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Sales Compensation and Performance Management Study 2014 Key Trends Analysis

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2014 Sales Compensation and Performance Management Study – Key Trends Analysis

CSO Insights Measuring Sales & Marketing Effectiveness

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© 2014 CSO Insights CSOiCL67112

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Acknowledgments

We would like to thank all of the sales and sales operations executives who annually share insights related to their

sales compensation and performance management ideas and best practices. Their help assists us in asking new and

relevant questions as the world of compensation and performance management continues to change. Without their

support and insights, the development of the research knowledge base used to create the 2014 Sales Compensation

and Performance Management study would not be possible.

For this reason, we would like to thank the following thought leadership companies for their partnership and insights

into sales compensation and performance management and how these practices are changing the way the game is

played. We acknowledge Accenture, CallidusCloud, IBM, and Xactly for their insights.

We owe a debt of gratitude to many colleagues, mentors, and advisors whose help made this project possible. To list

them all would be impossible, but Jerry Colletti at Colletti-Fiss deserves special mention.

Finally, we would like to thank our editing team whose hard work and diligence made this project possible. Thanks to

Kim Cameron, Diane Hodges, PhD, and Andy Jesmok.

http://www.accenture.com/us-en/pages/index.aspx

http://calliduscloud.com/

http://www-01.ibm.com/software/analytics/solutions/sales-performance-management/products.html

https://www.xactlycorp.com/

http://collettifiss.com/


© 2014 CSO Insights CSOiCL67112


Table of Contents

2014 Sales Compensation and Performance Management Study Introduction ........................................................................ 1

Percentage of Reps That Are Expected to Make Quota .............................................................................................................. 4

Annual Sales Rep Turnover Rates—Voluntary and Involuntary ............................................................................................... 6

Percentage of the Sales Force Actively Engaged in Their Efforts ..............................................................................................8

Ability to Provide Managers with Timely and Accurate Rep Performance Metrics ................................................................. 10

Information, Tools, and Insights Sales Managers Use to Coach Their Sales Reps .................................................................. 12

Percentage of Sales Rep’s Package that is Variable Pay .......................................................................................................... 14

Most Important Areas of Focus for Fiscal Year 2015 .............................................................................................................. 16

Method for Determining How Many People Get Paid On a Deal ............................................................................................. 18

Metrics and Factors Used to Track Overall Effectiveness of Compensation Plans ................................................................. 20

Selling Behaviors Impacted by Compensation Plans .............................................................................................................. 22

Going Forward Analysis ......................................................................................................................................................... 25

Current Research Studies by CSO Insights ............................................................................................................................. 31

About CSO Insights ................................................................................................................................................................ 31


© 2014 CSO Insights CSOiCL67112 1


2014 Sales Compensation and Performance Management Study Introduction The data used for this analysis were gathered as part of CSO Insights’ 6th annual Sales Compensation and

Performance Management (SCPM) study. As part of this research effort, we surveyed over 800 companies worldwide

collecting information on upwards of seventy sales compensation and performance management related metrics. For

a detailed breakdown of the survey participants, contact your CSO Insights Analyst.

The graphs in this report reflect the aggregated results from the study participants. Advisory Services clients seeking

segmented responses based on factors such as industry, company size, country, complexity of sales process—

virtually every metric in the study—may obtain this information by contacting their CSO Insights Analyst.

As shown in the graphic to the right,

approximately one-half of firms have <$50M in

annual revenues, the remainder run to >$1B. As

you would expect, as revenues and size of the

sales organization increase, so do the need for

and the reliance upon more automated systems.

However, you may be surprised to learn that one-

third (33%) of $1B+ companies continue to

calculate and manage sales commissions using

spreadsheets.

What you’ll read in the pages that follow is that

not only do manual and spreadsheet approaches

constrain how companies calculate and share

compensation information, but they limit firms’

ability to track and share process metrics in a

timely fashion with upper management, sales

managers, and reps.

Figure 1

http://www.csoinsights.com/about-us/Contact-Us

http://www.csoinsights.com/about-us/Contact-Us




A by-product of this is playing catch-up and reacting, rather than proactively identifying which reps need additional

coaching and mentoring.

The percentage of firms using a manual or spreadsheet approach is nearly double (60%) across the entire survey

population. A key question to consider is whether this is a conscious choice or simply a continuation of how it has

always been done. If it’s the latter, you may find insights in this report and specifically in the Going Forward Analysis

section to reflect upon and consider whether the current approach, while serving its function, is serving your

organization’s total needs (i.e., visibility, transparency, flexibility).

Since 74% of companies gave their compensation plan a grade of “B” or lower (see Going Forward Analysis), we

asked a follow-up question: If the grade you gave your compensation/incentive management program(s) was a "B" or

lower, what is your ability and willingness to address the reason for this in the next twelve to eighteen months? Many

firms reported they were either in the process of implementing changes or planning to do so during the next twelve

months. The primary reasons (20%) for not changing were: 1) we do not have the staff or expertise to introduce a

more effective compensation program, 2) senior management has no interest in modifying our plan’s overarching

design philosophy.

