Communicating the New Sales Comp Plan: Key Steps Part 3

Communications Points

This is the third in a three-part series. Click here to read: Part I: Start Strong, or Part 2: Craft the Change Story.

See the Organization’s View

Company culture plays a huge role in making change. Some cultures operate on stability and are naturally change averse, while others are change tolerant and even change seeking. It’s important to know the organization’s and individuals’ comfort level with change in order to message and manage well.

Assume that most people will see any change as potentially negative. This is particularly true when it comes to compensation. From a sales organization view, unless the current compensation plan is a complete disaster, they often assume the only reason to change the plan is to manage pay or improve the company’s financial position. If you have a sales program that allows people to make money, and you want to make a change to compensation plan, you have to be crisp and clear about what those changes mean. Otherwise, the immediate thought process of a salesperson is, ‘They’re trying to figure out how to take money out of my family’s life,’” says Jeff Schmidt, global head of business continuity, security, and governance for BT Global Services.

Beyond risk, resistance also comes from reluctance to alter routines. If the new incentive plan steers the organization toward new products or perhaps selling to new customers beyond their current accounts, that can be plain uncomfortable.

In our work, we see that about 20 percent of an organization are acceptors and embrace the new plan without argument. Another 50 percent are observers who will wait and see. If the plan is designed, communicated, and managed well, this group will usually join the first group of acceptors. But as much as 30 percent of the organization may resist the new plan. The resistors range from passive resistors to active resistors.

You may recognize some of the passive resistance behaviors, which include apparent confusion, hesitancy to act, and lack of urgency. On the aggressive side, behaviors might include outright opposition and involvement in trying to change the course of the implementation by demonstrating why the program will not work. The good news is that most resistors tend to be on the passive side, although they are not always easy to identify and engage. The key to working with passive resistors is to connect, sense, and communicate at the field level to understand their resistance points before the implementation. If ignored, their resistance can become contagious. As for active resistors, they’ll test leadership’s resolve for change, as we’ll describe shortly.

 

 Contact me at mark.donnolo@salesglobe.com with any questions.

Communicating the New Sales Comp Plan: Key Steps Part 2

Communications Points

This is the second in a series. Click here to read Part I: Start Strong.

Craft the Change Story

Looking back on the Revenue Roadmap and the C-Level Goals established at the beginning of the process can help the management team explain why it decided to change the sales compensation plan this year. Usually, the organization will make a plan adjustment if there is a change in sales strategy, a change in how the organization goes to market with its sales resources and sales process, a need to respond to a competitive situation, or if the plan simply isn’t doing what the organization intended and needs some adjustment or redesign.

The change story can be told in a variety of forms, including planned messages from leadership and informal hallway conversations. In any situation, the story should be concise, consistent, and positive. The story tellers, from CEO to first line sales managers, should be well-versed in the key messages and the range of possible questions. The components of the story include:

  • Why the change is happening. Where is the organization now, and why is this change important?
  • What is changing. Is it an overall change to the organization or a tactical change to a component of the sales compensation plan?
  • Who will be affected. Will this impact certain groups or the organization overall?
  • Where the change will take place. Is it happening in certain geographies first or will it be introduced as a big bang?
  • When the change will take place. Will it happen this year? How long will it take?

To craft the change story, go back to the C-Level Goal areas of Customer, Product, Coverage, Financial, and Talent. Draw out the messages from each area that should be communicated to the sales organization and use them as the elements of the change story.

At CA Technologies, the CEO communicates the strategic vision to the entire company and then allows the sales compensation team to show how the new plan connects to his strategy. “The CEO gave us a platform upon which to make any of the changes we need to: organizational, sales model, sales compensation. We were overly transparent against the strategy and the objectives. Then we as sales leaders could literally take that and run with it for changing the organization, and it worked beautiful, absolutely beautifully,” says BJ Schaknowski, vice president of solution provider sales at CA Technologies.

It’s human nature to resist change, so positioning your change story is key to moving the organization in the right direction. Think about how you might tell the story in one of four ways. Each method can be described by its timeframe and orientation toward pain or gain as shown in Figure 8-1. Many organizations want to communicate an aspirational story that excites the team about changing to capture future opportunities (quadrant one). A sales manager or sales rep hearing this message might find it worthwhile to be part of the dream as long as it’s within the not-too-distant-future and doesn’t require too much near-term sacrifice to her lifestyle.

