SalesCompInsights

Two recent news stories provided a lesson on the significance of core selling attributes, a theme often marginalized by the prevalence of social networking and the like.

The WSJ wrote on June 17 how Groupon and similar web-based marketing firms have boosted sales in small businesses.  Article

That same week the Journal reported the departure of the Apple Store’s chief Ron Johnson and the phenomenal success he helped create.  Article

These stories represent opposite ends of the sales-role-influence continuum, a core attribute of sales compensation design.

Take Groupon.  While technology enables the service, the service does not sell itself to many of business owners Groupon targets.  So Groupon relies on good old fashion telesales to embed its value proposition in the minds of potential customers, many of whom are too busy running the shop to spend time on the internet.

The Apple Store and its success is quite a different matter.  We’ve seen cases in retail where technology affords store personnel real-time data on customer profiles and preferences, and up-to-the-minute sales incentives based on inventory flow and strategic positioning.   But spend a few minutes in an Apple Store and you sort of conclude that the stuff sells itself.  Sure, Store personnel tend to be knowledgeable, courteous and attentive (all things we complained recently were missing in the RIM store). But aggressive sellers they are not.

Not surprising then that the incentive pay strategy is completely different between these two models.  We can’t speak specifically to Groupon but know a few of its competitors offer little base salary with lots of commission upside.  Sales reps secure a contract and get paid on a percent of the deal’s revenue.   Apple Stores do not pay its personnel commission.  A representative told me the focus is on the customer’s overall store experience, and not whether customers hear from a store rep about the latest product or app.

This, my friends, is old-school sales comp design.  Take into consideration factors such as brand equity, market share, competition, teamwork and the company culture for deciding how much if any variable comp goes into the total pay mix for the role in question.  Groupon may come to dominate the market for localized, deal-of-the-day advertising so that more prospective customers call Groupon than the other way around.  For now though, it’s a phone, call list, well-honed message and big, dangling incentive carrot that gets the sales job done.

Adding to our List of Favorite Sales-Themed Movies

Ah, Friday night.  Maybe you shut down early, pick up some Chinese food (though here in SF we have to distinguish between Hunan and Mandarin) and stream a good sales flick.  We keep a running list of our favorite movies that speak to the madness of the sales profession.  If you’re a salesperson, manage salespeople, or in some other way find the profession entertaining, we suspect you keep a similar list or at least enjoy a sales-themed movie on occasion.  We’re happy to recommend one for your list.

Let’s first get something straight: this is not a movie review.  My Friday night viewing standards are low, given the alternative to a Friday-night-dinner-movie-kids-asleep scenario is being stuck at O’Hare, or worse.

Now then, “Love and Other Drugs” represents a good dinner-and-a-movie piece because it’s a love story, though considerably spicier than your average Julia Roberts flick, and showcases primal sales behavior.   Jake Gyllenhaal’s character is a heartless Pfizer sales rep with some unsavory tricks up his sleeve, that is, until Anne Hathaway’s Maggie makes a strong bid for his attention.  We can only imagine the legal wrangling between Pfizer and the movie’s producers.  Perhaps the subject’s period was enough long ago – when you could still buy a new 911 for under $50k – so that any unflattering depiction of Viagra or its sale force is moot.

There are three general types of sales-themed flicks: light-and-foolhardy; dark-and-serious; and serious-yet-ultimately-uplifting.  Depending on your meal and mood, we’ve tried to cover all three categories with our top-pick list, in no particular order:

1. Glenngary Glen Ross: “Put that coffee down – coffee is for closers”
2. Boiler Room: Ben’s profanity-laden pep talk is second only to Alec’s above
3. Fargo: William H. Macy didn’t go to Club that year
4. Wall Street: Charlie Sheen plays a grownup
5. The Big Kahuna: don’t let the cover art fool you – dark and serious
6. Thank You for Not Smoking:  “We don’t sell Tic Tacs, we sell cigarettes. And they’re cool, available, and *addictive*. The job is almost done for us.”
7. Tin Men: some great dialog….and a government probe!
8. Clerks: retail at its best
9. Tommy Boy: “That guy may not call us”
10. Working Girl: Talk about self motivated – she wasn’t even eligible for the comp plan!

