The Sales Compensation Diamond Part 2: Linking Pay and Performance

Sales Comp Diamond

This is the second in a three-part series of The Sales Compensation Diamond – evaluating and designing a best-in-class sales compensation program. Click here for Part I: Framing the Plan.

Linking pay and performance actually begins with performance thresholds, which we covered last week. The next step is to develop the measures.

  1. Develop Measures and Priorities

Performance measures define the focus areas that are most important for each role. Each measure should represent the most significant pieces of the sales strategy that the role can control. A challenge for many organizations is determining which few of many possible measures should be included in the sales compensation plan, which should be part of the performance management program, and which should simply be core expectations of that job. Do the measures represent the top two or three financial and strategic priorities for each job? Has the message of the plan been diluted with too many measures, creating a buffet plan from which reps can pick and choose? Do reps have significant control over each measure in their plans?

  1. Set Levels and Timing

            For each measure, the organization must define the level at which that measure will be tracked for the plan. For example the organization may define a revenue measure for a sales rep at an individual level or a region level. Each measure will also be measured and paid on a certain timeframe, for example monthly or quarterly. The decisions around measurement levels and timing can have a direct impact on rep behavior. Measure too high and the rep may have little control. Measure too frequently and the cycle may be out of synch with a long sales process. Do our measurement levels match with reps’ ability to impact those measures? Does the frequency of our measurement and payment match the rhythm of the sales cycle or it unnaturally speeding or slowing the cycle?

  1. Design Mechanics

Mechanics create the connection between performance and pay. It’s the area most sales executives will jump to first rather than working through the previous steps. If your team is starting here, then they’ve missed half the process. While mechanics can seem complex with various rates, hurdles, gates, accelerators, and point systems, they can be divided into three types. A rate-based mechanic (also known as a commission) usually pays a certain percentage of revenue or gross profit, or a certain dollar amount per unit of sale. A quota-based mechanic typically pays a target incentive for reaching a specific quota or goal and may scale its payout above and below that performance level. A link creates a relationship and interdependency between two measures or mechanics. For example, attainment of a goal for a product mix measure may result in a multiplier that links and magnifies the payout of a total revenue commission. Are the plan mechanics easy to understand and calculate? Do they create an alignment to goal attainment or can a rep simply earn to a level where she’s comfortable? Are old commission rate structures causing the organization to work backwards by structuring territories (an upstream discipline) to manage pay levels (a downstream discipline)?

  1. Align the Team

            A full sales compensation program will include a range of sales, sales support, and management roles. To work together as a team, plan designs must interface as a complete system. This alignment point checks for how sellers will work together as teammates and peers in the sales process that may include business developers, account managers, field representatives, product and market specialists, sales support, and channel partners. This alignment point also checks for vertical integration from the front line up through each layer of management. Does the program promote teamwork or does it have points of potential conflict? Are managers and the front line operating with congruent measures or are there priorities not intersecting?

  1. Set Objectives and Quotas

Quotas are the linchpin between the sales compensation plan and performance. Objectives and quotas should be market based, representing the relative opportunity in each account assignment or territory, and be created with a process that’s well-understood by reps, optimally incorporating their input. Over time, quota processes for an organization will usually move from more internally or historically-based approaches to more market-based approaches as the market and organization become more developed. In early stage companies or in newer markets, an organization may allocate the same goal to each rep, with the assumption that each has similar market opportunity and sales capability. While this may hold true over a period of years for a new business developer with an un-bounded territory, usually the normal growth of accounts will accumulate to create an installed base of recurring or expected revenue for each rep that will vary by territory or account assignment. Reps with more established accounts may carry a larger installed revenue base than those with newer accounts.

For many companies, looking at historic performance and projecting a trend forward seems to work for a period of time. However, they quickly learn that they’re either saddling their highest performers with ever-increasing goals or they’re overpaying reps who manage large bases of slow growth recurring revenue while under rewarding the brave new business developers bringing in new customers. Does each rep own a portion of the total business plan that represents a stretch level of achievement? Are quotas forward-looking or steeped in history? Do reps understand and buy-in to the objective setting process?

