Does Your Sales Compensation Program Work?...Type of Selling Order Taking Prospecting Number of...

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Does Your Sales Compensation Program Work?

Rachel Parrinello

Principal

415-276-5664

[email protected]

September 11, 2014

Paul Vinogradov

Vice President

415-276-5670

[email protected]

© 2014 The Alexander Group, Inc.® 2

Welcome!

Introductions – Us and You!

Does Your Sales Comp Plan Work?

AGI Framework and Guidance

Questions and Answers


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

http://www.alexandergroup.com/about/leadership-team/sanfrancisco


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.


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.


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.


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


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


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.


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


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


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


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


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


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


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


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


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


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)


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


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


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


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


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



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.



Operational Effectiveness Payment Accuracy Analysis


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


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


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!


Questions?


Paul Vinogradov

Vice President

415-276-5670

[email protected]

Rachel Parrinello

Principal

415-276-5664

[email protected]


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

insight that customers value. From a new model of leadership excellence, to new ground-

rules that define how Sales, Marketing, Services and Senior Management must plan and

work together, strategies to exchange the insight and experience of sellers for a greater share

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Topics Will Include:

• The impact of insight-led selling at high-growth companies

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• 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.

Does Your Sales Compensation Program Work?...Type of Selling Order Taking Prospecting Number of...

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