SALES COMPENSATION OPTIMIZATIONManage Risk to Maximize EffectivenessJULY 24, 2013
Shawn Rossi, MercerPrincipal, Sales Performance Practice Leader
Erik Charles, XactlyDirector, Product Marketing
MERCER WEBCAST
MERCER WEBCAST 1
Today’s Speakers
Shawn RossiPrincipal, Sales Performance Practice Leader
Mercer
Erik W. CharlesPrincipal Incentives Strategist
Xactly Corporation
Focused on sales force productivityoptimization for 18+ yearsWidely published and frequent speaker
• Works published in WorldatWork, SHRMand other publications
• Spoken for WorldatWork, SPM SolutionProvider User Conferences and theSales Management Association
Former sales operations strategy executive fora leading consulting companyFormer marketing executive for an eMarketingcompany specializing in the IT Solution spaceBegan sales effectiveness career at AndersenConsulting – focused on CRM and customercare within the telecommunications industry
Focused on sales force effectiveness leveragedthrough application of technology for 20+ yearsWriter and speaker:
• Blog on Sales Force Effectiveness@Xactlycorp
• Speaker for World at Work, AA-ISP, SalesManagement Association
• Articles in Selling Power, World at WorkFormer consultant in sales force effectivenessand compensationExperience as a sales rep, sales manager, andsales operations headAngel investor in business technologyTwitter: @ErikChazLinkedIn: www.LinkedIn.com/in/erikcharles
MERCER WEBCAST
Mercer – Who We AreMercer helps clients optimize their workforce performance and maximize theeffectiveness of their benefit and incentive programs
• We are a global consulting leader in talent, health, retirement, and investments.
• $3.9 billion in revenue
• 65-year history.
• Four business segments
• Offices in more than 40 countries
• 19,000+ colleagues
2
MERCER WEBCAST
Xactly– Who We AreWith Xactly, companies unleash the motivational powerof their incentive compensation. We help companiesof any size Incent Right
3
LEADER IN SAAS INCENTIVECOMPENSATION MANAGEMENT
FASTEST GROWING PROVIDER– OVER 100,000 SALES REPS INCENTED
FOCUSED EXCLUSIVELY ONINCENTIVES AND COMPENSATION
MANAGING >$6 BILLION INCOMPENSATION ANUALLY
MERCER WEBCAST 4
What Is At Risk Again?
MERCER WEBCAST 5
Managing Risk: When & What
When What
Sales CompensationEffectiveness
LegalExposure
CostMotivation
MERCER WEBCAST
Managing Risk: How
EffectiveProgramEffectiveProgram
Fair, AttainableGoals
Aligned,SimplePlans
Effective,Efficient
Comp Admin
Clear,Timely
Plan & GoalCommunication
6
Separating the GoodSeparating the Good
Area
Leaders Laggards
Rated Area Effectiveor Very Effective
Design 75% 60%
Quotas 73% 39%
Communication 73% 61%
Administration 70% 57%
PLAN DESIGN
MERCER WEBCAST 88
Focus on Critical Plan Design Components
8
Step 0: Compensation Philosophy
Step 1: Determine Eligibility
Step 2: Set Total Target Cash Levels
Step 3: Choose Mix of Base and Incentive
Step 4: Determine Measures & Weights
Step 5: Design Plan Mechanics
Step 6: Set Performance Objectives
Step 7: Select Leverage Ratios
Step 8: Set Payout Timing
Step 9: Develop Administrative Guidelines
Step 10: Validate Comp Philosophy
Motivation &cost driving plan
components
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST 9
Design Takeaways:Get the total target cash
right (TTC) given theideal talent pool
Mix drastically changesupside opportunity
Leverage is anextremely powerful
behavior drives as it isthe combination of mix
and upside
Amou
ntEa
rned
50
50
100
70
30
60
90
10
20
Uncapped
Uncapped
Uncapped
Mix
Ups
ide
$100K
$200K
Incentive Pay Leverage: A Double-Edged Sword
Leverage can help maximize motivation, but it also introduces the potential forincreased risk.