 

Next week I’ll write about the final step in the sales compensation design process: operating for results. Contact me at mark.donnolo@salesglobe.com with any questions.

 

C-Level in Sales Comp: Getting Involved and Supporting the Program

In order for sales compensation to work, the C-level goals of the company have to be incorporated. But at what point should the C-level get involved to communicate those goals?

Certainly at the beginning of the process, to discuss strategic direction and short and long term goals. And in fact, 23 percent of C-levels participate periodically in design team meetings, according to a recent SalesGlobe survey. However, most C-levels and their teams give caution about getting too involved in the details. It pulls the C-level out of his area of strength and sometimes turns him into the bull in the China shop. About 36 percent of C-levels get involved in the details occasionally, but very few (about five percent) get involved in the details frequently. For the inquisitive, high-IQ CEO or president, it takes a certain level of self-control, and team reinforcement to prevent this from happening.

The head of sales compensation at a large software company limits the number of design options he shows the CEO, in order to prevent him from spending too much time on the details. “It works very well,” he said, because, “too much information and too many options can be confusing. But our CEO got involved this year at the end of the process. We were pretty much done with the plans, and then all of a sudden he wanted to take a look at them. He comes at it with a very different style. …We had to change the plans, and it took us another month and a half to get them approved, which made it interesting. He was definitely involved to a degree this year to where next year, we’ll integrate his expectations before starting the design.”

In our study, the more than 50 companies we examined that had a blend of C-level involvement had an average three-year compound annual growth rate of approximately 7.5 percent compared to the Fortune 500, which had growth of about half a percent and the Fortune 100 which had growth of  about 2 percent over the same period ending 2012.

While the right type of C-level involvement in incentive plans is certainly not the primary cause of higher growth, it is likely indicative of greater C-level involvement in the workings of the sales organization overall and the practical drivers of growth.

Join us for a complimentary webinar today, September 17, 2013, at 2:00 PM eastern, on making the C-level to street level connection through your sales compensation plan. Or, contact us at Mark.Donnolo@salesglobe.com for a recording of the webinar.

 

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe

C-Level in Sales Comp– Providing Strategic Direction

Picture1C-level executives (CEOs, COOs, CSOs, CMOs, and presidents,) get involved in various ways during the sales compensation process. Sometimes, as you may have seen in your own experiences, it’s not in the optimal way. Too much too late can wreak havoc on the design process. It can also undermine the heavy lifting already done by the design team and the confidence the C-level has placed in the team.

On the other hand, zero C-level involvement isn’t the right strategy, either. While the compensation design team may be brilliant, a brilliant sales compensation plan must line up with the vision for company-wide growth, which most often must come directly from the corner office.

We recently looked at C-level participation across a range of companies and found that high-value involvement peaks at the start of the process to provide strategic direction, at occasional review points to keep current and test the team, and again towards the end to review, approve, and support the plan from an executive level.

 From our research, 82 percent of C-level executives provide strategic direction on the priorities of the business relative to sales. These are the C-Level Goals described last week. Fifty-five percent also provide direction on how these strategies should be emphasized in the sales compensation plan.

Jeff Connor, chief growth officer for ARAMARK, describes his strategic involvement: “My role, at the end of the day, is for sales to function as a center of excellence.  I sit down with the people and make sure that we’re thoughtful about the strategy, the insights we’re building off of. I look at all the comp plans from a benchmark perspective and to try to help people understand whether they align with the strategy.

“Recently a business unit was looking at the Insight area, to use the Revenue Roadmap, and the strategic alignment,” Connor explains. “They built a model and straw person example. When I got involved my first role was to push and poke around the model to see if in fact it makes sense. Another thing I do, because I grew up here and was a direct seller for nine years, is to always put myself in the shoes of a sales executive. Do I understand it? Is it simple? Are the incentives things that I can control?”

How have you seen the C-Level successfully – or not – offer strategic direction in the sales comp plan?

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe.

 

 

 

C-Level Involvement in the Sales Compensation Process

Picture2As sales executives determine priorities for their sales compensation, they need to set their C-level goals. These will define the major priorities for the organization that will be converted to the sales compensation plan. Those priorities provide clarity for the behaviors the plan’s going to drive in the organization.