There’s no right or wrong answer, only a question of whether or not the system you have in place is serving your

current and future needs. Analytics are increasingly part of the conversation now that storage, computing power, and

speed have become affordable; particularly with cloud-based applications and platforms. Still, many companies seem

to be holding fast to traditional methods.

As you read through the metrics presented in the following pages, realize there are new horizons for sales executives

and new tools to help them expand and explore these. In the crush of day-to-day activities and the drive to close the

next deal toward making your annual goal, it’s easy to push new methods aside. This is an invitation to read, think,

and consider.




Reflecting on the metrics and messages

presented in the graph to the right may reinforce

your commitment to your current course, or it

may motivate you to investigate one or more

aspects of how quotas are set for the coming

year, what information is provided to your

managers to coach and manage their reps,

and/or what behaviors you truly want your sales

reps to exhibit.

Whatever you decide, if we can help support

your efforts in the coming year, we’ll be pleased

for the opportunity to do so. [Note: CSO Insights

does not offer training, system implementations,

compensation plan design, or other related

consulting services. We provide unbiased, research-based

guidance driven from our data, along with recommendations and introductions for our Advisory Services clients.]

We wish you continued success as you wrap up 2014 and new insights and winning ways throughout 2015!

Sell well, Jim Dickie Barry Trailer Managing Partner Managing Partner (303) 521-4410 (916) 712-9621 [email protected] [email protected]

Figure 2

mailto:[email protected]





Summary of Findings

At the very highest range (>85%), there is a full

two point drop from last year in terms of the

percentage of reps expected to make quota and another single point reduction in the next highest range (70%–85%).

The lowest segment (<50%) also dropped 1.5 points with all of these changes accruing to the 50%–60% range (up 4.5

points).

So there is not big movement compared to last year, though the highest range is down nearly nine points from two

years ago, and the next highest range is up that same amount. Of course, the question is how these design

expectations play out against actual performance. The firms with the lowest average percentage of reps expected to

meet quota came closest (35%) to their target (39%).

However, their performance reminds us of the goal setting maxim: Better to aim at a star and hit an eagle, than aim at

an eagle and hit a rock. Said another way, a goal set too low can be self-limiting, and it would appear this dynamic

could be in play when designing pay plans. See the table below.

Key Findings

Modest change in

expectations at the higher

ranges from last year.

Plan design and achievement

continue to be widely

divergent.

More liberal plans encourage

more positive results.

Percentage of Reps That Are Expected to Make Quota




What we see above are expectations—whether high or low—being realized in a number of ways. Firms with the

lowest designed-in percentage of reps expected to make quota and with the lowest average quota still had less than

half the performance of those firms with the highest designed-in target (98%).

Not only do we see quota and quota attainment tracking with expectations, we also see voluntary turnover doing so;

firms with the lowest percentage achievement had the highest voluntary turnover, while the highest achievers had the

lowest voluntary turnover.

The old saying is, “You get what you pay for.” It may be that you get what you are willing to pay for. The table below

shows the same categories of companies and their rating on how precisely their pay plan drives rep behavior. It’s

interesting to see the exact same correlation playing out across the table.

Percentage of Reps Expected to Make Quota in Plan Design

<50% 50%–69% 70%–85% >85%

Average Percentage Designed into Plan 39% 61% 78% 98%

% of Reps Meeting/Beating Quota 35% 53% 68% 75%

Voluntary Rep Turnover 13% 10% 8% 7%

Average Quota Size $1.3M $1.7M $1.6M $1.6M

Percentage of Reps Expected to Make Quota in Plan Design

<50% 50%–69% 70%–85% >85%

Plan Consistently Drives the Precise Selling Behavior From Reps

9% 10% 12% 17%

Program Has Minimal/No Impact on Rep Behaviors

23% 13% 11% 13%




Summary of Findings

We saw in the prior metric that voluntary

turnover, which is up slightly over last year

(9.5%), remains well down from two years ago (12.6%). There seems to be support to keep total turnover at or below

20%. With growth, attrition, and promotions, this is a level at which both revenue and relationships can be sustained.

Replacing the salesforce every five years is more affordable (in every sense) than every two to three years.

The Software industry as a whole, which typically demonstrates volatility, reports 23% turnover (12% voluntary, 11%

involuntary) and doesn’t vary dramatically by the specific type of software company. Software-as-a-Service (SaaS) is

highest at just upwards of 23%, reflecting that cloud computing is the most active category within this space. But on-

premise, the most established category, is just slightly less volatile at 21% (11% voluntary, 10% involuntary).

The chart above shows the average for all industries, company size, and geographies. However, as with any average,

there are highs and lows that are masked by the “average.” Various industries lead in either voluntary or involuntary

turnover.

Key Findings

Voluntary turnover is up

slightly over last year;

involuntary is essentially

unchanged.

Reps gravitate to and remain

at firms where they feel they

can be successful.

Too high or too low turnover

correlate with poorer results.