If a rep hears a story about avoiding risk or great pain in the future (quadrant two), that may capture a little more of her attention. For example, an executive a few years ago described her company’s situation to me, saying, “It’s all comfortable now, but our competitors are encroaching on us. We’re like the big ship in the harbor having a party, and all the little speed boats are coming in around us, and they’re going to eventually overtake and board us. People need to clearly understand where we’re heading on our current track.” Future risk can be more motivational than future vision alone if the organization can understand the eventual threat.

Gaining some benefit in a shorter timeframe (quadrant three) can be a positive motivator to make a change, especially if it’s tangible and achievable. If a rep can picture her family in a better position as her kids get to college age, she’s likely to be fully on board and put in the hard work necessary to support the plan.

The greatest motivator for change, of course, is alleviating near-term pain (quadrant four). If the company has attempted to tell a quadrant two, risk reduction story and the organization hasn’t listened, events may have transpired and the message now may be, “If we don’t make this happen by next year, this organization may have to downsize half of our people.” To a member of the sales organization, change doesn’t look quite as scary at that point because the alternatives are worse. In this case, the rep may not be fully on board but she’s also proactively looking for ways to help.

 

Next week I’ll write about how to see the organization’s view. 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 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

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.

Coaching Is Important … But When Do I Do That, Again?

So we can all probably agree that coaching and development for the sales organization are important – even vitally important. But there tends to be so much confusion around it.

Last week I wrote that optimally a sales manager should spend 30% to 40% of his or her time coaching her reps. But we all know that rarely happens. In fact, when we mention that optimal amount of time – 30% to 40% for coaching – we get a range of reactions, from puzzled to shocked, as managers think about all of their other responsibilities.

The reality is most sales managers spend less than 20% of their time coaching. That statistic illustrates a gap of about 60% between how much time managers should spend coaching their organizations and how much time they’re actually spending.

So what’s to blame? Many things, probably. For one, the mandate for coaching may not be getting through from executives to managers.

what preventsAnother issue – and one of the biggest challenges we see in both sales management jobs and sales jobs – is the time available to focus on their core responsibilities, whether they are still selling or purely managing.

A full 70% of companies say that sales managers are held back from coaching because they are too busy with aspects of their job that aren’t always related to sales or sales management. Oops. A deeper look reveals that many of these responsibilities are administrative or operational in nature – responsibilities that do not have a direct impact on either revenue growth or the development of the team that produces revenue.

Time constraints can take another form. Forty percent of companies said that sales managers just don’t make the time to effectively coach, meaning they are finding other things to do with their time. Perhaps they are even deliberately avoiding that ominous task.

We know from our research and our work at SalesGlobe that a big part of coaching comes down to the priorities of the organization. About one in seven companies (14%) do not require their sales managers to do any kind of coaching or development. If coaching is not a requirement of the organization, other responsibilities – whether they are selling or administration – will always take the front seat.

Beyond time, the other top barriers are around knowledge and importance. Forty-four percent of companies said managers do not know how to coach effectively. Therefore, even if they are given the time they do not know what to do with that time. Another 19% said they do not have a methodology for managers to use when they have time to coach.

With all the time constraints precluding managers from coaching it’s important to have a program in place. There is a right way and a wrong way to coach reps. (Hint: selling for them is a wrong way.)It’s important to build a coaching program and methodology that fits your organization. Using a standard coaching program – one off the shelf or one being used by another company – is certain to fail. A program that is a good fit for one organization may be a poor fit for your organization. Determine the priorities for your coaching program. Understand from a customer perspective where your weak points are and engage your leadership team in developing the right program for your business.

To learn more visit us at SalesGlobe.

To Cap or Not To Cap?

Now that the election is over and all those spirited Republican vs. Democrat office debates will start to cool down (maybe), here’s a fun idea: why not kick up some dust with a new fight? Should the sales compensation plan have a cap, or not?

This is a surefire way for some lively conversation.

A cap is an upper limit on incentive earnings. The benefits of caps include mitigating risk for the company. We’ve heard stories, and you probably have too, of a sales team or single rep hitting a mega-deal and raking in a seven-figure commission check. These stories scare the heck out of finance.

These stories also motivate the hell out of the sales organization, which brings us to the downside of caps: they can be very demoralizing. Even if the cap is way out in the stratosphere of potential earnings, its existence is felt. The sales organization knows there is a limit to their earnings, and they don’t like it. For the highest performing reps, they might ultimately look for a role in another company, one that doesn’t cap incentives.

