SalesCompInsights

Ah . . . . sales comp, quotas and territories.  Three important legs of the productivity stool.  While sales compensation and quotas share time in the design process spotlight, many salespeople will tell you that their territory assignment has as much, if not more, impact on their success.  We recently had the opportunity to catch up with Ken Kramer, Director of Business Development at TerrAlign, a software and services company focused on sales resource optimization.  

Mike:  From your perspective, how important is territory management for increasing or maximizing sales productivity?

Ken:   While I might be a bit biased, territory management is critical for maximizing sales productivity and revenues.  But it might be helpful to first clarify the differences between Territory Management and Territory Alignment or Optimization.  I think of Territory Management as the broad umbrella term for all things related to territories – assignment, tracking, definition.  Or alternatively Territory Management can specifically relate to the tracking of who owns what and storage of the information in the system of record while integrating to CRM, ERP, ICM and similar systems.   Territory Alignment or Optimization is more focused on the design aspect; creating territories to optimize the utilization of the entire sales force.  TerrAlign focuses on territory optimization and is the reason for my first statement.  To maximize overall sales productivity, each sales rep needs to be leveraged to their fullest capacity.  Companies need to provide roughly the same amount of ‘work’ in each territory, while minimizing drive time and maximizing the number of accounts or prospects a rep can service.

Mike: Are there any examples you can share where companies have been able to quantify the impact?

Ken:  Our research, as well as that from other organizations, typically shows companies increasing revenues 5-15% without increasing headcount.  At the same time, they are able to reduce travel related sales costs up to 15%.  The results are incredibly strategic, typically producing ROI’s that are so big, they verge on unbelievable.  But, for companies doing millions of dollars in revenue, even a small increase in productivity can have a very significant impact.

Mike: Are there some guiding principles for organizations that want to evaluate the effectiveness of their current alignment approach?

Ken:  From an evaluation perspective, I’d recommend companies focus on a few things.  They might vary based on company and industry, but should include metrics related to work, opportunity, and revenue.  Ideally, you want to understand if each rep is making the same number of calls or producing a proportional amount of revenue for the number of accounts they are servicing.

As an example, one guideline we see in life sciences or consumer goods is to target 32-35 hours of work per week.  This allows for vacation or sick time, training, or other non-selling time.  When we talk about work or workload, we consider this to include the number of calls, duration of those calls and drive time to get to each call.  In high tech, companies typically look for a relatively similar number of prospect companies across territories that meet a particular profile.  We also recommend that variables used for balancing territories reflect those measures in sales comp plans; that is, design the territories around what you’re also paying for.

Mike: What are the characteristics of the most effective approaches versus ones that didn’t work so well?

Ken:  Where possible, build the territories based on a workload factor.  It will lead to better territories where customers will be better served for a longer period of time.  Don’t build territories around reps, they often don’t last as long your customers.  Also, build territories from the ground up, if you start at top and go down, the ability to create balanced territories is greatly reduced.

Mike: How has technology impacted the process?

Ken: While we have been applying technology to this issue for over 20 years, technology solutions for territory design are nowhere near as well-known, as say CRM or ERP.  However, technology has had a major impact on territory optimization.  Previously, and in many organizations today, alignment decisions are largely based one or two factors – neither of which is particularly desirable; 1) gut feel or  2) that’s way the it’s always been done.  The truth of the matter is that sales managers have largely driven the process based on what they think makes sense, an effort to not upset the over performers and their memory from when they were in the field.

Not too long ago, sales managers would generate complex spreadsheets and attempt to create some degree equity across the territories.  Then generic mapping tools arrived so they could plot accounts and visualize things.  Both tools helped, but didn’t reflect the combination of variables and algorithms that could balance each territory, allowing for a consistent workload across the team while minimizing drive time.