Annual Sales Rep Turnover Rates—Voluntary and Involuntary




For example, Financial Services are right on, or slightly under, par with 10% voluntary and 8% involuntary turnover.

Yet, the single highest voluntary turnover score this year is reported by Retail Banking at 17%; voluntary turnover in

this group is just 5%. Commercial Banking is second in this sector at 14% voluntary; Insurance Brokerage is a distant

third at 11%, just above the aggregated average. However, Insurance Brokerage makes up for any lagging tendencies

with the highest involuntary average in the segment at 11% for a total turnover of 22%.

Shipping/Transportation/Logistics leads everyone at 29% total turnover: 16% voluntary and 13% involuntary. Firms

interested in how they stack up against their peers (industry) group should contact laura.andrus@csoinsights to get a

custom industry benchmark.

Given all these variations in turnover rates between industries, categories within an industry, etc., it would be easy to

get caught up looking for a “right” number. One CSO that called us had just come out of a board meeting and had

been given clear marching orders: The turnover rate in the sales organization is too high, and you need to get it down.

He had no idea how their numbers compared. At 29%, it turned out they were actually low for their peer group!

However—and this is the important second point—their turnover had jumped impressively and consistently over the

prior three years, and this was actually the telltale of other systemic problems. Even if your own turnover numbers are

below those reported here or an industry benchmark, be sure to look at the trend figures for turnover in your

organization as well. These may tip you off to something more important but less obvious.

Strictly as a matter of curiosity, we looked at high and low turnover figures across the entire survey population: 3% had

voluntary and involuntary turnover rates of less than 5% each (<10% total); 7% had rates greater than 15% for each

(>30% total). The percentage of reps meeting/beating quota was 60% and 41%, respectively. These figures reinforce

the notion of keeping reps in place (e.g., in accounts, in territory), rather than constantly churning them.

mailto:laura.andrus@csoinsights




Summary of Findings

Last year the majority of respondents (54%) fell

to the left side of the chart above—greater than

75% of the sales force actively engaged in their

sales efforts. As you can see, the pendulum

swung the other way with just under 50% now

reporting these high levels of engagement. Active engagement is defined by James K. Harter, Ph.D., Frank L.

Schmidt, Ph.D., and Emily A. Killham as: "An employee's involvement with, commitment to, and satisfaction with work.

Employee engagement is a part of employee retention."

Having just looked at turnover in each of the prior two metrics and the positive performance figures that correlate with

sales reps staying in place, it is worth comparing engagement and retention figures and seeing what the analyses tell

us.

Starting with rep turnover, for highly engaged firms (>75% engaged) the reported total rep turnover was 15% (below

the overall average of 19%), while the less engaged group (<50% engaged) reported 24%, on average. In terms of

Key Findings

Highest engagement rating up

again this year.

Slight reduction seen in

overall engagement rating.

Assessment of rep

engagement correlates

directly with rep performance.

Percentage of the Sales Force Actively Engaged in Their Efforts




actively working to retain sales talent, only 15% of engaged firms said they didn’t specifically target retention in the

design of their compensation plans versus 31% for the less engaged firms.

The table below suggests active engagement is neither happenstance nor simply a “nice” idea. Rather, the data show

that highly engaged firms, especially their managers, are supported and actively “in the game,” coaching their reps

and being supported with timely and accurate metrics—all of which translates into better performance numbers.

A favorite expression when it comes to recognition/reward programs is: “We work for the money, but we live for the

strokes.” People will stick around if they’re making good money, but they won’t necessarily be happy campers—or

happy customer-facing ambassadors for your firm. If sales is anything, it’s a game of attitude, perseverance, energy,

and enthusiasm. Reps that are back on their heels, leaning back instead of leaning in, taking a “wait and see” or

“when I get around to it” approach, will be outdistanced by reps playing with heart, soul, and brains.

It is not, as so many outside of sales think, simply a personality contest; there’s much more to it than that. But

personality does play a factor as do reps bringing themselves fully to the party. These efforts, as we’ll see in the next

metrics are encouraged, shaped, and guided by managers and supporting infrastructure. Getting your team actively

engaged requires more than cheerleading. But as the numbers show, you’ll be cheering when you have a highly

engaged sales force.

Percentage of Sales Force Actively Engaged in Selling Efforts

<50% >75%

Do Not Have Any Recognition/Reward Program 22% 10%

Rep Turnover: Voluntary/Involuntary 14%/10% 8%/7%

% of Reps Meeting/Beating Quota 39% 63%




Summary of Findings

We’ve been tracking this metric for the past six

years. In 2014, over 90% of managers see this

ability as either very important or mission critical (see chart on next page). And yet, the ability to deliver timely and

accurate metrics to managers is actually losing ground.

In 2013, 9.2% of survey respondents reported exceeding expectations and 50% adequately doing so. The number

one key to improved performance is coaching—providing timely, accurate, objective, individualized, and relevant

feedback. Great. Except what you’ll see in the next metric is that managers continue to rely on their own experience

and observations as the basis for their coaching. Reps often ask themselves, “Is my manager’s sales rep experience

from four or five years ago relevant in today’s rapidly changing environment?”