While we don’t recommend caps, there are some legitimate reasons a company may employ them. For example, caps protect you against unexpected payouts resulting from mega-deals or bluebirds beyond the rep’s control, poorly set quotas, unreliable financial modeling, or production-constrained environments where demand may outpace supply or the company’s ability to maintain quality levels.

On the other hand, uncapping the plan requires good historic data and financial modeling. An uncapped plan must also be consistent with the sales culture of the organization, especially if reps may earn more than their managers or senior sales leaders, in some cases.

Caps are less about the math and more about the people and behaviors.

What’s your position in this spirited debate?

To learn more, please visit us at SalesGlobe.

Sales Roles and Productivity I: Follow Me

 

Let’s acknowledge that different sales roles have different definitions of productivity. For example; the transactional sales rep selling local advertising with a quota of two sales per week will have a very different schedule than a long-term consultative sales rep selling an expensive piece of technology.

Different types of sellers, different characteristics to their productivity. Demanding a rep with a sales cycle of two years to close deals more quickly probably won’t result in more sales. More likely, it will annoy the potential customers and send your rep looking for another job.

So how can you define productivity in your organization and differentiate it between sales roles?

We worked with a company that recently made a change to build more of an account management focused organization because so many of their people concentrated on just hunting.

But they were in a new market, and both management and the reps were a little disoriented. So, in order to help the reps, the managers temporarily took over the selling. They broke the market, did the major hunting, and passed it along to the reps for account management.

“We said, ‘We’ll go find the customers, we’ll develop the pattern, how they buy, what the customer looks like, persona, cycle,’ everything,” said the vice president of marketing for the company. “And we’ll train the salesman. We will get the first order, we’ll teach you how to do the second order, and then you’re on your own for the third order.”

“We built a war room down on the first floor and started going through this whole process of building this together. The reps wanted to know what we were doing in there, and we said, ‘You focus on the day job. Don’t try to create this new market. Because then, you’ll lose focus, you won’t make quota, and we will go broke as a company.’

“So, we said, ‘We’ll teach you how to do this and add it to your portfolio.’

“There were questions like, ‘Will I lose quota? Will you take business from me?’ So, we had to work through all of those territorial things that we as sales people like to hold on to.”

It was an interesting concept. This company, a major technology company, didn’t put the salesperson out and say, “Go develop the business in this particular area.” They prepared it for them. They went through the process with them, and then repeated it, and let them catch on that way.

“We knew that the first time we were going to get our nose bloodied. We had to understand how the deal happened,” he said. “There were things we didn’t understand when we got started. Our sales guys got chewed up. We figured out what the pattern was, and learned that we had to develop it, and then hand it off to that organization.”

How well would a practice like that work in your organization?

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

Targeting & Segmenting Customers

A former vice president at a major office supply company recently talked to us about targeting and segmenting her customers for the sales organization.

Below is some of her wisdom and advice:

“We tried to help our sales people understand where they could get the best return. It was pretty scientific actually.   We found a way to design potential by customer size, by territory.  Really, it’s sitting down there, and it’s not glamorous.  It’s a lot of sweat equity as you figure out what the territories need to look like and then actually measuring people against that potential.  You get people who say, ‘My potential is not very good.’ Too bad.  You’ve got to get people to understand where you are going. Then they can change and you manage according to potential. 

 

We took a look at the geography, understood the customer that was set within that geography, understood what the buying habits were of the potential customer set within that group and then applied that to territory design. 

 

“It also spoke to organizational design because we had overlay organizations.  Everybody was a generalist and we had to determine what levels of productivity we could see improve with some specialization.  There was a need to get some specialization in the organization – – people who could hunt, people who could farm, education people, government people where buying cycles and purchasing patterns are unique and procurement policies are different. 

 

“But you can take that too far, and I think that’s what happened.  I would caution people to try to step back every once in a while and look at the whole forest, because those trees get in there and get you kind of confused sometimes. Eventually we knew we had gone too far. It happened over time. We got away from a sales operating perspective.  We didn’t keep a focus on ensuring that it remained clean and pure, so we ended up with all of these overlay organizations. People would tell me, ‘This is my sales territory and I’m the business development manager of this territory and, oh by the way, here’s my partner from the education sector, my partner from the government sector, my partner from copy and print, etc.’  There became so many segments that it became diluted. The cost of sales needed to be examined more closely than what it was.”

 

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

Rapid Sales Comp Part I: Setting Limits on Change

This is the first in a three-part series. Read Part II here and Part III here. 