As an aside, our organization provides consulting in this area.  I remember one field session  in particular.  As we worked to  adjust and finalize the alignments I observed the field managers taking on a new perspective and focusing on alignments that would benefit both their teams and the company as a whole.  The managers realized they could communicate the changes to their teams and recognized the potential benefits of a more systematic approach.  Prior to that, I had mostly experienced sales managers in a land grab because they knew quotas wouldn’t keep up with
opportunity, so the more the better.  Also, by involving field managers and providing them an integrated tool to make changes, Sales Ops doesn’t become a bottleneck.  So, the technology helps to change thinking, validates (or negates) gut feel and provides better results in a shorter time
period.

Mike:  What lessons learned can you share around the connection between territory alignment and compensation planning and goal setting?

Ken:  Compensation can be a touchy subject.  While reps wait for their Territory, Quota and Comp Plan to be distributed at the sales kick off meetings it is easy to complain about their territory assignments – what accounts they’re going to lose or how little opportunity exists.  Most reps expect their quota to be similar to their colleagues, so they can commiserate about that.  And, they dissect their Comp Plan, figuring out how to ‘beat’ it.  What they often miss is that regardless of the comp plan design, the tie between their quota and territory is what will have the greatest impact on if and how much they will exceed their target.  A territory in the rural Midwest could have the same amount of workload as one in New Jersey, but significantly less opportunity, so the quota better reflect that.

As I mentioned earlier, comp plans and territories need to share common measures and these should also drive the quota setting process.  Quotas should reflect the opportunity per territory.  The impact of unbalanced territories on quota attainment distribution and the cost of incentive comp can be disastrous for a company.  Most comp plans have accelerators that far outweigh any decelerators associated with below quota performance.  When reps outperform their goal, the related expense is significantly higher than what a company ‘saves’ when a rep misses.

Mike:  Have you observed any trends or shifts in how companies approach this topic given the recent economic environment (e.g., entering the downturn, dealing the trough and now what appears to be a period of higher growth expectations)?

Ken:  Change is a trigger for products and services like ours.   The recent downturn forced many companies to figure out how to do more with less.  We recently worked with several companies charged with reducing headcount, but determined to maintain revenues and  effectively service their customers.  Aligning territories to allow each rep to visit the most number of accounts is critical to this effort.  Growth, which we prefer to see our clients enjoy, also forces the issue of how to realign territories – and how to do it in a way that the sales team doesn’t feel penalized.  Regardless of the change, companies want to minimize the level of disruption – the number accounts being reassigned from one rep to another.  Our technology can do that while also balancing the new territories and making them geographically compact.  One other point worth mentioning;  when things are good companies are less conscious about ”optimization” than when headcount is being cut.  We encourage our customers and prospects to continually focus on how to get the most from their sales headcount.

Mike:  Any final thoughts on what companies should be thinking about as they go into the 2012 planning process?

Ken:  Customer segmentation, sales force sizing, territory alignment, compensation plans and quota setting all part of the sales planning process – a new year represents an opportunity to revisit each piece of your sales coverage model and support programs.  Typically, the companies that come out of a downturn in the best shape are those that used their resources more effectively and invested while others pulled back.  Much like any other year, it’s critical to do the analysis, set the company strategy and then put your sales team in place to execute.  There are a lot of pieces to consider, but also an awful lot of upside when done well.

Ken can be reached at kramer@terralign.com

When it comes to sales compensation, business services firms pose a unique challenge.  By business services firms we mean companies that provide technology implementation, design, maintenance, printing, temporary personnel, etc., to other firms.   Unlike a product company that sells “widgets,” a services business essentially sells its people.   Similarly, the service is often an extension of the salesperson’s relationship with the customer.  Typically it’s more difficult for services firms to differentiate themselves, and these companies are less likely to experience the waves of business common to product firms, where the sales organization enjoys a growth cycle from the launch and subsequent momentum of a new product.