While the Revenue Roadmap defines all our possible destinations, the following dimensions help us to make the right strategic alignments and stay on track.

There are five C-level goal areas that can describe our strategy. Articulating these from the C-level to the organization helps to simplify the critical few from the trivial many.

Most organizations can concentrate on building programs that support these five major areas.

  1. Customer. The Customer dimension describes priorities in terms of buyer types and segments. Who are the right types of companies and buyers for our business?
  2. Product. The Product dimension identifies which offers will get the most focus. What products and services should be emphasized? Which are strategic and which are critical for cash flow? What are the priorities for cross selling?
  3. Coverage. The Coverage dimension articulates the major methods of matching sales resources to each customer segment. What are the routes to market? What is the role of third-party channels? What will the sales organization look like?
  4. Financial. The Financial dimension specifies monetary goals. What growth results are necessary for revenue, profit, and market share? How is the return on investment measured, with improvements in the organization and sales programs?
  5. Talent. The Talent dimension defines who the sales organization needs in its coverage roles to reach its goals. What types of skills will execute the strategy? What’s the talent inventory? Where does the organization need to build strength? Where do we need to source new talent?

Looking at the complexities of the growth plan, setting the priorities around the Customer, Product, Coverage, Financial, and Talent goals can provide clear direction for a range of sales effectiveness programs, including sales compensation.

Mark Donnolo is the managing partner of SalesGlobe and author of What Your CEO Needs to Know About Sales Compensation. To learn more, visit SalesGlobe

The Sales Comp Report Card

Report CardIt’s back to school time, so let’s talk report cards. Specifically, (honestly) how would you grade your current sales comp program? What about the one you’re designing for next year?

Designing a great sales compensation program that connects your company’s business strategy with your front line sales reps – a sales comp plan that makes the front line do what drives revenue for the business – can be complex and time consuming. But the return can be significant.

When we wrote “What Your CEO Needs to Know About Sales Compensation,” we developed a Sales Compensation Report Card. The idea is to assess your sales comp program on how well it matches up to five different factors:

 

 

1. C-Level Goals and Sales Roles

2. Framing the Plan

3. Linking Pay and Performance

4. Aligning the Team and Financials

5. Operating for Results

 

You can take SalesGlobe’s Sales Comp Report Card here, and see how your scores match up to other companies’.

For each of the five categories in the report card identify your lowest grade and determine specific actions you can take to improve that grade.

Drop us a note here or at mark.donnolo@salesglobe.com and let us know what you think of your results.

 

Best of luck,

Mark

 

 

To learn more, visit us at SalesGlobe or order a copy of our book, “What Your CEO Needs to Know About Sales Compensation.” 

Training Without Coaching

A WSJ article once cited that, “With some studies suggesting that just 10% to 40% of training is ever used on the job, it is clear that a big chunk of the tens of billions of dollars organizations spend annually on staff development is going down the drain.”

Picture2Part of the problem – and, of course, the solution – lies in coaching.

When calculating the ROI of training, consider:

  • 25% of ROI comes from what you do before the event (the actual training).
  • 25% of ROI comes from the event itself.
  • 50% comes from activity after the event (coaching).

That’s half of the ROI, yet too few companies follow through with coaching. In a Sisyphean-like endeavor, sales organizations send folks through training, expect them to return transformed, and then watch as the organization inevitably returns to its old pre-training ways.

Not surprisingly, many companies (44%, according to a recent SalesGlobe survey) aren’t clear on the benefits of coaching and don’t measure the effectiveness of their sales coaching programs. Of those who do measure the effectiveness of coaching, the top benefits they see from their coaching programs are:

  • an increase in sales productivity per rep;
  • an increase in close rates;
  • an increase in their ability to cross sell or sell complex solutions or complex products;
  • an increase in revenue or profits.

In terms of ROI, about half of companies (48%) report that they get a return greater than their investment in coaching and development, or a return multiples greater than their investment. And an additional 32% of companies at least recover their costs from coaching.

So what’s your view on coaching? Necessary, unnecessary, or truly worthwhile?