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST
EffectivePerformance
Measures
Withinspan ofcontrol
CompreadyAligned
• Ability to consistently andmaterially influence
• Within “line-of-sight” andkey result for the role
• Data can be accuratelytracked
• Data is from a trustedsource and available for
timely payments
• Supports sales strategyand business objectives
• Consistent with role’sdesign and keyresponsibilities
Key best practice is tohave no more than threeperformance measures
and to make certainperformance measuresare aligned with the role
and its keyresponsibilities.
Key best practice is tohave no more than threeperformance measures
and to make certainperformance measuresare aligned with the role
and its keyresponsibilities.
What Can We Measure?Criteria for maximizing motivation and minimizing risk
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST 11
Measures MUST Be Attainable!
MERCER WEBCAST 12July 24, 2013
How Many Measures Can We Use?
MERCER WEBCAST 13
If I Can’t See It Or Touch It, Don’t Measure Me On ItTimely line of sight is critical to successful measurement
MERCER WEBCAST 14
Measurement Timing Will Also Drive WHEN You Book Deals
• You will see spikes in revenue for whateverthe measurement period is.
• Combine monthly and quarterly goals withthe annual numbers to help smooth therevenue cycle.
0%5%
10%15%20%25%
1 2 3 4 5 6 7 8 9 10 11 12
MERCER WEBCAST 15
AnnualQuota Targets
QuarterlyQuota Targets
>80%of quota
67%
>80%of quota
60%
Measurement Timing Will Also Drive How MUCH You Book
MERCER WEBCAST
Hidden Risk & Motivation: Crediting Rules
16
Frontline• Global Account
Manager• Local Account
Manger
Overlay
• Sales Engineer• Product Specialist• Services Sales
Executive
Channel• Partner Account
Manager• Channel Manager
Roll-up• First level sales
manger• Second level
sales manager
$10MDeal
Design ConsiderationsDoes everyone getcredit?How much credit doeseach role receive?Does the type ofproduct/solution changehow much credit isgiven?Does the type ofcustomer (i.e. strategic,new, etc.) alter theamount of credit given?
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST
The Challenge with Crediting Rules – Credit Creep…
17
30 COMMISSIONS1Deal
ROLL-OUT & SET-UP
MERCER WEBCAST 19
Key Areas for Compensation Governance
• Decision Rights and Accountabilities– Roles– Responsibilities– Approval/review processes
• Plan Design Guidelines– Eligibility, pay levels, pay mix, performance measures, crediting rules,
and mechanics and more• Policy Terms and Conditions
– Procedures for plan acceptance, quota, adjustments, terminations, etc.– Legal aspects related to compensation, benefits, and employee
relations• Plan Oversight provides a check and balance as well as issue resolution
body to govern plan management throughout the year
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST
Assess Individual Level Impact
AttainmentLevel
AverageAttainment
Avg CurrentTarget TCC
Avg CurrentActual TCC
Avg FutureTarget TCC
Avg FutureActual TCC
> +15%Change in TCC
+15% to 0%Change in TCC
0% to -15%Change in TCC
> -15% Changein TCC
105%+ 111% $72,876 $74,976 $77,675 $85,177 8 6 2 0
90 - 105% 98% $112,471 $113,795 $114,124 $112,868 2 13 22 0
70 - 90% 83% $75,809 $72,486 $76,967 $63,531 0 3 6 4
0 - 70% 59% $56,850 $51,183 $58,639 $47,531 0 0 4 1
Top Performer Average Performer Bottom PerformerAttainment 113% 90% 62%
Production $583,546 $2,758,017 $614,036
Current TCC $69,022 $272,998 $73,737Target TCC -New Plan $66,515 $256,944 $85,335Actual TCC -New Plan $73,394 $235,709 $68,268
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST
Threshold 100%
Number ofSalespeople
30-40%of Sellers
60-70%of Sellers
Excellence
Top10%of Sellers
Quota Performance
Bottom10%of Sellers
Target level equates to100% of plan
Performance level requiringminimal effort – set based on
historical performance or fixedcosts
Excellence level allows 10% ofsellers to earn upside, it is usually
set using historical data
Fair Target Setting Is Key To Motivate The Field and Align WithCompany Success
21
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST 22
Once Assigned, What Quota Attainment Can We Predict?