Maintaining and growing your existing client base is certainly going to have a lower cost of sale than acquiring new customers.  Significant time and attention should be paid to cultivating and maintaining existing relationships.  Unfortunately, the evil twin of relationship management can be  complacency; less focus on new services, limited ability to increase prices and insufficient acquisition of new clients.  We observe four key sales compensation issues within business services firms looking to re-ignite growth:  

• Commission on margin:   In a business where the profitability of a deal or customer can vary so significantly there may be a strong desire to pay on margin.  The counter argument is that “delivery,” not sales really influences the profitability of the deal.  If the delivery team provides the contracted service for a lower cost than estimated the deal will be more profitable.  Less efficient, less profitable.   For us, the key considerations are the role of the sales person and how much pricing discretion is available.  Paying commissions, or bonuses, on margin will certainly engage the rep in the profitability discussion.  It also encourages them to stay close to the delivery of the service; potentially a good or a bad thing based on the priorities of the role.  From a pricing perspective, the more discretion, the stronger the argument for some kind of margin component.
• Revenue versus bookings:  Revenue proponents contend that the sales team shouldn’t get paid until the company is able to invoice the customer (or in some cases until the company receives payment) and paying on revenue encourages the salesperson to better manage the relationship.  Bookings advocates point to a similar rationale as not paying on margin and like to point out that bookings measures encourage both new clients and new business within existing relationships.  Once again we’re back to the question of role:  what is the sales person being asked to accomplish?  What are their priorities and if we’re asking them to change, why? 
• Quotas:  We observe many business services firms where quotas are used for performance management, but are not part of the sales compensation program.   Linking quotas to incentive pay is a significant tool available to drive growth.   These performance expectations directly tie the productivity of the sales team to the business plan.  Further, within sales organizations historically paid on revenue, new business quotas can represent a major cultural shift and drive additional changes across the organization.   One cautionary note; the potential change brought by the introduction of quotas, means getting the quotas “right” should not be trivialized.   Revenue based quotas have their own issues, but setting a bookings goal for the first time requires careful thought and preparation.  Unrealistic or unachievable quotas can have an incredibly negative impact on the organization.    
• Sales expectations for delivery teams:  Within many organizations the role of the deliver team is to provide a high quality service and ensure the client’s satisfaction; can the customer be used as a “reference.”   Maybe there is a referral bonus available or even a SPIFF.  But in other organizations, offering new services to the client is part of the satisfaction equation.  Scott’s recent experience with AAA is a perfect example (Sales is Service).  For companies that believe in the service they provide, we think it a mistake to not at least consider the role of sales incentives for the delivery teams.  The incentive might represent a smaller portion of total pay relative to other priorities, but its absence often represents a missed opportunity.  Organizations that introduce a sales incentive need to train team members on their role in the sales process, as well as how to identify opportunities.      

Beyond the question of sales compensation, role design and account assignments play critical roles in the management of a business services sales team.  Effective sales compensation plans are predicated on clear roles and selling priorities.  Questions about how services salespeople should spend their time must be answered before any sales compensation decisions are made.   In a recent survey of incentive plan participants within a services organization, over 30% of the field said their incentive plans are not aligned with their roles and over 40% said they weren’t sure or don’t believe the plan supports the priorities of the business.  As sales compensation designers, numbers like that are like a big red flare, regardless of what industry they represent.

We hope you enjoy this Q1 summary of our new Field Sales Compensation Survey Series.  Clicking on the full screen button will make it easier to see some of the statistics (sorry about that). 

As a reminder, you can also receive automatic updates about new posts via the email subscription option. 

While many surveys exist for benchmarking sales compensation pay levels, growth expectations and other important metrics, we find few gather input directly from the plan participants.  Field input represents an important component of our consulting work and we encourage our clients to conduct field sensing activities at various points of the year.  This month we launched Rate My Sales Comp Plan, an ongoing survey series focused on the perspectives and insights of sales professionals.  So far we’ve gathered responses from approximately 1,000 salespeople at over 200 companies. 

The early results are somewhat startling.  Fully 30% of the respondents answered false when asked whether they understand their incentive plan. 

26% disagreed with the statement that their plan contributes to the profitable revenue growth of the organization, or said they didn’t know because the strategy isn’t clear.  More than 10% indicated that their comp plan is causing them to think about leaving or are in the process of leaving because of it. 