Read an excerpt from our new book, “What Your CEO Needs to Know About Sales Compensation.” Or, to learn more, visit us at SalesGlobe.

Your Revenue Roadmap: Driving Your Sales Strategy with Compensation

Revenue RoadmapOn a chilly morning in Sacramento, I sat perched on a vinyl bench seat, warily eyeing my rolling workplace for the day: an 18-wheeler, windows fogged from the cold, vibrating slightly as its engine idled. My tour guide, Cliff, was a driver sales rep for a major brewing company. Cliff climbed into the cab, slid over to the driver’s seat, and we pulled away from the distributor’s warehouse towards a 10-hour day of sales calls to convenience stores, supermarkets, bars, and restaurants.

As we drove, we talked about how Cliff sold beer. He had been with the company for a number of years and was very successful, but he explained that his role had changed. “Two years ago, I was selling cases of beer to store owners. Now, I’m trying to make the beer they already have move faster. I check the signs, inspect the coolers, and try to get our beer in the best position.” In addition to being a driver sales rep, Cliff had become a bit of a marketer, too, since the company had changed his objectives a short time ago.

In the parking lot of a convenience store in a gritty urban neighborhood, Cliff dragged down a hand truck and I followed him to the back of the store and into a huge cooler which held cases upon cases of light beer, regular beer, and premium beer in 12-ounce, 16-ounce, and quart containers. Cliff looked through the stacks, pulled the expired boxes, and loaded them into the truck. He then lugged beer from the truck and packed it into the cooler. As he did this he talked to the convenience store owner about what was selling and what was not. Then he detailed the cooler display at the front of the store, making sure the facings of cans and bottles were aligned and that the packaging and tags for the week’s specials were clearly displayed.

The brewery Cliff worked for had changed its sales strategy recently. The old approach was to sell as many cases of beer as possible, as often as possible, to as many retailers and restaurants as possible. Cliff and the other driver sales reps were paid cents per case commission to load more cases into the cooler, rotate the stock, and pull out old beer.

Eventually, the brewing company realized that pushing more bottles and cans into the backroom of a retailer wasn’t necessarily selling more beer to the customer. With competition at the point of sale increasing over the years, sales out was less driven by stocking the cooler and more driven by effective marketing. Strategically, what was important to the brewing company was selling beer to the end consumer. The company learned that the consumption of beer was driven by TV, radio, and social media advertising. Point of sale advertising, they discovered, was another driving force.

For years the company had missed the opportunity to mobilize the driver reps and had motivated them toward the wrong goal. It had mistakenly promoted a transactional model of selling into the backroom. Finally they realized what actually sold beer – product placement, use of signs and displays, and matching price points with competitors. But the question remained: how did that translate to the sales organization? How could this strategy convert to incentives meaningful to the driver sales reps?

The quest for that answer found me undercover in a convenience store cooler, wearing a starched uniform with “Mark” neatly scripted above my left shirt pocket. We worked with the company to determine how to motivate the sales organization with performance indicators that could ultimately steer consumer preference. The company moved their sales compensation plan off of a purely volume-based plan and connected it to the metrics and activities that drove beer consumption. They developed performance measures that were focused on merchandising such as the number of facings, the position of the product closest to the cooler handle, the placement of signage in the retailer, the positioning of large displays, and competitive matching. If their competitor’s malt liquor was in 32-ounce bottles, they made sure their 32-ounce bottles of malt liquor were positioned right next to them, hopefully with a larger number of facings.

By understanding what influenced the purchase of beer and connecting it to something that was important to the driver sales rep, the company was able to change the behaviors of the reps and get them to sell more beer. Now, Cliff talked to the store owner not only about how many cases of beer he wanted and yesterday’s baseball scores, but also how the beer was selling and ideas he had about improving the marketing of certain products. He talked about the positioning of the product and displays, and he had statistics on how much that could increase the volume. The store owner listened because he knew Cliff’s advice was in his best interest.

Because Cliff’s compensation changed, his conversations changed. Because his conversations changed, the results changed. This retailer had struggled with the sale of premium beer brands in this particular market, but had seen a dramatic improvement in those sales over the past 24 months because of Cliff’s marketing.