Key Findings

Ground was lost in this critical

area over the past year.

Firms exceeding expectations

in this ability shrunk by nearly

half.

There are more tools available

to provide managers with

timely metrics than ever

before.

Ability to Provide Managers with Timely and Accurate Rep Performance Metrics




Likely not. This could actually serve to further diminish

a rep’s active engagement, personal commitment, and

overall attitude toward representing the employer. Not

good. Interesting to note, 85% of companies with very

low rep engagement percentage (<50%) rated

providing managers with timely and accurate metrics

mission critical or very important—versus 89% of

companies with highly engaged reps (>75%). The

difference is that 30% of the low engagement firms

were able to deliver versus 62% of the high

engagement firms. Another difference is rep quota

attainment: 39% versus 63%, respectively.

So what gives? If everyone sees this ability as

important and the data clearly support the value, why

are only a fraction of firms delivering timely and

accurate metrics to their managers? And why so few, when today there are more, more affordable, and more powerful

analytics tools available than ever before?!

There are, of course, different answers for different firms, but they likely fall into a few categories: 1) we pay for

performance; results are what get compensated on leading versus lagging indicators), 2) we’ve always done it this

way, 3) we already have too many priorities to take on implementing another application, 4) our management team

doesn’t believe in the value that analytics supposedly deliver.

These are all really good reasons for staying right where you are which, in a dynamic environment, means being left

behind. Need one more good reason? See the table below.

Provide Managers Timely and Accurate Process Metrics

Needs Improvement

Exceeds Expectations





Summary of Findings

Maybe it’s force of habit. Maybe there simply is no incentive for changing. Maybe relying on personal experience and

observations is working extraordinarily well. Then again, maybe it’s time for a wake-up call!

Analytics are making an impact in a number of areas, but to date they’ve only made slight inroads (16%) into sales

management practices. Their effect has been similarly muted, though the numbers are leaning in the right direction.

Four points (57% versus 53%) in the percentage of reps making full quota separate firms where managers do receive

process metrics as changes occur and use data from an automated system. This is compared with firms that do not

feed change metrics to their managers who are relying instead on insights from their own experience. Granted, four

points is not overwhelming, but it is 8% better.

Key Findings

Managers continue to rely

heavily on their own

experience and observations.

One-half of gains made by

CRM dashboards last year in

acceptance and use given

back this year.

Automated alerts and

escalation still represent only

a fraction of the market

despite recognition of their

importance and usefulness.

Information, Tools, and Insights Sales Managers Use to Coach Their Sales Reps




While CRM dashboards retain their third place position again this year, half of the increase from 2012 (60%) to 2013

(65%) was given up in 2014.

However, beyond the final numbers is the compelling argument inviting sales management to step up to the realities of

today’s business and sales environment. Increasingly, sales teams are distributed across geographies, working out of

their home, car, or a shared office suite arrangement (e.g., Regus). In addition, the number of reps reporting to first

line managers keeps creeping up. This year the average number of reps per manager is seven, though we recently

spoke to a global distribution company where the number is seventeen (that is not a typo).

Even in the case where managers and reps are co-located, with seven or more direct reports, the ability of a manager

to observe rep behaviors firsthand becomes exceedingly limited. Further, when managers do spend 1:1 time with

reps, it’s typically divided between reviewing deals, the pipeline, and coaching. The winner is easy to predict: Focus on

current opportunities and what can be done to close them.

However, even when managers say they’re “coaching,” they are more likely “inspecting.” For example, “How many

calls did you make this week?”; “How many initial meetings progressed to the next stage?”; “What resources do you

need from me?” These are not deal-specific inquiries, nor are they coaching questions.

A Global 100 company that had invested 4000 hours of management time in training their managers on coaching

surveyed their managers and reps six months later to measure how coaching was being implemented and what

differences it was making. A total of 7% of managers indicated they had been coaching each rep less than three

hours/rep/month, 55% indicated three to five hours/rep/month, and the remaining 38%, greater than five

hours/rep/month. The figures reported by the reps were essentially inverted at 56%, 32% and 12%, respectively.

Further, much of this time reps reported they were being inspected (e.g., “What will it take to close this deal this

period?”) versus coached (e.g., “Let’s discuss the current sales competency you’re working to improve.”)

How are your managers spending their time with their reps? Are they coaching or inspecting?




Summary of Findings

An interesting split seems to be occurring in the

variable-base pay dynamic. The most popular variable mix continues to be 40% base with 60% variable to 60% base

with 40% variable, though this segment gave up 4.5 points year-over-year. The majority of these lost points seem to

have moved upward to the most highly leveraged plans (>60% variable), which last year represented 16.5% of

respondents. At the same time, some firms are going for higher variable pay components, while others are heading in

the exact opposite direction, namely, no variable pay. While still the smallest number, this segment grew from 4.5% to

5.4% to 6.9% over the past three years.