Upon reflection it’s the dark-and-serious genre that dominates the list.  Avoid many of these movies if you’re considering a career in sales, or are skeptical of salespeople.

But any one of these movies illustrates the stuff that makes salespeople tick: passion, tenacity, guts, desperation. If you work around salespeople and find them a little hard to understand, you might consider watching these as part of your  sales sensitivity training.

Or just decent entertainment.  As for the dinner portion of the equation, we’ll leave that to Part II of this series.

By Howard Woolf

Sales has to be one of the most difficult professions of all white collar jobs within a company.   You have all the responsibility, nothing that you can control and you are directly measured on the results. 

Think of the many influences on the sales outcome ranging from tough customers that always want more (and sometimes have very difficult and varied personalities), to the competition that is constantly pressing on your offering, to product issues or internal execution.  Arguably sales controls none of which, but is given responsibility to conquer and succeed.

When good companies recognize they have a ‘sales problem’ it may be that multiple issues within the business are resulting in poor performance. Unfortunately, the salesforce is often viewed as both the victim and the cause.  Given the myth that any good salesperson can sell anything to anybody, at times it becomes personal for management towards the sales leadership and the salespeople.  Often the salespeople criticize themselves.  After all, a good salesperson never makes excuses.

The cure requires focus on two elements.  First, understand the fundamentals that are causing the company sales to suffer.  This requires an honest assessment of all the factors from the quality and functionality of the offering to the competitive environment and the market conditions.   Given the results of the assessment, determine what it would take to maximize the success of the salesforce, short and longer term, and take those actions quickly.

The second area, maximizing sales performance, often draws much attention and many opinions. Many people believe they are experts at sales (even if they never ‘carried a bag’) and I have my opinion as well.  However, I carried a bag and successfully led salesforces in both direct and channel sales for products and professional services over decades. 

At the core of sales success, I believe, is consistently building the confidence of the sales professional.  It sounds simple but it is a rather complex set of issues.  Starting with the psychology of sales people who are in one the most cocky and confident while being also the most insecure people on earth.  Without Sales confidence, there can be no success in sales.  

Increasing the confidence of the sales force requires that the company first understand the attitude of the company’s functional leadership and down through their organizations.  They must look at their salesforce and respect them for the impossible job that they take on and the inability to make any excuses for lack of performance – despite the cause within or outside the company.  There is a key role for the CEO to play in making sure the organizational attitude is focused properly.

I once marveled at a Finance professional who tried to put in place ‘punishment’ for the salesforce by cutting their compensation as a cost containment tool after the salespeople had accomplished the goal they were asked to achieve.  I asked the person at the time, why aren’t we also cutting ‘your’ pay given the company had cost problems even though you did your job.

The lesson here is each job is valuable and should be treated as such – if the company is going to reduce compensation or any other reduction, the salesforce should participate equally (not more equally) than all functions of the organization – so if you cut everyone, it is ok to cut them too.  If you don’t cut everyone, sales should not be singled out   – they only get paid if the company is successful, even if the particular success was not part of their compensation plan.  Salespeople need to feel valued and supported – if you want them to face the odds and maximize the performance of the company. 

A high performance salesforce must have confidence and trust that their management will treat them fairly and with appreciation.   In fact, everything that the company does has to be for the Customer.  How a company treats their salesforce is the clearest indication of how they are treating their Customers.  If the salesforce is well supported, has the respect of the organization, are rewarded properly for performance (both upside and down) and have the backing of the company management – they will have the confidence that they can achieve great things and overcome many obstacles.

The most tangible way a company shows its support for its salesforce is in the sales plan and the related measurement and compensation.  It’s worth pointing out that it isn’t the absolute amount of the compensation that delivers the message but rather the fairness and accuracy of it. This provides a key management tool that enables sales success or if done poorly, destroys the fundamentals necessary for sales confidence and related success.

