The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting

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The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting“The Right Tool for the Job”



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TRUSTED Business Partner with Global Commissions Experience

Nina Ostrom, Americas Field Finance & Operations, PROGRESS SOFTWARE



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Finance’s Worst Nightmare…

Revenue Commissions Profit0

10

20

30

40

50

60

70

80

90

100

10

30

11

34

1223

Budget Forecast Actual



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Sales Management’s Sleepless Nights

Frustrated Sales Rep!!! Shadow Accounting



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SLEEP THERAPY 101Implement the RIGHT tool, PLUS



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Holistic Approach

Improve Incentive Compensation Plan Design

Select the ‘right’ Incentive Compensation Tool

Design and System Integration are key to a successful implementation

Reporting and Ad-Hoc Modeling are the ‘secret sauce’

Implement a Governance Framework



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Improve Incentive Plan Design

Align Plan Design with Company Goals

Drive sales to meet and exceed their quota

Make administration simple and easy to understand

Ensure plan components FOCUS on Strategic Objectives

ALIGN quotas and target incentives to meet COS% goals

Ensure top performers (top 10%) EARN competitive market rates

Streamlined, transparent process with Sales Mgmt involvement

Timely and accurate payments



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Select the ‘Right’ Incentive Compensation Tool

Why not Excel?

Flexible Design

Audit Trail for System Changes

Data Transformation Capability

Integration w/ Existing Applications

Robust Reporting

Easy to Administer

Cost Effective Solution



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Solving the Problem Yields ROI

Invest in the ‘right’ tool

Resource appropriately

Improves sales productivity

Improves predictability

Investment

Returns

Implement Tool $50K

Annual Fee $75K

Staffing <$75K>

Sales/Profit $300K



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Implementation – Design Approach

REPORTING, REPORTING, REPORTINGSales Performance – trends, quota attainment

Compensation Plan Effectiveness

Commission Cost Drivers – Rate Tiers (cost of accelerators)

Design for the lowest level of information needed – consolidation is easy

Create custom fields to ensure all management reporting requirements are met



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Implementation – System Integration

INTEGRATE, INTEGRATE, INTEGRATE with existing applications

Data Integrity – ‘System of Record’Bookings, Account Assignment, Finance/HR info



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The ‘Secret Sauce’

Reporting

Year Region Revenue Quota Attain % Tier 1 Tier 2 Tier 3Total

CommissionsTarget

Incentive% of TI

Comm Rate

US 45,000,000 50,000,000 90% 875,000 1,082,500 217,500 2,175,000 2,500,000 87% 5%

EUROPE 32,000,000 40,000,000 80% 700,000 780,000 1,480,000 2,000,000 74% 5%

ASIA 38,000,000 40,000,000 95% 700,000 1,076,500 323,500 2,100,000 2,000,000 105% 6%

YEAR-2012 TOTAL 115,000,000 130,000,000 88% 2,275,000 2,939,000 541,000 5,755,000 6,500,000 89% 5%

YEAR-2012



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The ‘Secret Sauce’

Ad-Hoc Modeling

70% 80% 90% 100% 110% 120% 150%0

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Scenario 1 Scenario 2 Scenario 3

% of Payees Quota Attainment



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Governance Framework

Closed Loop Process

Data Integrity – ‘System of Record’ checks & balances

Audit trail for all systemic changes

Detail reports supporting performance, associated commissions expense, and payroll

Line Management & Finance partnership – complete transparency, review and exception approvals



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Budget & Forecasting

XACTLY Incent is the ‘System of Record’



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Planning Assumptions

As the ‘System of Record’ it provides real-time sales management visibility – vital info, plan and quota assignment

Name: Region Mgr Currency: USD Annual Base: 75,000Manager: GEO Director Title: Sales Director Annual Variable: 75,000

in 000s QTR-1-2013 QTR-2-2013 QTR-3-2013 QTR-4-2013 YEAR-2013

Component Split - MBO 10% 10% 10% 10% 10%

Component Split - GEO Revenue 50% 50% 50% 50% 50%

Component Split - GEO Margin 40% 40% 40% 40% 40%

GEO Revenue 18,750 15,750 16,500 24,000 75,000

GEO Margin 1,875 1,575 1,650 2,400 7,500

Plan Summary: YEAR-2013

Plan Quotas



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Planning Assumptions

Prior year’s performance becomes instrumental in budget/forecast modeling



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Budget Fundamentals

ALIGN quotas and target incentives to meet Bookings/Revenue and COS% goals

Model compensation plan payout schedule

Confirm sales roster

Quota assignment – Sum of reps’ quotas > manager’s quota > Region Bookings/Revenue Target

YOY growth and Sales Productivity targets

Review reps’ quotas as % of fixed and variable compensation to ensure COS% goals are met

Ensure quarterly trend based on commissions payout model



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Forecasting

Forecast variability due to quota attainment distribution curve and individual rep achievement

17%

20% 20%

23%

10%

5% 5%

0%

5%

10%

15%

20%

25%

70% 80% 90% 95% 100% 110% 120% 130% 150% 200%

Quota Attainment Distribution

Quota Attainment

% Payees Rep 1 Rep 2

Var Comp $ 60 $ 60

YTD Sales $ 400 $ 1,000

Quota $ 1,000 $ 1,000

Attain % 40.0% 100.0%

Commission $ 16.8 $ 60.0

New Deal $ 100 $ 100

Attain % 50% 110%

Commission $ 4.2 $ 12.0



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Improve Actual/Forecast Variance %

Predict QTR/FY Quota Attainment by repEstimate bookings based on a weighted factor of rep’s opportunity pipeline in salesforce.com to meet overall regions’ booking forecast

Quota Coverage re: Rep Attrition/New Hires

Input estimated future quarter bookings by rep into Xactly Sandbox environment

System calculates YTD quota attainment by rep/manager and associated commissions expense

Review estimated quota attainment with Sales Management



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To Sleep Well…

Be INVOLVED during Compensation Plan Design

INVEST in an Incentive Compensation Tool

Define REPORTING requirements during System Implementation

ALIGN Quotas and Target Incentives to meet Sales/Revenue and COS% goals

LEVERAGE ‘System of Record’ to provide modeling capabilities for Budgeting and Forecasting



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This is what SUCCESS looks likeFor Sales Management, Sales Reps, and yes EVEN for Finance Executives!



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Thank You!



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The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting

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