Given the importance of the incentive program, having 30% of the field not understand how they are paid is unsettling at best.  Couple that with a quarter of the field feeling like the plan is not aligned with the priorities of the business (or not sure what those priorities are).  As plan designers, we have to ask ourselves whether this is a symptom of complexity or communication.   Perhaps it is a bit early to be thinking about 2012 just yet.  But, it might be time to take the pulse of your field organization before 2011 gets away from us.

We hope you enjoy Scott’s new video from NewSigma’s Sales Incentive Practices Series. This installment is part one of two on building a case for changes to the sales compensation program.

Top Questions Answered

This season’s brutal weather hasn’t slowed the number of questions from incentive planners and sales leaders.  Team- and goal-based plans are common themes.  We’ve handpicked a number of related questions from our mailbag, and hope at least a few are on your list of open questions.

Q: What is the ideal mix of individual and team measurement?

A: The ideal mix is consistent with the mix or relative share of the job’s responsibilities that are individual versus team-based.  In our experience team-based measures often take the place of what should be individual measures because either the company cannot measure individual contribution or it wants to avoid internal competition.  Good use of team measures is when the job carries responsibility for a goal that cannot be executed exclusive of other team members.

Q: Can one plan do all?  If a company has both Key Account Reps and Territory Reps, how common is it to have different plans?

A: Not effectively if the company has dissimilar requirements across the jobs considered, and the market requires different cash targets.  It’s for this reason that most companies have different plans to serve a diverse set of sales jobs.

For example, the requirements for a Key Account Rep and Territory Rep could be the same.  That is, base salary and target incentive, performance measures and pay frequency could be identical.  While in our experience we find the performance measurement similar – sales volume in either absolute or relative to goal, the pay targets are not.  Key Account Reps typically have a more-defined pool from which to fish versus the Territory Reps where the variability across territories is higher.  This means the Territory Rep carries a higher risk/reward proposition (higher incentive target as a percent of target total cash, higher upside potential).

There is an age-old debate around what constitutes a different plan.  This is a communication and administrative issue.  We say, if a sales manager can explain the plan to both audiences simultaneously, your one plan for different jobs passes the test.   Or if you can use an identical set of requirements in your system for paying both jobs, with only differences on your rate tables, your one plan passes the test.

Q: Given sales reps often have “unequal” opportunity with respect to their existing customer base, number of customers, type of customers, markets, etc., how do you effectively “level” the playing field among various reps?  

A:  This scenario is one of the strongest arguments for a goal-based incentive program.   With a goal-based approach you set a target incentive commensurate with the role and skill level.  Let’s say Scott and I both have a target incentive of $25,000.  Our goals might be very different, taking into consideration the factors your reference in your question.   If we both meet our goals we earn our $25,000, regardless of what our goals are.   The transition from a commission program to a goal-based incentive approach is one of the more challenging that we observe given the financial and cultural implications, but long-term it can be one of the most productive.

Q: What is the preferred approach for allocating quotas?   Is this typically a process of mutual agreement between the sales rep and management, or is it something that management enforces unilaterally? 

A: Goal setting approaches vary by industry based on the availability of data, go-to-market model and selling roles.  That said, we find that the most effective approaches use a combination of bottom-up and top-down input.   It is common for there to be a gap between what the salesperson says she can do and what the company requires in terms of performance.  While not a negotiation, there should be a clear and equitable set of logic used to close the gap.   Perhaps the most important characteristic is that the salesperson understands their quota, how the gap was closed and how it ties to the overall success of the organization.  Regardless of which approach is used, if the sales manager can’t explain it to their team, the goals will be viewed as arbitrary and unrealistic. 

Q: For goal based incentive plans, would you expect a normal distribution of performance, or a bi-modal distribution?