Conventional wisdom says, “You get what you pay for.” Clearly, sales reps take this to heart and study their

compensation plans to learn: a) what the company values (i.e., what the company pays for), and 2) how to maximize

their earnings.

Key Findings

Highest leveraged segment

increased the most over the

past twelve months.

“No variable component” grew

steadily for a third year in a

row.

Variable pay component

remains one of the key

performance levers available.

Percentage of Sales Rep’s Package that is Variable Pay




The table below looks at some of the trade-offs that may accompany the path a company selects.

Various Metrics Against Variable Pay Component

% Reps Meeting Quota

Voluntary Turnover

Involuntary Turnover

Annual Revenue

<$50B

Annual Revenue

>$1B

No Variable Pay 38% 10% 7% 75% 11%

1%–15% Variable 53% 10% 8% 54% 11%

16%–25% Variable 59% 7% 5% 52% 22%

26%–40% Variable 55% 11% 8% 47% 26%

41%–60% Variable 55% 11% 11% 50% 17%

>60% Variable 59% 10% 10% 65% 5%

It’s interesting to see the ebb and flow between the metrics shown above. Enterprise-class companies seem to favor the mid-

range 16%–40%, while smaller companies have the highest representation in the extremes—no variable, or variable at the

highest level (>60%).

The percentage of reps meeting/beating quota maxes out at 59% and suggests that the most popular variable pay rates for

enterprise and SMBs are the most successful, since they correlate with the best performance figures. The one exception is

the preponderance of smaller companies employing fixed salary (i.e., no variable pay) and the very poor quota attainment

figure (38%) associated with this.

The majority of these smaller companies do not run SPIFs, contests, or employ accelerators in their compensation plans. This

may make sense if they have just a handful of reps, but they still need to keep their reps motivated and focused. The most

frequent recognition program (45%) is announcements at company meetings.

Nearly three-quarters (73%) of firms with revenues less than $50M use manual systems and/or spreadsheets to manage their

territories and compensation. This may dictate that they maintain relatively basic pay schemes, but this could prove to be a

false economy. The money saved using homegrown, manual systems may be costing them much more in missed revenue

opportunities. Today, on-line applications scaled to serve smaller companies (e.g., Xactly Xpress, IBM) can provide

sophisticated and flexible compensation capabilities without significant, or any, IT staffing.




Summary of Findings

In our annual Sales Performance Optimization survey, we routinely ask what the top objectives are for the coming

year. Topping the list this year for the fourth time was capturing new accounts. Wanting to dive deeper with particular

respect to compensation plan design, we see maintaining/increasing market share is the first choice by a wide margin,

consistent with the objective of adding new accounts to existing customers. This isn’t surprising, but the dramatic

falloff of the next several areas of focus is.

The fact that companies are intent on maintaining/increasing their market share and ensuring their survival is

understood; how they will go about accomplishing this is the larger question. This is akin to reps understanding they’re

to call high, sell value, and eliminate discounting, but knowing how to accomplish these tasks is often much less

understood or played out in daily selling activities.

In light of the enormous weight that has been given to the shift in balance of power from the seller to the buyer in the

past decade, it’s surprising to see “transforming to a more customer-centric sales organization” so far down the list.

Key Findings

New Metric: Increasing market

share is the primary area of

focus by a wide margin.

Increasing market share is in

line with the consistent top

goal of acquiring new

accounts.

Becoming “customer-centric”

may be more of an ideal than a

targeted reality.

Most Important Areas of Focus for Fiscal Year 2015

http://www.csoinsights.com/Publications/Shop/Sales-Performance-Optimization




Indeed, the notion of becoming customer-centric, of improving—and even competing on the basis of—the customer

experience has been a constant drumbeat over the past few years.

Bob Thompson, author of Hooked on Customers: The Five Habits of Legendary Customer-Centric Companies, cites a

2012 study by IBM “where CEOs named ‘customer obsession’ as the top leadership trait required to steer their

organizations effectively, and 66 percent listed ‘customer relationships’ as a key source of sustained economic value.

Furthermore, 73 percent said that they’re investing heavily in ‘customer insights’.”1 (Emphasis added.)

Bob outlines five steps to focus on and improve your customer experience, and, in so doing, maintain/increase market

share:

1. Listen—Understand what customers value; act on their feedback

2. Think—Make smart, fact-based decisions

3. Empower—Give employees resources and authority to serve customers

4. Create—Produce new value for customers and the company

5. Delight—Exceed expectations; be remarkable!

And, yet, the focus of compensation plans for the year ahead continues to be on results by three times as many

companies as becoming more customer-centric. Again, this isn’t surprising. However, as you look to the year ahead

and consider the design of your compensation plan, it may be worth asking if some other areas of focus might warrant

higher priority and investment.

1 “Hooked on Customers: The Five Habits of Legendary Customer-Centric Companies”, Robert G. Thompson, 2014.

http://www.amazon.com/Hooked-Customers-Legendary-Customer-Centric-Companies/dp/1478271515




Summary of Findings

Time and again, we hear of firms paying a vast number

of individuals (the record was 200+ on transactions with a gross revenue of $4M) whether or not they were directly

involved in securing the sale. We see across the entire survey population that having a pre-determined, structured

format for determining who will or will not be paid on closed deals is the most frequent approach. As it turns out, it is

also the most popular approach—that is, it receives the highest grades.