Distribution of Annual Quota Attainment %
100%100%
MERCER WEBCAST 23
Communications
Software &Technology
48% 30% 22%
Manufacturing& Distribution
41% 33% 26%
39% 35% 26%
39% 25% 36%
36% 28% 36%
26% 45% 29%
BusinessServices
LifeSciences
Media &Entertainment
>120% 80 – 120%On-target Incentive Earnings
< 80%
Every Industry is Different
MERCER WEBCAST 24
Put Your Best Foot Forward…
Plan Roll-out—Energize and Align
• Layout a strategy and formal roll-out plan
• Leverage multiple communication vehicles;documents, meetings, rallies, etc.
• Sales executives are active, visible champions
• First level managers are the key verbalcommunication point and “face” of the plans
• Track plan acceptance
Communications Motivation Results
Sales CompEffectiveness
Legal
CostMotivate
ON-GOING
MERCER WEBCAST 26
Who Wants to Restate Earnings?
MERCER WEBCAST 27
Compensation Plan Effectiveness Metrics
Analysis Key Data Cuts ObjectiveCCOS / ICOS • Geography
• Position
• BusinessUnit
• Comparatively how expensive is eachincumbent/team/Geo to the company?How much does it vary?
• How effectively does that compensationexpense drive results?
Performance Distribution • Geography
• Position
• BusinessUnit
• How effective is current quota setting?Does it support the achievementphilosophy? (Stretch goals vs. Culture ofAchievers)
• How effective are quotas at targeting realopportunity?
Pay Differentiation • Geography
• Position
• BusinessUnit
• What is the degree of differentiationbetween a median, low, and high performer
• How does that differentiation driveperformance?
0% 0% 0%
31%
2% 1%4%
22%
18%
14%
9%
0%
5%
10%
15%
20%
25%
30%
35%
<18
.5k
18.5
k-37
k
37k-
55.5k
55.5
k-74
k
74k-
92.5k
92.5
k-11
1k
111k
-129
.5k
129.
5k-1
48k
148k
-166
.5k
166.
5k-1
85k
185k
>
NISD $
0%
50%
100%
150%
200%
250%
300%
350%
10th 20th 30th 40th 50th 60th 70th 80th 90th
New Customer Renew + GITA Total Incentive
$87,969
$1,641
$4,170
$19,295
$4,016
$4,297
$5,628
$48,923
TotalIncentive
($000)
$190,430
$2,614
$8,133
$65,810
$7,896
$8,891
$9,761
$87,327
Total Salary($000)
Percent of Target Earned
0.96%
0.56%
0.57%
0.79%
0.87%
0.93%
0.97%
1.23%
CCOS
0.30%
0.22%
0.19%
0.18%
0.29%
0.30%
0.35%
0.44%
iCOS
$29,130,910
$757,812
$2,150,538
$10,802,870
$1,367,883
$1,420,618
$1,590,112
$11,041,077
Total Revenue($000)
$278,399
$4,254
$12,303
$85,105
$11,911
$13,188
$15,389
$136,249
Total Comp($000)
CA
AZ
AS
US
Overall
LA
JP
EM
$87,969
$1,641
$4,170
$19,295
$4,016
$4,297
$5,628
$48,923
TotalIncentive
($000)
$190,430
$2,614
$8,133
$65,810
$7,896
$8,891
$9,761
$87,327
Total Salary($000)
Percent of Target Earned
0.96%
0.56%
0.57%
0.79%
0.87%
0.93%
0.97%
1.23%
CCOS
0.30%
0.22%
0.19%
0.18%
0.29%
0.30%
0.35%
0.44%
iCOS
$29,130,910
$757,812
$2,150,538
$10,802,870
$1,367,883
$1,420,618
$1,590,112
$11,041,077
Total Revenue($000)
$278,399
$4,254
$12,303
$85,105
$11,911
$13,188
$15,389
$136,249
Total Comp($000)
CA
AZ
AS
US
Overall
LA
JP
EM
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST 28
Compensation Plan Effectiveness Metrics continued
Analysis Key Data Cuts ObjectiveCredited Revenue Ratio • Geography
• Position
• How big of a variance exists betweenactual and credited revenue?
• How does the ratio compare to industrystandards?
• How do the use of overlays and variancesin crediting practices affect the ratio?
Pay For Performance • Geography
• Position
• How big a variance is there in how planspay for like levels of performance?
• How effectively do the plans rewardperformance?
• How well are key objectives correlated topay?