A:  When the goals are set correctly we would expect to see a normal distribution of performance.  The range of performance varies somewhat by industry, business model and selling role.  The company’s approach to goal setting – promote a culture of winners, 100% is stretch — also play a role.  The rule of thumb we use is to strive for a bell-shaped curve with approximately 60% – 70% of the plan participants achieving their objective.   With this type of distribution, the field force typically views the goals challenging, but realistic – a key characteristic from our perspective.    What varies then is the spread of the curve.   Consider a consumer product goods (CPG) manufacturer and software company.  We expect a narrower range of performance outcomes for salespeople in the CPG organization..  Most software firms have greater variability in the business, and software salespeople experience a broader range of quota-achievement outcomes versus those in CPG.    A final point, we recommend accelerators and thresholds, if included, be set with a goal of 90% percent of the population earning “some” incentive dollars and 10% earning a significant payout, in line with your industry’s pay benchmarks. 

Q: With goal based incentives, do you advocate setting annual performance goals, or goals with shorter time-frames?

A: In general we observe shorter performance cycles (e.g., monthly) as more effective for promoting line of sight and urgency.  However, in businesses with complex, long sales cycles and infrequent but huge deal values, each month in isolation says little about performance success.  In such circumstances annual goals are typical.  To gain the benefit of more frequent performance periods, management will often tie quarterly milestones and cumulative performance to annual goals.  Rarely do we see performance cycles beyond one year due to fiscal reporting norms.

On February 24th, Scott and I conducted a web presentation with Steve DeMarco, VP Worldwide Sales with Xactly.   540 people registered for the session and the week prior we distributed a flash survey on 2011 sales productivity trends.   83% of the respondents expect slight or significant growth in 2011.  Whether this reflects increased optimism or simply the “plan” they were given (assuming the two aren’t one in the same) may be cause for some debate.   Similarly, we may not know where the economy as a whole is heading, but at an individual level these companies expect improved results in the coming year.    We observe the same expectations with sales leaders we have spoken with recently.   Whether it is do or die, improved optimism or simply a requirement of the Board, fewer and fewer Sales VPs are talking about retrenching or holding their own.  They’re focused on taking advantage of an improving environment, investing in their sales force and growing the top line. 

We see this reflected in the allocation of quotas as well.  68% of the respondents raised or are raising quotas for their sales reps.  Another 12% indicated that while they may not be raising quotas, they’re increasing headcount in support of the growth objective.  

Unrealistic quotas are a common complaint regarding the incentive program.  Goal setting approaches do vary by industry and specific company based on the availability of data, go-to-market model and selling roles.  Having said that, we find the most effective approaches use a combination of bottom up and top down input.   For there to be a gap between what the salesperson says she can do and what the company requires in terms of performance shouldn’t be a surprise.  While not a negotiation, there should be a clear approach and explainable logic for how the gap is closed.   Perhaps the most important requirement is that the sales person understands their quota, how the gap was closed and how it ties to the overall success of the organization.  Regardless of which approach is used, if the sales manager can’t explain it to their team, the goals will be viewed as arbitrary and unfair.

A Conversation With Howard Woolf

As a front-line salesperson, sales leader, sales operations executive, company president and CEO, Howard Woolf has spent his career achieving sales success in the technology and communications industries.  We recently had the opportunity to catch up with Howard to discuss his thoughts on effective sales incentive programs.    

MM: Howard, from your perspective, how important is the incentive program in the toolkit of a sales leader? 

HW:  The incentive program, if done right, is the fundamental way a sales manager ‘communicates’ to the salespeople in a way that is sure to get their attention.  Over time it consistently reinforces the mission and method for the organization, along with each individual’s role within it.  Further, the sales plan sets the stage for both direction and behavior, but also builds organizational ’confidence’ which is the key building block for overall success within any sales force.  Unfortunately, when done incorrectly, it has the reverse effect – so it’s important to get the incentive plan right.

MM:  Are there any guiding principles you’ve used to help with your incentive plan decisions?

HW:  Yes, the first is simplicity.  I use the traffic light example.  If a salesperson leaves a customer after getting an order and while stopped at a traffic light, s/he can’t figure out what they earned on that sale, then the plan is too complicated.

