building an effective sales compensation framework

Building An Effective Sales Compensation Framewok

CIPD – London May 7 th, 2010

Paola Gheis

1

CIPD Sales Compensation May 7, 2010 Paola Gheis2

Content• The Sales Management System

• Why using Sales Incentive Plans (SIP)• SIP Eligibility and roles’ review within the sales strategy

• Sales Comp Design Fundamentals• Some SIP design fundamental and criteria for choosing them

• How to Ensure SIP Alignment to Sales Strategy Over Time• SIP stakeholders• SIP learning process

• SIP Evaluation• How to build the tool kit for a SIP review with sales leaders• SIP assessment: some critical questions

• The Communication Process• Some critical aspects• A recommended model

• Bibliography

The Sales Management System• Why using Sales Incentive Plans (SIP)• SIP Eligibility and roles’ review within the sales

strategy

CIPD Sales Compensation May 7 Paola Gheis3


The Sales Management System

Sales Management System TM

E N A B L I N G T E C H N O L O G I E S E N A B L I N G T E C H N O L O G I E S

Sales Coverage Strategy Sales EffectivenessCustomer

Accountability

Segment Definition &

Targeting

Sales Strategy

Channel Design

Organization Resource Deployment

Performance Metrics & Tools

Goals & Compensation

People Management Programs

& Selection& Job

Design

• Revenue and Profit goals

• Business Growth Expectations

• New Markets Selling

• Maintenance selling, etc.

• Go-to-Market Strategy

• Indirect, direct, retail, etc.

• Global, regional

• High touch, low touch

• Product specialist, generalist, tele-sales

• Account assignment

• Territory assignment, etc.

• How many?

• Revenue

• Volume

• Product mix

• Etc.

• Plan design features

• Pay mix, upside, MBO

• Costs & affordability

• Communication: content, planning

• Payout calculation


Why Companies Use Sales Incentive Plans and What are the Objectives?

• Drive sales growth & profitability• Align rewards tightly to sales results for individuals and sales

teams• Create performance differentiation and sustain a performance

culture• Drive individual accountability (while balancing team effectiveness

as necessary)• Drive motivation by offering (attractive) above target incentives• Focus employees’ behavior to sales priorities with key metrics• Provide flexibility to align sales behavior with market dynamics• Create a win-win situation for the company and employees

Sales people drive the company’s top line (and often impact the bottom line)


Eligibility to Sales Incentive Plan

• The Sales Incentive Plan are designed specifically for sales employees who are directly involved in selling and persuading a defined customer to buy

Sales Process

1.Role activity generate an eventual business results but is not accountable for Orders or Revenue Generation2. Role is focused on customer identification and understanding of its business needs but persuation activity is not yet the focus of the role3. This stage of the sales process requires customer contact but this is not the predominant activity

Customer Identification

Lead GenerationLead Qualification

Roles NOT eligible to Sales IncentiveRoles may be eligible to variable pay

Pre-salesProposal / Negotiation

Close

Customer Persuasion

1. Sales person with accountability and responsibility for customer orders2. Sales person with responsibility for persuading a customer to buy3. Primary focus of the role on the persuasion phase of the sales process4. Requires consistent customer focus and contact 5. Quantitative measures of success are defined and available for all targets

Role eligible to Sales Incentive

Customer Support

Customer Service

1. Role has extensive customer contact but the contact is not necessarily with the buying decions maker2. Accountability is typically around customer satisfaction metrics rather than orders and revenue3. Focus of role is around customer satisfaction and not persuasion to buy

Customer Fulfillment

Roles NOT eligible to Sales IncentiveRoles may be eligible to variable pay


Sales Roles – Sales Strategy Matrix

• This is a useful tool to help clarify the primary differentiation (R,P,C) between sales roles

Buyers

Conversion Selling

“Grow Base”

Conversion Selling

“Grow Base”

New Market Selling

“Develop Markets”

New Market Selling

“Develop Markets”

Maintenance Selling

“Protect Base”

Maintenance Selling

“Protect Base”

