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© 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]


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


Today’s Speakers

3

David Cichelli

Senior Vice President

The Alexander Group

[email protected]

Kevin Gray

Senior PorKolio Marke0ng Manager

IBM

[email protected]

Presented by


Sales Management Associa0on Webcast

28 June 2016


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…


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

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Something is not right…

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…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

17

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.

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

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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

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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

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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

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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

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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


Growth Phases: Revenue And Profits

Start-Up Volume Growth Re-Evaluation Optimization

Revenue Profit

Phases of Growth

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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

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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

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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

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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

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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

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2017 Getting Started


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

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Plan Inventory

Gather all sales compensation plans…

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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


Profit 30% Individual Bonus

Product Mix 0%

Product Specialist $140,000 85/15 2.5x 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

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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

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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


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


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…


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


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


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


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


Would you please define ICM and SPM?

42


Should we examine what competitors are doing when we design our own sales compensation plans?

43


Can you give more examples of how organizations are making use of data from their ICM systems?

44


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


Thank You

Thank You

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