Many companies think more is better and they load up the sales incentive plan with corporate ‘good to do’ things and complex measurements. Unfortunately all that does is diffuse the message, often making it hard for a salesperson to be successful even when they are doing the right thing and actually performing well.  In fact you might end up rewarding the wrong people for doing the wrong things, which further destroys morale and can negatively impact performance.  So less is more!

MM:  What are the characteristics of the best plans you’ve seen versus ones that didn’t work so well?

HW:  Beyond being simple, a good plan has to fit within a 360 degree mapping that deals with;  1) goal setting based on each individual assignment (I prefer bottom up with top down tuning);  2) measurements that can readily be made and reported; and  3)  communication that ensures understanding, buy-in and proper execution of the desired behaviors.  Often, automation is involved so that aspect needs to fit with the three key elements as well.  IT should be an ‘enabler’ of the plan and not get in the way of a good plan, which admittedly, can be difficult.

MM:  Having observed the design process from various vantage points, what insights on the do’s or don’ts can you share?   

HW:  Sales is a key function for the company and unfortunately there can be a lot of people within the company who think they are a sales measurement expert.  They’ll suggest all kinds of bells and whistles to the plan  – this is usually how complexity creeps in.  Finance, HR, IT and even Manufacturing and Marketing are looking for a link between the sales plan and their functional goals. 

It is important that the fundamentals of what Sales Management wants to prioritize, communicate and reinforce to the sales people be the pre-eminent definition of the plan.  Keeping it simple, measurable and communicable against the goals of the sales manager  should not get lost  into the many diverse elements of running the company. 

The role of all other functions (Finance, HR, Mfg, Product Management, etc.) is to line up behind the sales manager to help him/her execute to this target without trying to take over the plan for their own needs.  Or  load it down with elements that diffuse the message and limit the potential impact.  The Sales manager should be able to take a step back and say “if the sales people on this plan do well, then the company will have done well against its key goals and the sales force will have played their role in making that happen.”

MM:  Any do’s or don’ts regarding quota setting and management?   

HW:  Yes.  The key to good quota setting is knowledgeable sales management.  When sales management accurately translates the company goals into individual quotas and structures and understands the nature of the individual assignments the plan can be both credible and successful.  Arbitrary and disconnected quota, often top down, are formulas for failure.  The best processes include a bottom up forecast and analysis that is the underlying element of planning the quotas.  Since those forecasts are based on imprecise data, the test is whether the person setting the quota truly understands the business, the customers and the assignment that make up the basis for the quota.  Further, any quota set in advance has to also have a mechanism for fair adjustments (up and down) that connect the reality of the business as it plays out.  So quota management is key to the ongoing validity of the plan and underlies the measurement system as one of the three key elements of the incentive program.

MM:  What expectations should a company have relative to communicating the plan?

HW:  Typically, the new plan provides a great rationale to pull all of the sales team together and communicate the new goals for the year, the company plan to support those goals and how the plan will work.  Usually, this is a good opportunity for workshops with senior management, functional leaders such as product management and local sales management to interact with the salespeople and relate the company deliverables, as well as help line up the background for the plan execution.

However, for plan success, there needs to be a very specific and conscientious communication strategy that starts with the kickoff but gets reinforced throughout the year.  Ongoing communication and reporting on individual and group performance is key to using the plan to reinforce the best behaviour, build morale and enthusiasm, and make any mid-course corrections that might be necessary.  Communication deliverables need to be ‘tight and right’ – written in an easy to understand fashion with crisp detail and include a personal view with clear focus on the measurement and reporting process (along with examples) that will be followed.  The plan administration should have built into its process how it will launch, sustain and communicate the necessary information and ongoing reporting.

MM:  What guidance would you offer for how to deal with the recent economic situation and the growing expectations of a turnaround? 

HW:  It’s always difficult to handle sales compensation when circumstances beyond the control of the salespeople affect their pay.  But the sales role is no different from other critical skills in the company and a sharp management team deals with the situation in a flexible way in order to retain key personnel and also lead them to make the biggest impact that can be made for the company. 