SalesGlobe recently conducted a panel discussion with several experienced compensation executives to explore last minute sales compensation design. Mark Donnolo, managing partner of SalesGlobe, facilitated.  In case you’re scrambling to put together a sales comp plan, or maybe your plan is complete and you’re curious what the procrastinators have in store, here are a few of the highlights around Step One: Setting Limits on Change.

MARK DONNOLO: How do you look at change at your company, and what drives any shifts in the plan?

PANELIST 1: That’s a good question. For us, we try to keep the North Star really around what the strategy is for the business. Our fiscal year starts October 1, so the whole process starts in January after the end of our Q1 or calendar Q4 end. There’s a nine month planning cycle, so a lot of time is spent with the CEO and his executive staff to really understand where the company is going in the marketplace, our strategy, and which customer segments we want to be in. Are we rolling out solutions? How do we want those solutions to mix with our existing strategy? From that we start to build what the coverage model looks like and how we are going to deploy resources. The sales comp plan really is one of the last things we talk about, even though it’s one of the first things that everybody likes to jump to. “How am I going to pay people? We hope to roll out a new product and I want to pay them more for this.”

 We have done a nice job of coaching the leaders that sales compensation is really the caboose; it’s not the engine. While it tends to be the solve-it-all solution for everybody, it’s really not, right? We need to solve how to run the business and drive the business first, understand how we want to go to market, and then let the sales compensation plan structure really be the vehicle for executing on the strategy. That’s important for us.

 MARK DONNOLO: You’re getting a head start then. I think nine months ahead is insightful, especially for a lot of organizations that will pop up at the last minute and say, “Hey, we have to look at the sales compensation plan.” It’s been talked about during the year, but it hasn’t really been part of an evaluation or planning process.

 PANELIST 1: Yes. And I’m not going to lie to you, because it sounds like, “Oh wow, you start nine months ahead. Everything must be perfect and everyone is aligned.” But just like in every company, the executives change their minds a lot. For example, recently we were hosting a call with the international and U.S. divisions, and finance and operations were saying, “We’re three weeks away from the launch of the new plan and the end of the year. Here are the critical changes that we are aligned on. Is everybody prepared for communications? Are we ready to start rolling out quotas next month?”

And a lot of the sales leaders started questioning some of the decisions that we had aligned on in July. “Is this the right decision? Should we maybe change the mechanics of the plan? Should we go to this third measure vs. this measure we took out?”  And you’re sitting here thinking, “We’ve got three weeks left. It’s not like it’s a quarter to go.”

But I think the planning process is continual until you actually communicate it. Because you might have someone from the product house say, “I told you I wanted to pay this product differently.” And maybe you structured the plan to have a separate measure or a multiplier or something. But what we find is that it’s very difficult to corral the leaders and have them stick to something. So we are going to be tweaking things almost up to the last minute, which I guess is appropriate for this topic. But I think the overall structure – we’ve done a very good job of keeping that consistent from the decisions made a couple of months ago. Even though the mechanics might change slightly with three weeks left to go in the year.

MARK DONNOLO: I know one question that comes up is: where do you stop? How do you put an end to it? Someone said recently, “It’s as if our sales leaders have free reign to continue to change things all the way up until the last minute.” We really need to end it at a certain point and move ahead. Is there a way you’ve found to do that?

PANELIST 1: I think you’ve got to be positioned well in the organization. I think the sales compensation function has to be seen as a leadership role that has authority to push back. If it’s not, I think it’s going to be much more difficult. The sales leaders or the others will run wild.

If you’re set up in your organization to have that leadership role, it’s just a matter of saying, “Guys and gals, it’s T minus three weeks, these are the decisions we aligned on. Here’s why we can’t make a change. Here are the cost implications. Here are the ramifications. We’re going to move forward. If it’s a tweak – change this accelerator, change this threshold level – you can do this until after the plan rolls out. But as far as large structural changes, we’ve made it clear.”  

I don’t know if you’ve ever seen that movie Armageddon where there’s an asteroid coming in and there’s a little plane on the computer, where, if the asteroid passes that point the earth will blow up. We sort of set that up for the sales compensation design changes. We have said, “Beyond this date it is not feasible to make structural changes because quotas can’t be set on time. You won’t be able to pay people on time because you’ve got to redo the structure of the Oracle or Callidus or Excel or however you’re calculating sales compensation.”

You lay out exactly what the implications are, right? So if the business says, “I value your opinion but we do want to make the changes.” Then you’ve got to make it very clear. “Ok, guess what? You’re not going to pay people accurately in month one; or quotas won’t be out until month two.” They can think through it and say, “What is the business rationale for the change? Are we willing to take that risk for the change we’ve requested?