The company and Cliff had learned an important lesson about translating the new sales strategy to the front line. The customer learned an important lesson about how to improve the results for his business, and together the company and the customer saw significant improvement in results, demonstrating the power of sales compensation and its connection to the sales strategy.

Aligning to the Strategy

One of the first things our firm does when we look at sales compensation is understand the sales strategy. We ask: How should the priorities of the business be represented in the sales compensation plan?

One of the ironies of sales compensation is that while it’s a tactical program, it can churn up issues that are actually bigger sales effectiveness misalignments. For example, Cliff’s sales compensation plan paid him for generating pure sales volume, an activity that was out of alignment with the company’s strategy of positioning product competitively and playing an advisor role to help the retailer grow its business.  A transactional plan like this would ultimately cause a breakdown in the company’s ability to achieve its goals. Sales executives have to be able to distinguish between issues that are sales compensation related and those that are indicators of bigger strategic challenges. They have to know when they have a sales process issue that needs to be fixed.

Mike Kelly, former CEO and president of The Weather Channel Companies, began his career years ago at Fortune magazine. There, Kelly worked directly with the business customer – sometimes the CEO of the company – who would have a personal preference for a business magazine, whether it was Fortune or Forbes or Business Week. Because the decision maker was at a senior level in the organization, it was important to understand the corporate strategy. When Kelly took over the sales organization of a new magazine, Entertainment Weekly, he took that customer orientation with him.

Traditionally, a magazine would research target companies and try to prove to clients and agencies that their audience was the right audience, as opposed to trying to connect their customers and advertisers to the subject matter. But Kelly implemented a customized, consultative approach, connecting advertisers to entertainment marketing. Unfortunately, Kelly explains, “We over-customized it, and the organization had a hard time making money.”

Entertainment Weekly was scheduled to be profitable after two years, but by year five it was still losing money and Kelly was feeling some pressure. “We would always point to our growth. Our circulation growth was great, our revenue growth was great, and everybody assumed, ‘Okay, at some point or another we’re going to get to profitability.’”

Kelly enrolled himself in an executive education class at Columbia University where he met Professor Selden, who talked about an idea called customer segmentation. He told his class the best companies understand not only who their customer is but also what their customer’s needs are. They group their customers based on needs as opposed to what they want to sell them. By segmenting his customers Kelly could understand the profitability of each customer and each customer segment. Then he could align his resources against those customer segments that were most profitable.

“It was revolutionary for me,” says Kelly. “No one – and certainly no one in the magazine industry – thought that way. All revenue was good revenue. And we typically thought our biggest customers, our highest volume customers, were the most profitable customers.”

So Kelly took this idea back to Entertainment Weekly, and his team analyzed the profitability of all of the advertisers and all of their segments. They figured out that cable advertising was starting to explode. Networks wouldn’t let cable channels advertise on television because they thought they would steal viewers. Cable had to buy print advertising; it was the biggest, broadest reach they could get. Entertainment Weekly had a smattering of cable channel advertisers, but it hadn’t been a big focus. Kelly and his team had concentrated on what everybody else was concentrating on – automotive companies and health and beauty companies. They were big advertisers that had a lot of appeal but were price sensitive. Kelly, however, realized that the cable television advertisers were actually their most profitable advertisers because they paid full price; they were time sensitive – they had to be in certain issues in the magazine because the show was on a certain night – all the factors that compelled them to pay a premium.

Kelly completely changed how his organization thought about who their customer was, who their most profitable customers were, and how they should go after their customers. He realigned the sales force, putting more people on the most profitable categories with strong growth expectations and sales incentives and fewer resources against the customers for whom it was really just a price buy.

“We were supposed to lose money that year,” Kelly says. “We made money. And then we went on to have 30 percent CAGR [compound annual growth rate] for the next five years.

“I learned that sales is sales. But there are principles of finance that if you apply them to sales, including incentive plans, you can accelerate what you do. I’ve brought that to every other job I’ve had. We really try to understand who the customer is and what our value proposition is to that customer. Then we segment those customers so we understand who the most profitable ones are and who they aren’t. We put our resources behind that profit.