The best companies  maintain their philosophy of ‘pay for performance’ and adjust assignments according to the changing reality.  Typically, what I have seen is targeting salespeople on key and measurable objectives that provide the company the highest impact, given the circumstance, by including those goals or targets within the sales plan quota.  When a salesperson achieves those objectives they can ‘earn’ their incentive pay based on the success. 

A good plan also has timely updates of the quota contemplated within it, as assignments will change, personnel will transfer in and out and organization structures will adjust according to the needs of the business.  The plan should allow for assignment changes accordingly.   Economic changes and/or changes in customer or territory situations should all be handled fairly and promptly.

The test should be that both the ‘individual and the company’ win when the salesperson is re-directed or has their assignment changed and hence, the basis for their quota and measurement.  A good salesperson wants to ‘earn’ their pay and not get a ‘freebie.’  The company gains when salespeople are successful in the performance of their job AND fairly compensated for it.   when both conditions are met sales people tend to stick around and more importantly, they are highly motivated to perform.  Keeping the integrity of the sales plan is vital and only happens if the plan reflects assignments and measurements that are stretch but achievable even when economic conditions change.

Howard Woolf is the founder and managing partner of Howard Woolf & Associates, a professional services firm focused on helping companies improve business performance and sales effectiveness.  He can be reached at hwoolf@comcast.net.

Scott and I have the privilege of participating in two web presentations this month.  On February 15th, along with Christy Roberts from AMD, we’re presenting at the Institute for Human Resources Compensation Best Practices and Trends virtual event.    Our presentation, Building an Effective Incentive Compensation Management Competency focuses on how leading compensation teams manage the end-to-end processes of designing, launching and administering effective incentive programs.   You can register for the event by clicking on the icon above. 

On February 24 we’ll be joining Steve DeMarco, VP of Worldwide Sales at Xactly, to present High Octane Sales Compensation Secrets.   With this one hour web event we invite you to look under the hood of high performing sales organizations and learn the tricks of the trade that can help you take advantage of emerging growth opportunities in 2011.  You can click on the race car below to register. 

Incentive compensation management in a global organization brings its own complexity and opportunity for frustration.  On one hand is the local country manager; adamant that all things incentive related should reflect the needs of their market.  On the other we have the Vice President of Global Accounts, VP of Marketing or new head of HR who are looking to increase the consistency of customer experience and go-to-market model.   Caught in the middle is the person or group responsible for sales incentives.  As the results from a recent survey we helped with suggest, companies use a variety of approaches to manage their incentive programs. 

Looking back over the last five years, the percentages haven’t changed much.  Answering the same question in 2006, 44% of respondents used a centralized process with business unit representation and 18% had a centralized process led by corporate staff.    What’s the takeaway?  Well, for one, it appears fewer and fewer companies use a decentralized process to design their sales incentive programs.   This is consistent with what we observe; most global companies today are looking for at least some degree of consistency in their incentive plan designs.  What varies are which elements of the program should be designed centrally – whether it is corporate led or a cross-geography design team – and which elements should be left to local managers.   Consistency of customer buying practices, business priorities, culture and legal requirements can all have an impact on who makes what decision. 

Where we observe more change is the administration of the plans.  Improvements in technology, combined with a desire to reduce costs are clearly driving more companies centralize their administration efforts.  Where it gets tricky is how to handle inquires and disputes (we know – with a new technology investment shouldn’t the number of inquires/disputes go to zero).  Some companies have implemented global or regional ICM “call centers.”  In our experience the more diverse the selling environment the more difficult this becomes.  Assuming the available budget dollars, a more common approach is to centralize the technology infrastructure with local administration support.   An added benefit is the ability to evaluate the plans on a global level while retaining local insight. 

When it comes to global ICM, perhaps the most important suggestion we could make is to clarify your governance model – whatever that may be.  Whether corporate HR drives the global design process or each region participates as a member of the design team, clarity of the process, who makes what decision and how the plans will be administered will help improve the effectiveness of the program.  One last thought, lest we forget – publish and stick to the ICM calendar.   This simple, but all too often overlooked deliverable is one of the key differentiators between leading and lagging ICM organizations.