 MARK DONNOLO: Good point. So the wheels start coming off at a certain point, if we go beyond that.

 PANELIST 1: Correct.

SGF Member: We definitely have this problem. We have constant change. We just recently went through a pretty large change and we’re just trying to get our arms around some things. We definitely had that issue ongoing.

 MARK DONNOLO: It seems, and you described it well, that having the authority to push back and let people know what the implications are, that things really do start to fall out. Have you been successful in being able to push back effectively?

SGF Member: Yes. One of the key things I think you hit on is making sure that we have leadership buy-in. If we don’t have leadership buy-in, it’s very difficult for us to limit the process. And a lot of times we’ve noticed what you’ve mentioned before, where we are trying to do the compensation plan as the forerunner rather than trying to support what the sales strategy is. I think sometimes we get it backwards. We try to flip flop that to indicate we need to know what the strategy is and we’re really here to help set the behavior vs. drive that behavior. I think that’s something that’s really important. But I think at this point the success we’re seeing is making sure we’re getting executive buy-in. If we don’t have that it makes it really difficult.

This is the first in a three-part series. Read Part II here and Part III here To learn more visit SalesGlobe or email mark.donnolo@salesglobe.com. 

 

 

Top 5 Ways to Make Culture and Compensation Sync

Consider your current sales culture and the following points when evaluating and designing a compensation plan.

1. Understand the factors that define culture in your organization. What are the assumptions that surround decision making? Are these flexible or hard-lined? Identify the sacred cows in your organization, and gauge whether they are healthy or not. If your sacred cows are unhealthy, what are the gradual steps that can be taken to remove the sacristy and shift toward beneficial cultural elements?

2. Acknowledge how well your organization adapts to change. Whether change is a welcome part of your business or is avoided at all costs, few organizations can survive without some degree of evolution. Understanding your organization’s tolerance for change will suggest ways to manage necessary changes in compensation that may affect the entire business.

3. Align the goals of the sales compensation plan with the goals of finance. When properly aligned, both sales and finance are happy, even within a dysfunctional culture.

4. Healthy cultures enjoy transparency. Crystal-clear financial objectives help to create simple compensation mechanics that motivate the sales people in the right direction. Visibility across the many functions that are involved in sales compensation limits the confusion that can muddy the waters.

5. Make your culture a competitive advantage. What does your ideal culture look like?  Add procedures and processes where chaos rules and release the grip of authority where decisions can be made lower down the ladder.

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

Quota Setting: Historic Based vs. Market Based

Effective quota setting is a combination of art and science. While too many companies set quotas based on historical information, quotas based on the real market potential is a much better approach. Consider the following:

1. Flat Quotas. Flat quotas are usually used when companies have unconstrained market environments. You might have wide open markets where reps could go anywhere in the country; or the markets have unconstrained potential and the reps have relatively equal capability. In this situation it could make sense to set flat quotas; for example everybody gets a $5 million number.

2. Historic Quotas. For better or for worse, most organizations use historic quotas: they take what people achieved last year and add a projected increase.  The risk is that history does not necessarily represent the future potential of the business.

3. Market Based Quotas. Moving toward a quota-setting process that is driven by market opportunity or account opportunity requires taking your historic numbers and modifying them based on relative market opportunity (e.g., relative growth rate of the market, relative growth rate by product, relative potential, competitive environment). Moving to an opportunity driven approach can incorporate market level data, account level data (customers and prospects), or a combination.

How to Get There

Most companies move toward opportunity-driven quotas in steps over time, starting with a market level hybrid solution and eventually progressing to account driven goals that are formed in a bottom-up, top-down process. Improving the quota process can be a challenge for organizations because it requires the cooperation of several different roles. Many sales organizations also have to battle the legacy factor: if quotas have been set by the finance organization using historical data for decades, it may have become a sacred process – even if it’s a bad process – and will be difficult to change.

But there are risks to maintaining those bad processes. According to a survey by SalesGlobe, 84% of sales organizations say poorly-set quotas put the motivation of their sales force at risk; 59% say that not fixing the process contributes to missed targets for the business, and one in three companies said high sales turnover was a potential consequence of poor quotas.

The End Result

The ultimate goal for most companies is account opportunity driven quotas. Account-driven quotas go down to the account level – our customers and our prospects – and find indicators or predictors of sales potential, apply those out to our entire base of customers and prospects, and use that information for quota setting. Initially, as the organization begins on the path towards account opportunity quotas, they collect this information and use it for territory design and deployment. Once they are comfortable with the data, hot spots of opportunities and markets become apparent, and they can set quotas that are much more opportunity-based.