Leverage Selling

“Penetrate Accounts”

Leverage Selling

“Penetrate Accounts”Customers

Prospects

Current New

Products

Conversion focus

Penetratio

n focu

sRetention focus

Sales Comp Design Fundamentals

• Some SIP design fundamental and criteria for choosing them



Sales Compensation DesignDesign Fundamentals

Upside

Base

Target Incentive

Pay Mix

Target Incentive

Upside Pay Incentive Program

Tota

l Ta

rget

Cash


Pay Mix and Upside

0%

100%

75

25

50

60

40

80

90

10

20

Low High Extent of Upside Potential

Targ

et

Co

mp

ensa

tio

n

Target

Target

Base

Upside Earnings

10


Sales Incentive Plan Pay Mix and Upside Criteria

Less Aggressive Pay Mix/Upside More Aggressive

Added Value Sales FocusPrice

Many Co. Employees Customer Contact Sales Person Only

Many Reasons Buy DecisionSeller Driven

Weak Line of sight Strong

Non-Predictable results Forecast Ability Predictable Results

Emerging Market Mature

Country/Region Level of measure IndividualCompanies may determine a streamlined choice of plan variations for:

Choice of simplicity of plan administration and communication, easiness to manage compensation in case of mobility across roles, affordability, etc.

How to Ensure SIP Alignment to Sales Strategy Over Time

• SIP stakeholders• SIP learning process



Compensation Plans are Dynamic Programs

Because the drivers (market forces, company strategy, etc.) are constantly shifting, job definitions evolve. As job definitions change, the compensation plan must also change to support the new selling roles.

Because the drivers (market forces, company strategy, etc.) are constantly shifting, job definitions evolve. As job definitions change, the compensation plan must also change to support the new selling roles.

Change DriversObjectives and

Strategies Job DefinitionCompensation Implications

Market Forces

Competition

New Products

Technological Change

Marketing PrioritiesMarketing Priorities

Sales StrategySales Strategy

Product/Service

Mix

Product/Service

Mix

Customer Coverage

Requirements

Customer Coverage

Requirements

Customer Responsibility

Product Responsibility

Process Responsibility

Measures

Weights

Leverage

Funding

Measurement and Tracking


Man

age

proc

esse

s to

tra

nsla

te

sale

s ou

tcom

es in

to in

cent

ive

payo

ut

Drive sales performance

Provide plan feedback

Drive sales priorities, coach sales,

ensure SIP understanding within

team

Pro

vide

lead

ersh

ip o

n sa

les

stra

tegy

, ap

prov

e pe

rfor

man

ce

met

rics

and

SIP

des

ign

Drive pay competitiveness and consistency with company pay

philosophy

Consu

lt on S

IP a

fford

ability

Drive

targ

et se

tting p

roce

ss

SIP Stakeholders


Sales Incentive Plan Learning Process

Process Start

SIP Evaluation• How to build the tool kit for a SIP review with

sales leaders• SIP assessment: some critical questions


Effectiveness

Is SIP driving the desired behavior?

Informational interviews

Field surveys

Efficiency

Are we getting the

results we are paying for?

Interal SIP performanc

e data

Competitiveness

How is the plan design relative to

the market?

Salary surveys for $ data

Networking clubs for

qualitative data


Key q

uesti

on

Data

Sou

rce

Building a Tool Kit to Evaluate & Review SIP with Sales Leaders

Is SIP Driving the Desired Behavior?• Periodic interviews and surveys in the field needed to support the

assessment:• Define relevant population segment depending on organization size and

model: • GMs• District Mgr (first line sales mgrs)• Field Sales Employees• Etc.

• Design questions for managers around sales priorities and assess SIP is not driving disruptive behaviors:

• Is the sales force spending time on pushing product X (performance data analysis also provides insights to this question)

• Is SIP ensuring the necessary collaboration among your sales reps• Etc.

• Ask Sales Employees if:• They understand the plan• Is SIP supporting the objective of the job and if not why• Etc.


