assess your overall program
and drive continual improvements
The difference between an average program and a best-in-class
program can drive .5% - 5% difference in sales results.
Don’t miss your opportunity to leverage one of the most
powerful levers the sales organization has to drive results!
© 2014 The Alexander Group, Inc.® 28
Questions?
© 2014 The Alexander Group, Inc.® 29
Paul Vinogradov
Vice President
415-276-5670
Rachel Parrinello
Principal
415-276-5664
© 2014 The Alexander Group, Inc.® 30
Sales organizations are the vital link between companies. The sales
function is therefore assuming a more integrated role in the design
and execution of growth strategy.
The Forum will explore the unique role of sales in finding, producing and delivering the
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Topics Will Include:
• The impact of insight-led selling at high-growth companies
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• Where do “crazy valuable” insights come from?
• Rethink the sales and marketing marriage
• 6 keynotes, 3 focus sessions, 6 interactive roundtables, 5 pre-forum briefings,
networking/special events, evening receptions and much more!
www.alexandergroup.com/events/cse-forum-series/palm-beach
Contact Betty
Corrado at
203.905.5593 for
more
information.
Contact Betty
Corrado for more
information at
203.905.5593.