It is critical to make sure the quota setting process works correctly because it is so closely tied to both the motivation of the sales organization and to the attainment of the company’s objectives. Over the long term, a broken quota-setting process can erode the sales performance and put the business at a disadvantage. It’s imperative that companies examine their quota setting process and develop their case for change around the kind of risks it presents for them and the potential positive impact that can be gained from making an improvement. Setting and allocating quotas effectively will ensure the sales compensation plan is motivational, help us more effectively align sales costs and revenue, and increase the predictability of the company meeting its business objectives.

If you have questions or require assistance please contact Mark Donnolo at mark.donnolo@salesglobe.com, visit us at SalesGlobe, or call (770) 337-9897.

Pay vs. Performance: Do you know what your plan is paying for?

It’s almost September. Do you know what your plan is paying for?

It might sound obvious (we’re paying reps to sell our product/service!) but a quick analysis of pay versus performance can be revealing.

So what’s pay and what’s performance? ‘Performance’ looks at different types of performance measures. We might look at revenue, bookings, revenue growth, year-to-year change, performance to quota, or other measures. What’s ‘pay’? Pay may be total pay, total compensation, total incentive pay, or maybe  just incentive pay for that particular measure. Basically, once we recognize what the big priorities are in the business, we want to understand what the plan is paying for and make sure it matches our larger strategic objectives.

We recently worked with a company that said achievement of quota was the most important objective of the sales organization. So we looked at the correlation between attainment of quota and incentive pay. But we discovered, however, the company was actually paying for total bookings (or total revenue) for the company. There was a much tighter correlation between what they were paying and total revenue for the company, than there was for attainment of quota.

So we told them, “Guess what? You’re not paying for quota attainment. You’re actually paying for bookings. If quota attainment is still your strategy, you may want to change what you’re doing.”

It’s a simple examination of some facts that, within a little compare and contrast graph, can uncover huge potential pitfalls.

Key Considerations

  • Are the most important business measures well correlated to pay?
  • Are the top earners the top performers?
  • Are there aberrations in pay relative to performance?

Components

  • Pay Components – Total compensation, total incentive, incentive by measure.
  • Performance Components – Bookings, revenue, profit, net growth, quota attainment in total or by measure

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

A Better Way to Set Quotas

Too many companies set quotas based on last year’s sales. It’s the wrong way, and we hear it all the time:

“How else would we set quotas if we didn’t just take historic results and project ahead 10%? Can we improve how we do it?”

The answer is yes, and it’s crucial to do so. Quota setting must be a cross-functional process, and sales reps need to see a clear connection between their pay and their performance.

Cross-functional cooperation. Ironically, quota setting is very often controlled by those with the least visibility to the market: for example, the finance team, the folks who love the science of it but don’t know the market and customer. The goal comes down from on high, from the top of the organization, driven by investor expectations or senior management requirements. It then cascades through the organization – an often inequitable division of the pain. This process does not look at market opportunity as much as a sales or marketing-led process would because senior leadership does not have as much visibility into the market. Quota setting should be a cross-functional process that pulls together several different functions including sales, sales operations, finance, and even product management.

Pay and performance connection. Effective quotas demonstrate a connection between pay and performance. Our research and consulting experience tell us that about 60% of companies have at least 40% of reps at or above quota in a normal year. And high performing sales organizations have between 50% and 70% of reps at quota in a typical year. Two years ago, 2009, was an exceptionally tough year for quota attainment. Only 30% of companies had at least 40% of reps at or above quota in 2009.

Reps above quota hit the “excellence level” – usually the 90th percentile level of performance – which should link to the upside accelerators in the plan. The threshold group represents the low performers who are usually at the 10th percentile and below.

Some plans will run a straight line payout from 1% of quota to 100% of quota. Others, which often represent a more performance-oriented culture, will use either a hard threshold or a ramped payout that pays less up to the threshold. This decision often relies on the culture of the organization and the characteristics of the sale and revenue flow for each type of sales role.

The important questions are:

  • How do we set a reasonable stretch goal for the organization based on the market?
  • How do we equitably allocate that goal as quotas to the organization?
  • What portion of our organization do we expect to hit quota?
  • How do we build the sales compensation program to drive performance to those goals?

These questions point us toward a better way to set quotas.

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

Top Comp Challenges I: Plan Complexity

It’s sales comp design season (yay!), which means long days, frequent meetings, and calculators.