“If your compensation plan doesn’t align with the strategy and the segments you want to target, then you’re going to be working at cross purposes. It’s hard work to get an organization, any organization, to start to think differently. And in most companies, sales is product-focused or platform-focused. They’re going to go sell their product wherever they can. When a company becomes more customer focused, all of a sudden it starts to define the product mix based on what the customer needs are.”  The sales compensation program can either support that customer focus, run counter to that focus, or create confusion. In Kelly’s case, the priorities of the sales strategy were well-represented in the sales compensation plan, and it drove the desired behavior.

The Four Layers of the Revenue Roadmap: Connecting Your Sales Strategy and Compensation

When thinking about sales strategy and sales compensation, it’s critical to have a framework. “The comp plan is the caboose, not the engine,” says Doug Holland, director of human resources and compensation for Manpower Group North America, a global workforce solutions company. “Compensation should never be driving the strategy. The strategy drives the compensation. It’s incredible, especially in times of stress, how that message can kind of get lost.  Comp issues are often symptoms of bigger problems, and it’s the easiest, most tangible thing to look at. The challenge is, do we have the right job designs? Do we have the right people? Those are harder conversations. That’s often the struggle with comp plans.”

We developed the Revenue Roadmap from our decades of work with hundreds of high performing sales organizations. The Revenue Roadmap identifies four major layers, or competency areas, and 16 related disciplines that must connect for the organization to grow profitably.

To learn more about What Your CEO Needs to Know About Sales Compensation, visit the book’s website, or purchase a copy on Amazon or Barnes and Noble. To learn more about SalesGlobe, please visit us at www.SalesGlobe.com.

What Your CEO Needs to Know About Sales Comp

Our new book is out! Read an excerpt below and let us know what you think!

Book Cover 3The office lights flicker on at 7:00 Monday morning. The early risers arrive and the staff trickles in. The CEO, vice president of sales, CMO, and vice president of human resources sip their first cups of coffee, bleary-eyed from Sunday evening’s conference calls. The office chatter starts. In an hour the phones will begin to ring. A few miles away, manufacturing has been busy at the line for a couple of hours by now.

Despite the bustling activity, it will all come to a halt if the next sale isn’t made. “Sales” is the top line on nearly every income statement. Without it, the funding runs out, the stock doesn’t trade, the lights no longer burn, and the office chatter falls silent.

At the root of sales is a team of tenacious souls squeezed in middle seats without upgrades, walking the hallways of major corporations, making outbound calls to semi-qualified prospects, pacing customer reception areas waiting for a chance to have that critical conversation about the customer’s needs, and generally wearing out the soles of their Cole Haans. Each year on average, they experience eight to ten times more rejection than acceptance from their prospective customers. Yet they persevere – most with continued optimism – in pursuit of the close, the add-on sale, the contract renewal. Most of them are driven by a quest for three things: personal accomplishment, recognition, and compensation … sales compensation … commission … bonus … the deal that makes their year and the company’s year.

The sales compensation plan is one of the most significant drivers of performance in the sales organization and represents one of the single largest expenses a company will incur, commonly tens or hundreds of millions of dollars. It’s a thin but vital long distance line that keeps the daily connection between corporate growth and the rep on the street. It guides and motivates the actions of the sales organization more than any other single factor. It trumps leadership messages, sales strategies, sales management, and sales training. If there is a hard wire between the customer’s office and the corner office, sales compensation is it.

But if the plan’s message isn’t clear or to their liking, sales reps will interpret the plan in their own financial interest. As a corporate leader, you’ll get what you measure and what you pay for – and it may not always be what you expect.

While its impact can be direct, it’s a fine blend of art and science that has long been a point of conflict within companies. Everyone has an opinion about sales compensation and everyone is an expert, yet few agree on the best approach to drive performance toward the company’s objectives. Sales, sales operations, human resources, and finance regularly engage in battles over questions like:

  • Does the plan represent our business objectives?
  • Are our highest paid sales people actually our top performers?
  • Is the plan too expensive?
  • Can we better motivate our organization to pursue the sales strategy?
  • How can we promote more of a performance-oriented sales culture?
  • Can we make the plan simpler to understand?
  • Can we make the plan easier to administer?
  • Are sales quotas penalizing our best performers?
  • How can we set quotas that better represent the sales potential in our markets?