Are We Getting What We Are Paying For?• Acquire intelligence on plan costing and its relation to the revenue

achieved• Target Incentive Paid % vs. Total Net Revenue Achieved

• This basic metric should be broken down by the relevant organization segments

• Global, regional, country, district, etc.

• Correlate % of incentive paid for each plan metric to the results achieved for that particular metric goal. Example:


Metric Product X

Product Y

Product Z

Weight 50% 40% 10%

Revenue Achieved 96% 130% 73%

Incentive paid 106% 170% 60%

• What is each product maturity and strategic relevance?• Is the field force trained to sell product Z?• Is 10% weight relevant enough to focus sales to Product Z or are sales employees shopping

the plan?• How is the quota set for Product Y

A few questions to interpret the data in the example table:

Is SIP Attractive (or too attractive) Relative to Competition?• Salary surveys provide compensation data on base, target and actual

cash• Helpful to set compensation levels by role and to design certain element of

the plan mechanics (e.g. pay mix)• Sales practices surveys is another source to enhance intelligence on

plan design• Networking with comp colleagues and setting up benchmarking clubs

with a rigorous method of exchanging qualitative information is a very good source to gain market insights on incentive design practices

• All of the above help to assess how to position your plan design payout potential relative to the market of reference


The Communication Process• Some critical aspects• A recommended model


•Business relevant: link plan elements to sales strategy•Clear: highlight what has changed and what is the same•Complete: details on a separate addendum all plan features•Flexible: include disclaimer stating that SIP is subject to change in the future

Business Relevant, Clear,

Complete, Flexible

•Explain rules of the game before the game starts•Best performing organization can communicate SIP and quota goal by the first two weeks of performance period

On time

•SIP is part of the sales management process

Must come from the business

CIPD Sales Compensation May 7, 2010 Paola Gheis

22

Critical Elements of Communication

Senior Management •Sales Kick off meeting: Present sales strategy and priorities and key targets to be achieved part of SIP

Direct Manager•One-to-one meeting with sales employee. •Emphasize key business priorities within territory/account assigned•Ensure SIP details are understood and explain how plan can be maxed out

Tools •Sales employee simulate plan payout at different level of achievement with available tool to understand plan mechanics and earning potential

CIPD Sales Compensation May 7, 2010 Paola Gheis

23

A Recommended Communication Process

Bibliography


A few good books to get started on Sales Comp

A Few Good Books to Get Started on Sales Comp• The Channel Advantage. Going to market with multiple sales

channels to reach more customers, sell more products, make more profit. Laurance G. Friedman, Timothy R. Furey. Butterworth Heinemann. 2001

• Compensation the Sales Force. David J. Cichelli. Mc Graw Hill. 2004• The Complete Guide to Sales Force Incentive Compensation. How to

Design and Implement Plans That Work. Andris A. Zoltners, Prabhakant Sinha, and Sally E. Lorimer. AMACOM. 2006

• Compensating New Sales Roles. How to Design Rewards That Work in Today’s Selling Environment. Jerome A. Colletti, Mary S. Fiss. AMACOM. 2001

Paola Gheis’ Bio and Contact Details


• Paola Gheis is a seasoned HR professional with 15+ years of experience acquired in blue chip companies such as Nokia, Agilent Technologies and Hewlett-Packard.

• Paola has a large experience in developing and implementing strategic performance-base HR programs and sales compensation programs and a solid experience in change management, business consulting and talent management. Her professional activity has been deployed in multi-cultural environments with geographical responsibilities ranging from local roles for the Iberian market to European and Global responsibilities covering EMEA, Asia Pacific and Americas.

• Paola got educated in Italy and the United States with a B.S. in Economics and an M.S. in Industrial Relations. She lived in seven countries, speaks five languages and traveled in any continent to work on her projects.

• Paola currently lives in Barcelona, Spain, and can be reached at:• Email: [email protected]• Cell.: +34 648 01 3914• Linkedin profile: http://es.linkedin.com/in/paolagheis


http://es.linkedin.com/in/paolagheis

building an effective sales compensation framework

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