The second most common approach is paying individuals who earned a spot in the pay line by being “actively

involved” in closing a piece of business and, apparently, being easily recognized as having been an active player in a

successful closing. A distant third is managers determining who will be paid. Lastly, the least frequent or acceptable

approach is individuals nominating themselves as having earned a portion of a successful deal closing, whether or not

their efforts were apparent.

Key Findings

New Metric: hierarchical pay

schemes are the most

prevalent method for

determining who gets paid on

a deal.

Self-reporting and/or leaving

determination up to managers

is the least favored.

Active involvement is the

second most frequent and

acceptable.

Method for Determining How Many People Get Paid On a Deal




Clearly, this is an issue for larger companies with annual revenues greater than $250M and/or companies with larger

sales that have deal sizes in excess of $250K. When looking at larger firms and isolating the variable of how its people

will get paid upon deals closing, the pre-determined, hierarchical approach had 60% giving an overall grade of A or B,

versus 50% for firms where individuals could self-nominate. This suggests that having clear ground rules spelled out,

letting people know where they stand and how they compete is preferred.

However, the pre-determined group also scored higher in grades D and F, 15%, versus just 5% for the self-nominated.

The oft-repeated caution that “correlation is not causation” certainly bears repeating, but it is interesting to see, in the

first year of this metric, these relationships and to consider why they may occur.

Finally, we looked at the same issue by size of deal and number of payees. In each case, the pre-determined,

structured rules came in first, manager selected came in a distant second, and self-nominated (i.e., raise your hand if

you feel you have something coming) ranked third.




Summary of Findings

There were a few significant shifts in responses to

this metric over the past year, the first being how

much the favorites fell from just twelve months ago. Specifically, revenue attainment versus plan and ROI continue to

hold the top two places, respectively, but their percentages fell from 64% and 60% last year. Picking up most, if not all

of this difference, is Do Not Track, a strong fourth place showing at 28%, and an answer that wasn’t offered in last

year’s study.

This shift suggests that, in fact, firms may not be evaluating their compensation plans in terms of effectiveness, so

much as implementing them based on prior experience and industry norms. The usual measure of cost of sales as a

percentage of overall revenues is a standard metric and one carefully watched, along with typical financial measures

(revenue/rep, revenue/employee, etc.).

Key Findings

Revenue attainment remains

the favored metric of

compensation plan

effectiveness.

Rep attainment moved up over

the past year reinforcing the

importance of making the

number.

Firms not tracking their plans’

ROI is a new addition and a

surprising fourth place.

Metrics and Factors Used to Track Overall Effectiveness of Compensation Plans




But, as with so many other areas of investment such as CRM and sales training, there is the question of effectiveness

versus efficiency. The financial measures offer a clear comparison to industry norms, but do not reflect effectiveness

related to rep behavior. The notion that “organizations elicit the behaviors they reward” is fundamental to

compensation design. The notion of effectiveness is like asking Dr. Phil this question, “So, how’s that working for

you?”

We’ll look at specifics in the next metric regarding rep behaviors. But, what about rep satisfaction, retention, and

engagement? Are these “too soft” to be considered valid measures for something as tangible (i.e., “hard”) as

compensation? Is there merit in considering these other dimensions with reps the way companies do with customer

satisfaction with the products/services your company provides? The table below offers an interesting look at figures

that were reported this year.

The companies spending most heavily as a percentage of overall revenue seem to be getting something for their

investment. Voluntary departures are the lowest, and the percentage of reps meeting/beating quota and reported

engagement are tied for highest.

Clearly, there is much more to this discussion including operational excellence and efficiency, size of company and

deal, industry, and more. But, it is interesting to see how the numbers fluctuate and whether there might not be some

merit to considering other dimensions beyond revenue plan attainment. And, it certainly raises the question of

whether the firms that don’t track compensation plan effectiveness at all might want to think about how they would—if

they decided to do so.

Revenue and Rep Quota Attainment versus Direct Sales Compensation Spend as a Percentage of

Revenue

% Reps Meeting/Beating

Quota

% Voluntary Rep Turnover

>75% of Sales Force Fully Engaged

≤5% 56% 10% 54%

6%–10% 52% 10% 49%

11%–15% 60% 10% 57%

16%–20% 63% 11% 47%

21%–30% 57% 12% 58%

>30% 63% 9% 65%




Summary of Findings

It is well documented elsewhere in this report

that gaining new accounts and growing

existing customers remain top priorities. There is nothing surprising or wrong about this emphasis; after all, as Peter

Drucker is famously quoted as saying, “The purpose of a business is to create a customer.” What is somewhat

surprising is how little movement has transpired over the past few years in impacting rep selling behaviors. Indeed, the

only change in the top five behaviors is the flip-flopping of farming more from existing customers and cross-selling/up-

selling.