Too often these battles lead to sales compensation programs that are compromises between parties, ultimately leading to underperformance in the business. Above the fray, senior executives look on, often asking only the most general questions. Many of these senior executives, concerned about the next quarter and the remainder of the year, miss opportunities to use sales compensation as tool to drive growth.

What Your CEO Needs to Know About Sales Compensation is not a technical guide for designing a sales compensation plan. This is a book that tells the stories of how senior leaders in a company can understand the connection between their goals and sales performance to leverage sales compensation as a driver of real growth in their organizations. We’ll focus on the top challenges in companies today and offer logical leadership approaches for dealing with each of these issues.

What Your CEO Needs to Know About Sales Compensation, written by Mark Donnolo, managing partner of SalesGlobe, is available now on Amazon.com.

The People and Politics of Sales Compensation

This is the first in a two-part series. Read Part II here.

The people and the politics of sales compensation is about the softer side of sales compensation – who’s behind the scenes collaborating (or not); the steps in the process; how well the process works; how people work together; commonalities between the various functions involved; and solutions for challenges.

The human element touches sales compensation throughout the entire process. It happens during the year – asking sales managers to participate in the plan and convey how the plan is working; asking sales operations and HR to communicate and evaluate the plan. The human element assembles the compensation design team and establishes the principles for how the team will make decisions – who will crunch the numbers; who will evaluate the finished product and finalize the compensation plan. The human element determines the variety of perspectives included to make sure there is a well-rounded representation from the company. How they interact keeps it interesting.

Here are a few of the usual suspects:

1. The C-Suite. The C-level is almost always involved to some degree. Very often we see the C-level person – perhaps the CEO – pop his head in the room to ask, “Is this going to cost me the same or less than it did last year?” Other times we’ll have CEOs actually at the table and involved in the process. CEOs have very different levels of involvement in the compensation process, ultimately because CEOS, based on their personal preferences, have different degrees of comfort with sales compensation.

2.  Sales. Sales, obviously, is at the table, and they’re always asking for something (more money) often in the form of a bigger accelerator. They may grumble that HR doesn’t understand sales or what sales needs.

3. Sales Operations. Sales operations sometimes drives the process and other times responds to the process by trying to keep meetings organized and trying to devise a system that makes sense. Depending on where sales operations resides in the organization, these people can have different points of view. Sales ops most typically will be within the sales organization, but sometimes will be within finance or even HR. Where they sit, very often, determines their point of view.

4. Finance. Finance is typically at the table, either at the C-level or someone on the project team. They have an Interesting negotiating position. This perspective often brings some old cliché’s about sales: sales is overpaid; they have no value. Finance wants to negotiate: “If we have an accelerator on the plan, what are we going to take away on the downside so we can pay for the accelerator?”

5. Human Resources. Very often HR drives the process; and if they’re not driving the process they are certainly a partner. Their role is to looking at what’s happening in the market and make sure everybody is aligned with the market; try to bring some discipline to the process; and offer some expertise if that doesn’t reside on the team already.

6. Marketing. Marketing is not always involved in sales compensation, but sometimes they have an agenda, like sales. In a multiproduct or multiservice organization sometimes marketing tries to get a lever in the plan for each of the different products they represent, which can add complexity to the plan.

While all these interactions take place designing the compensation plan, the field sits and waits, knowing they will most likely get a bigger quota – often for a lower percentage increase in compensation. The sales compensation design process brings together many competing points of view and potentially competing priorities. It quickly, as we say, puts the “fun” in “dysfunction” in organizations.

Who are the people involved in your sales compensation design?

To learn more, visit  SalesGlobe or email mark.donnolo@salesglobe.com. 

 

Strategy and Sales Comp Part II: Putting it in Action

With all the power sales compensation can wield, it pays to invest the time to connect sales comp with the strategy of the business. Below is the second installment of nine important factors to consider when designing a sales comp plan that will drive more revenue. Read the first five in Strategy and Sales Comp Part 1: Making the Connection.