Pay Composition • Geography
• Position
• BusinessUnit
• How much more of a top performerscompensation is made up by incentive vs.bottom performer?
• How strongly does the pay componentsdrive performance?
• Do the plans incent for the right focus?
R2 = 0.5353
0
50,000
100,000
150,000
200,000
250,000
0% 20% 40% 60% 80% 100%
$25,674 $25,828 $25,839 $25,969 $25,827
$19,815 $23,620 $27,731$36,800
$26,970
$7,483$12,362
$15,968
$26,738
$15,612
$12,573
$22,999
$12,444
$8,861
$5,247
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
LowestQuartile
3rd Quartile 2nd Quartile Top Quartile All Reps
Aver
age
Pay
12250%
N/A
N/A
11069%
9481%
10172%
Actual CCOS
$481,536
$15,653
$56,836
$147,103
$37,356
$224,589
TCC Paid ($MM)
N/AN/A$24,019,577239Federal
82,025$3,931$322,442,0812,508All
N/AN/A$47,685,44965World Wide
84,689$1,329$112,551,841885EMEA
30,990$394$12,210,125343Asia Pacific
57,054$2,208$125,975,090976Americas
Credited toActual Revenue
RatioActual Revenue2
($MM)Credited
Revenue1 ($MM)Number of
Associates1Region
12250%
N/A
N/A
11069%
9481%
10172%
Actual CCOS
$481,536
$15,653
$56,836
$147,103
$37,356
$224,589
TCC Paid ($MM)
N/AN/A$24,019,577239Federal
82,025$3,931$322,442,0812,508All
N/AN/A$47,685,44965World Wide
84,689$1,329$112,551,841885EMEA
30,990$394$12,210,125343Asia Pacific
57,054$2,208$125,975,090976Americas
Credited toActual Revenue
RatioActual Revenue2
($MM)Credited
Revenue1 ($MM)Number of
Associates1Region
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST 29
Keep Talking to Provide Motivational Thrust
Communications Motivation Results
In-Period Performance to Date (PTD)Reports
• Self-service, easily accessible reports for the field
• Updated frequently; daily for high transactionbusinesses, weekly at a minimum
• Simple, easy to digest reports that provide line ofsight into:– Performance against plan measures, including
access to the transactions/credits– Position and stack ranking against peers– Forecast pay based upon deals in the pipeline,
especially to show how thresholds andaccelerators can be achieved
Sales CompEffectiveness
Legal
CostMotivate
MERCER WEBCAST
So Who’s On First?
30
MERCER WEBCAST
Are You Sure?
31
MERCER WEBCAST
WARNING SIGNS
MERCER WEBCAST
Warning Signs – Do You Have Any of These?
Quotaattainment& companyresults notaligned
Forecastinaccuracy
Elevatedturnover levels& disputes
Unhealthy levelof channelconflict
Rising cost ofsale
33
MERCER WEBCAST
How Do Your Managers Handle Turnover?
34
18.6%
22.2%
IF THEMANAGER IS:
POOR REPTURNOVER IS:
5.6%ON THE MARGIN
MISSING QUOTA
HITTING QUOTA
MERCER WEBCAST
Can You Predict The Loss Of Top Performers?
35
MERCER WEBCAST
What Is It All Costing You? Remember ROI?
36
MERCER WEBCAST
Final Checklist
What are you trying to ACHIEVE this period?
WHO is going to do it for you?
How much TOTAL are you willing to pay?
What are you going to MEASURE?
WHEN we will you write the check?
How will you KNOW if you have succeeded?
How will you know if you made a MISTAKE?
When you make an ADJUSTMENT?37
MERCER WEBCAST
Remember – This Is ALL Connected
38
MERCER WEBCAST 39
Questions
QUESTIONSPlease type your questions in the Q&A section of the toolbarand we will do our best to answer as many questions as wehave time for.
To submit a question while in full screen mode, use the Q&Abutton, on the floating panel, on the top of your screen.
CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”
FEEDBACKPlease take the time to fill out thefeedback form at the end of this webcastso we can continue to improve. Thefeedback form will pop-up in a newwindow when the session ends.
www.mercer.com/webcastsView past recordings and sign up forupcoming webcasts
Shawn RossiPrincipal, Sales Performance Practice Leader
Erik W. CharlesPrincipal Incentives Strategist
Xactly [email protected]