Everyone is clear about their priorities—these top priorities only changed percentages by a point or two from 2012.

Also, retaining their low ranking are consistently utilizing sales process and accurately forecasting business. Is this

singular and steadfast reinforcement of rep behavior paying off? To answer this question, we compared the group of

firms which had one to two metrics in their pay plan and that listed acquiring new and retaining existing customers as

Key Findings

Little change in ranking or

rating from past two years.

Firms isolating on new

account acquisition and

existing account retention

may be shortchanging

themselves.

“Forecast accuracy” is likely

to remain an oxymoron for the

foreseeable future.

Selling Behaviors Impacted by Compensation Plans




their key impacted behaviors with the group of firms with three to four metrics, one of which was consistent use of their

sales process.

It doesn’t appear to be a good bet placing singular focus on results. The percentage of reps meeting/beating quota is

lower and rep turnover is higher than firms with a few metrics and a focus on consistent use of sales process. At the

same time, you can go overboard with too many metrics.

The third column in the table shows firms that focus on consistent use of the sales process and have a handful or

more of pay components in their compensation plans. A generally accepted best practice is to limit such metrics to

four. We see above that achievement peaked with three to four metrics being tracked and compensated. Interesting to

note is that the firms with five or more metrics are unanimous in the importance of providing their managers with timely

and accurate process metrics and have made the greatest strides in doing so. But their turnover is highest of all and

their reps’ quota achievement is the lowest.

As with everything else in life, the answer is balance. Focus solely on results to the exclusion of process and you may

find (too late) that your reps are coming up short. Focus on measuring every single thing every single moment and you

may get in the way of your reps actually selling.

Finally, we’ve raised a lot of eyebrows pointing out that the win probability of a pass line bet in craps (48.6%) or

roulette (47.5%) are both higher than the aggregate win probability of forecast deals (45.9%) in 2014. Seeing that this

Sales Rep Performance that Correlates to Compensation Plan Metrics

1-2 Metrics New/Existing

Business

3-4 Metrics Use Sales Process

5-7 Metrics Use Sales Process

% of Reps Meeting/Beating Quota 54% 66% 53%

Providing Managers Timely/Accurate Process Metrics

is Very Important or Mission Critical 87% 93% 100%

Adequately Provide Managers with Timely and

Accurate Process Metrics 48% 60% 57%

Able to Provide Process Metrics as Change Occurs 48% 65% 71%

Voluntary/Involuntary Rep Turnover 11%/10% 9%/8% 13%/12%




is dead last as a sales rep behavior impacted by the compensation plan and a top priority to focus on for one in eight

firms in 2015, it is unlikely forecasts are going to become more reliable/accurate anytime soon.




Going Forward Analysis

When we get to this point in writing our reports, one question we ask is, “What does it all mean?” Is there an overriding

impression that emerges from the Top Ten metrics we’ve chosen? We added some new questions to this year’s

survey and one pair, in particular, helped pull a summary together. The first of these questions was, “What grade

would you give your compensation/incentive management program(s)?”

As you can see in Figure 3, about one-quarter of companies gave their firm’s program an A/A+ rating. And just over

one-third gave themselves a fairly positive B rating.

This picture looks pretty rosy, but it has been interesting to look at individual responses to the second question, “What

is the single most compelling reason for the grade you gave your program?” Even among the thick slice of grade B

Figure 3




respondents, there were some who felt the plan was working fine but that there was room for improvement: “Our plan

is too complex.” “There are too many performance modifiers, payout multipliers, and bonuses making the plan

complex.” “Not optimal, but working well.” Others reported opposing views: “Does not seem to be driving sales

behavior to align with corporate goals.” “Difficult to manage, but it works to drive the business.” Despite differing views,

the compensation plan driving desired rep behaviors correlates directly with the grade respondents were willing to

give.

A+/A B C D F

Consistently Drives Precise Selling Behavior

24% 9% 4% 2% 0%

Generally Drives Precise Selling Behavior

65% 74% 40% 29% 0%

Minimal or No Impact on Selling Behavior

2% 10% 29% 50% 62%

Do Not Know 9% 9% 27% 19% 39%

Clearly, the primary point of compensation is to drive desired behavior—in essence, renting the behavior(s) you want.

As companies grow beyond a couple handfuls of reps (>10), then consistency and supporting systems become

increasingly vital; the A & B players seem to have figured this out. Their results attest to this, as seen below.

Organizations with >10 Reps, Compared by Grade and Ability to Drive

Desired Rep Behaviors

A+/A/B Consistently Drive

Behaviors

C/D Generally Drive

Behaviors


Provide Managers with Timely/Accurate Process Metrics: Very Important/Mission Critical

91% 96%

Adequately or Exceeds Expectations with Providing Managers with Timely/Accurate Process Metrics

55% 35%

Manage Territories Manually or Use Spreadsheets

33% 64%




The key to eliciting desired behaviors is, of course,

rewarding them when they’re delivered and providing

coaching and feedback along the way. The C and D

players obviously see the value of providing sales

managers with timely and accurate process metrics

(96%), but their ability to do so is twenty full points lower

than the A and B players. One reason this is the case is

that almost twice as many of the C and D players are

trying to manage territories and compensation manually

or with spreadsheets. This becomes increasingly

problematic as the size of the sales organization

increases.