4. Reduce the complexity of the sales compensation plan. Often, the more technical an organization is – or the more engineering-oriented an organization is – the more complex the sales compensation plans will be. There’s a temptation to include everything even remotely important in the compensation plan. The key, however, is to include the two or three things that are most important to maintain clarity of message.

5. Manage the crediting and compensation costsMake sure you’re crediting the appropriate amount to people involved in the sales process without over-crediting. It’s a balance. We don’t want a single credit in a team sale or a complex sales process, nor do we want to over-credit. If you have too few credits people run to the opportunity and then run away very quickly once they realize somebody else has grabbed the credit. If you give too many credits, too many people belly up to the chuck wagon, and it motivates the wrong behaviors.

6. Increase sales productivity. The right daily actions of a sales person increase the overall activity of the organization. Sales compensation can be a powerful tool to motivate the right actions. Use sales compensation as a lever to drive productivity and to create the right motivations in the organization.

7. Control channel conflict.
In a multichannel environment with a direct sales organization and indirect channels, getting those resources to align to the customer is essential for success. Get these parties to work together without competing with each other or degrading your value proposition in front of the customer.

8.  Build a sales culture. The sales culture is an unspoken but powerful force in the organization. But assessing it is fairly subjective. A lot of organizations will say, “We’re over the top in sales culture.” Others will say, “We need to move in the direction of being sales-oriented but we don’t want to destroy the culture that we have. That’s very important to us.” As you make changes in sales programs and sales compensation programs, ask how those changes are going to support the culture. Also question the degree of change the organization can handle to make sure that we don’t push it in the wrong direction.

To learn more, visit SalesGlobe or email mark.donnolo@salesglobe.com. 

The Deal You Can’t Afford to Lose

Maybe your rep just got lucky. She landed an appointment with the CEO of one of your major customers. She had what it takes to get in the door. Now does she have what it takes to close the deal?

Positioning at the C-level in your customer can get your business the visibility and consideration you might not otherwise get. It can differentiate you enough to land the deal you can’t afford to lose while your competitors are scrapping at the middle management level or better yet, negotiating with the procurement department. Develop a sales strategy that aligns to these senior level buyers, which includes understanding what their business issues are and the type of value and messages we need to communicate to capture their attention. One of the biggest complaints CEOs cite is that sellers don’t understand the customer’s business and, more specifically, don’t understand what’s really on the CEO’s mind. Provide meaningful input that addresses how the CEO looks at the business. Talking about product features and benefits to a C-level buyer usually misses the mark. Understanding the concerns of that C-level buyer and where they intersect your offering is a key to successfully navigating the C-suite.

Your organization must also be structured and designed effectively for C-suite selling. Specific sales roles such as major account management, supplemented by experts in the company’s products and applications can combine to provide a business oriented solution with the depth to deliver.

Look at your current inventory of talent and how their capabilities match up to working at the senior level of the customer.

  • Do they have the executive presence to roam the thick carpets of the C-suite?
  • Can they think like the C-level buyer and understand what’s important, or are they simply focused on offering your company’s products?
  • Do they have the creative capability to take your company’s products and meld them with an offering that matches needs of the C-suite?

Some critical points to know about C-suite selling:

1. The referral your account manager received to the senior buyer is perishable. It literally lasts minutes into the first sales call. He or she must be able to convert that reference to credibility very quickly.

2. C-suite buyers need to recognize that your seller knows what’s important to them; your seller understands their business; your seller can develop solutions that will address their needs; and your seller will be effective and efficient with their time, which is a valuable commodity.

3. While relationships matter, they have to be robust, not shallow. More contact time doesn’t necessary mean a better relationship with a CEO. Less contact time and higher impact equals a higher value relationship.

Once you’ve established the relationship and proven to be a valuable partner, the C-level relationship, well-cultivated, can provide an ongoing advantage in your major customers.

 

To learn more, visit SalesGlobe or email Mark Donnolo at mark.donnolo@salesglobe.com. 

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