It also means facing some of the same old compensation demons, who resurface every year to throw a wrench in comp plans with even the best of intentions. Let’s take a look at a few, and how to slay them.

1. Plan Complexity. One of the first is the complexity of the plan. For any organization that’s been around for more than a year or two or has complex products or services, the plan itself tends to get complex as well. It just happens naturally over time.

But often, people at these companies don’t understand the compensation plan. It really happens at two levels: people don’t understand the compensation plan; and the plan itself is too complex to administer as a business. We’re trying to track – and pay people – on multiple measures. Or, we’ve got mechanics in the plan that are creating complexity because we’ve got hurdles, or thresholds, or gates, or multipliers that make the plan a lot more complex.

You might even have a plan that has just two or three measures. We hear, “It’s a simple plan. It’s only got three measures.” But once you really look, each measure has different gates in it which makes it hard for the rep to understand how they’re going to get paid.

Look at line of sight. Does the rep know when they close a sale what they’re going to make, or how it’s going to contribute to their quota? If the answer is no, the plan is too complex.

Simple enough.

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

People and Politics of Sales Compensation II

This is the second in a two-part series. Read Part I here.

While the group of folks charged with designing a sales compensation plan can put the “fun” in dysfunction, the group can also work beautifully together. After all, they share a common goal — to create a comp plan than harnesses all that power behind the sales force, and make everyone some money.

Consider your current mix of people and the following key points when creating the sales compensation design team.

1. Listen to the sales organization. As participants in the plan, this group can offer insight into how well the plan works, as well as any challenges. Interview sales managers, survey front line sales reps and be receptive to feedback throughout the year.

2. Include a cross-section of leadership in the planning and design process. Leaders from the major functions involved with sales and sales compensation should be
included during when making major decisions. Involving executives from sales leadership, financial leadership, administration leadership and human resources leadership ensures each organization has a voice at the table.

3. Follow a design guide and establish a decision making procedure. A design guide outlines the process – soup to nuts – of evaluating and creating a sales compensation plan that is aligned to the goals of the business. A guide keeps people on track and focused on the strategic goals of the plan, and prevents individual functions from getting sidetracked by a separate agenda. Make sure the guide outlines how decisions will be made within the group to prevent disagreements from becoming stalemates.

4. Gauge and then respect your CEO’s level of interest in the design process. While some CEOs like to be involved as the compensation plan is designed, others just like to hear the final number.

We’d love to hear who is involved in your organization’s sales comp design team and how it works — or doesn’t.

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

 

Rapid Sales Comp

We all know time can get away from us; and sometimes the consequences are bigger than others. When it comes to designing a sales compensation plan, it helps to have months of input and design meetings. However, it can be done quickly if need be. We can abridge the process for efficiency and still retain its power.

Consider these five points when designing a sales comp plan – even if you’ve run out of time.

1. Clearly define the sales strategy and roles, and align your compensation plan. Sales strategy and sales roles provide the foundation for the direction and actions of the business. Sales compensation should align with the sales strategy and motivate the sales organization.

2. Differentiate top performers. Make sure your plan rewards top performers competitively with the industry and significantly differentiates them from the average and low performers. Don’t over pay for low performance; instead, use those funds to invest in attracting and retaining the right talent.

3. Keep your plan simple and clear. Pay for three or fewer performance measures that match the strategy, and don’t put any less than 10% of target incentive on any one measure. Use plan mechanics (e.g., commission or quota bonus structures) that are simple and clear with minimal use of modifiers such as hurdles, gates, and links.

4. Formalize the solution selling process and use sales compensation to support it. Beyond the headlines of solution selling, define what it means to your organization, the sales process, and how the organization should work with customers. Don’t hard-wire sales compensation to solution selling unless the process and skills are well developed and
opportunities exist in all markets.

5. Develop a market opportunity driven quota setting process. Quotas are the lynchpin between pay and performance. A well-designed sales compensation plan can be rendered ineffective with poor quota setting. Make sure your quotas represent the growth opportunities in each market rather than a future projection from historic performance.

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. 

What’s Your Sales Comp ROI?

Return on investment is a topic that invariably arises when discussing sales compensation. Executives in sales, sales operations and especially finance want answers to three questions:

How much is the sales compensation plan going to cost us?

Is this a good investment of our money?

What should we expect back?

Check out our report,  What’s Your Sales Comp ROI, which features a panel discussion of experienced sales executives on evaluating the return on sales compensation.