We stopped asking about error rates this year since, by

and large, firms are getting paychecks correct and out

on time. The more challenging aspects of compensation,

incentive, and performance management seem

unquestionably to have shifted to continuing to raise the

bar on performance and ROI. Reps understanding what they need to do to maximize their earnings—while believing

that quotas are both fair and achievable—ranks as mission critical or very important in nearly 90% of firms. However,

there are real differences in between the A/B and C/D players in their ability to deliver in these areas as well.

* * *

Figure 4




Believing targets are fair and achievable goes a long way

toward winning the hearts and minds of sales reps. The

days of threats such as, “If you can’t make the number,

we’ll get someone in here who can,” are limited—and

always were limited—in their effectiveness to inspire and

motivate reps.

More than ever, today’s reps want to be successful, but

they also want their work to be purposeful and the people

they work with (and for) to be on the same page.

The data consistently show that timely, accurate, relevant,

and individualized feedback is the basis for sustainably

improved performance. Much has been written by CSO

Insights and others about sales process, and specifically

about lagging versus leading indicators.

Lagging indicators are after the fact: percentage of revenue attained, percentage of reps meeting/beating quota,

percentage of new versus existing customers, etc. Each is a result and, since companies historically (and reasonably)

pay for results, they are the most familiar types of metrics gathered. Results are also the most easily gathered and a

common basis for measuring business performance. Other examples include percentage of quota attainment, revenue

per rep/employee, year-to-date bookings, etc.

However, because these measures are all historic—even if useful—you can only monitor results, you can’t manage

them. The reason for this is that by the time you know what the results are, by definition, whatever actions led up to it

are completed. This inability to influence outcomes drives the desire for leading indicators or process measures—

metrics that if improved boost results.

Leading indicators measure checkpoints during the sales cycle: time (or overaging) in a particular sales cycle step,

forecast opportunities continuing past their anticipated close date, leads that are followed up within the optimum

Figure 5




response window, etc. With compensation plans becoming more reliable and flexible, the drive to focus on analytics

and performance improvement has moved to center stage.

What to Look For

Looking ahead to 2015, you should be considering the following: ease of implementation, flexibility, robust analytics,

and visualization tools to bring the data analyses and insights to life.

Ease of Implementation—Cloud based solutions are now well established and provide an easy and incremental path

to implementation.

Flexibility—52% of the A/B firms had five or fewer sales compensation plans they administered versus 60% of C/D

firms. Of note, 31% of A/B firms had eleven or more compensation plans as opposed to 18% of C/D firms. You can go

overboard, but the key aspects are being able to develop, test, deploy, track, and easily modify plan designs.

Robust Analytics—Reporting is often the weak link in CRM and other sales applications. Today, powerful and

affordable analytics solutions are available to look at structured and unstructured data to surface patterns that

correlate with winning opportunities and successful sales outcomes. These insights are simply not available to

companies that operate solely with spreadsheets.

Visualization—Identifying insights that are not obvious, intuitive and/or trivial is one thing; displaying them in such a

way that their meaning and power to leverage is readily apparent is another. As the appetite for and recognition of the

power of analytics increases, so does the demand for tools that rapidly and clearly display these insights in an

immediately understandable way.

Despite quota attainment being down in 2014 (58%) from the prior years (63%), your revenue target and individual

quotas almost certainly will be increased for 2015. The weighted average revenue increase year-over-year has been

16.5% over the past two years and, given the strength of the economy and generally bullish outlook, we expect to see

at least this level of increase for the coming year.

To meet this uphill challenge will require clarity of vision, focus on improving process execution metrics (i.e., leading

indicators), engaged sales reps, and informed managers and coaches. Having a compensation, incentive, and




performance management system that elicits and rewards desired behaviors will be a key component. What grade do

you give your own compensation and incentive management system?

If an A+/A or B, congratulations! However, remember that you’re not operating in a static environment, and you’ll want

to stay atop of changes and continue to refine and tune your system. If you gave your compensation system a C or

lower, this would be an excellent time to consider what’s needed to improve. If you’re uncertain where to begin, you

may want to conduct a benchmark study to establish a baseline. Contact [email protected] (716) 213-

3562 for more information.

No doubt, you will face numerous hurdles as your prepare for and run the gauntlet in the coming year. The good news

is that there are many winning strategies, supporting tools, and advising resources to support your success. We wish

you well in your journey and look forward to the opportunity to connect with you along the way.

Please be in touch if you have specific questions about benchmark data, needed introductions, and/or data-based

recommendations. We’re here to help in any way that we can.

Jim Dickie Barry Trailer

Managing Partner Managing Partner

(303) 521-4410 (916) 712-9621

[email protected] [email protected]







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