 

We believe the findings in this report will provide valuable insight for your business. If you have questions or require assistance in addressing these topics or other sales effectiveness challenges in your organization, please contact us at  www.SalesGlobe.com or mark.donnolo@salesglobe.com.

Sales Compensation Culture

SalesGlobe Managing Partner Mark Donnolo discusses how sales compensation culture affects an organization at a 2010 SalesGlobe Forum event.

 

DONNOLO:

Many companies today want to become more sales-oriented as a business. So, they spend time trying to understand their sales culture: Is it more focused on operations or service to customers than it is on new sales? Does the sales culture center around finance?

Sales culture is important because it determines how the sales organization is spending its time, and whether or not they are driving growth for the company. If the sales culture does not match the objectives of the company, it may be time for a cultural overhaul.

Consider a technology company we worked with recently. Over time this company had lost a grip on its sales culture. In the mean time, their market became increasingly competitive and — to stay in the game — the company realized it needed to differentiate its products. They wanted to sell solutions, become more proactive in battling competitors, steal some of their competitors’ share and win new customers.

At the time, they had a sales force that was basically a customer service organization — a highly-tenured, service-oriented organization. They wouldn’t take people out. Low performers were permitted to live in the organization for long periods of time. But eventually, this company reached a point where it had to re-orient its sales culture to survive. They had to ask hard questions about their own tolerance for change and their ability to move aggressively.

They asked, “How do we re-orient the sales organization around sales performance?” The answer is not to simply make a change to one lever — like the sales compensation plan — with the hopes that will change the whole culture.

To create a more sales-oriented culture, we led the company through an examination of the following disciplines:

  1. Sales roles. Consider the sales roles in the company. Do we have positions that are true selling positions, or are they designed to be selling and operations, or selling and service? Do we have clean roles?
  2. Execution of those sales roles. We may have well-defined sales roles, but are they contaminated with other types of operations or services? Are we implementing the role correctly? Remove the non-selling activities to allow the sales people to have a true sales focus.
  3. Talent. Once we define the sales job and remove the non-selling activities and decontaminate the job, sometimes we find the inventory of talent isn’t right. We don’t have true sellers; we have service or operations people. Is our talent trainable to be re-oriented into sales roles? When they stop performing all the service areas on their account and we raise their quota and we ask them to go out and book more business, can they do that? Do they have the talent, or do we have to reconsider our talent inventory and go out in the market and acquire new talent that is really sales?
  4. Compensation. The compensation plan can drive a more sales-oriented culture. Do we have the right value proposition? Is our pay plan competitive enough in the market to attract the people we want to attract? Is it competitive enough to retain people in true sales roles? Where once we could have kept a more service-oriented seller in a lower performing sales comp plan, now we have to redesign the comp plan to attract the talent we want.

There are also several questions within sales compensation to ask:

  1. Employee value propositions.  The sales role, career path, work content and affiliation with the company are all components that can make the job attractive to someone. With compensation, also consider the types of performance measures we’re using in the plan, whether they are measures that align with sales results or measures that promote service activities. For example, is the comp plan individually oriented around performance, or is it oriented at the company level or “big team level” that doesn’t drive sales as much?
  2. Pay-out curve. Do we have a philosophy that significantly rewards top performers and doesn’t over-pay bottom performers? We want to have a plan that won’t allow underperformers to survive in the company for a long period and a plan that is attractive for those at quota or above.

The result of this process was the technology company was able to pull out of its declining revenue trends and move into a double digit growth trend. But considerable change was required in the organization to do that. They developed hunter and farmer roles and changed the payout plan to reward high performers and drop low performers. They had turnover, and they acknowledged they needed to, even though they had been operating in the opposite way for years.

Moving to a sales-oriented culture means asking, “What are you prepared to change? What are you prepared to do? What is the management’s appetite for change? What is the organization’s appetite for change?” Changing the sales culture can mean you are going to literally turn over certain parts of the organization that don’t align with the culture and bring in new talent.

It’s kind of like a high fat diet. You can live on a high fat diet — or a non sales-oriented culture — for many years. But in the end that high fat diet could end up killing you. It builds over time. Lack of a sales culture will make you less competitive and hinder your ability to attract top talent. You will end up with a B and C-level sales organization, with B and C-level players versus A-level players. Eventually, that can spell the demise of your organization.

Cultures, left unchecked, change within organizations over time. Do you want to be in control of the change or a victim of the change?

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For more information from Mark Donnolo on sales compensation culture, contact SalesGlobe at 770 337 9897 or email Mark at mark.donnolo@salesglobe.com.

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