Sales compensation plans are easy to do – they are just not easy to do ‘right’.  One of the key ingredients to any good compensation plan is to limit the number of people who can ‘tune’ the plan.  Keep the plan simple and make sure it can be implemented well.  It always amazes me how many people think they are ‘experts’ in sales compensation but have never had to live on a sales plan.  The best way to keep it simple and straight is to avoid having too many cooks in the kitchen.

Company management may mistake sales compensation plans by themselves as the ultimate vehicle for making sales successful.  I would argue that the bigger problem is making sure the sales compensation system doesn’t get in the way and that it reinforces the confidence of the salespeople.  The mission for the Sales Plan is to provide the proper ‘aid to the sales manager’ who has the challenge of leading the salesforce to success.  As they say, the magic is in the magician, not in the wand.

A good sales plan includes:

• Appropriate Goals (based on details of each assignment)
• Clear and accurate Measurements
• Related compensation rules
• Performance analysis
• Clear communication and reporting – timely and accurate
• Feedback on an ongoing basis
• Corrective action that is timely and visibly taken

Well intended plans fail when they are too complex or can’t be explained simply and the performance easily demonstrated.  A good way to tell if your plan is too ‘sophisticated’ is to weigh it – if it takes more than a few pages to document, it is probably too complex. 

Another area of concern is when management confuses ‘sophistication’ with the overall company performance needs.  This usually leads to ‘throwing’ all kinds of measurements and targets into the mix to the point where the key objectives are lost.   While appropriate Human Relations and Financial and Operational aspects should be embedded in the plan, the point of the plan is to support the ‘sales manager’ in leading the salesforce.

Successful plans are where the goal and desired behavior for the salesforce is clear, the communication and measurements reinforce it and the outcome rewards proper performance.  A successful plan protects the salesforce from being negatively impacted by forces beyond their control – given they were doing everything right for what the company asked them to do.

Having a simple plan is a risky thing for management, as it requires sales and company management declare specifically ‘what’ they really want the sales force to do.  Clear and explicitly stated priorities prevent future questions around, ‘why didn’t you measure (hold accountable) your salesforce on that?’  But, if you have management that is in touch with the market and knows the business and they can declare cleanly what they want sales to do, then the Sales Plan becomes a strong tool to get the core mission accomplished.

In the end, if you treat the salespeople the same way you would like to be treated on your compensation, you have the right solution at hand.  The weapon of choice is to do as much as possible to build the confidence of the salespeople.  From that flows competence and commitment that will maximize short and long term performance for the business.

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.  

Leveraging the Power of Sales Compensation

After a global economic meltdown we’re not surprised to hear increased questions about the utility of sales compensation.  Let’s face it.  Planning and managing sales compensation plans can be pretty painful, particularly when the business cycle is in decline.

Think of sales comp plan design and management like playing in the stock market.  Over time, sales compensation typically provides a strong return on investment.  Occasionally you can get burned, but sit on the sidelines when the market is gaining speed, and you’ll fall behind.

A good industry for this does-it-matter topic is semiconductors, where many firms do not use traditional sales compensation programs.   Instead they rely on company stock, profit sharing or discretionary mechanisms to compensate the sales force.  The semiconductor environment presents a challenge for sales compensation. Sales cycles can be over a year, and each deal represents the epitome of a solution sale – very custom and specific to a particular customer situation.  Measuring sales influence is another industry challenge.  Reps in multiple regions can influence a single design win.   Management typically measures sales contribution at the team rather than individual-rep level.

Several years ago we worked with such a company; variable cash pay for salespeople wasn’t a factor.  Generous option grants and the company’s high-performing stock fueled the compensation program, and cash incentives came in the form of management-by-objectives (MBOs).

The company reached a point in its growth where equity was neither reliable nor sustainable as a primary driver of variable comp.   To attract and retain sales talent, management needed the cash program to stand on its own, and link more closely to how the company made money: design wins.

The MBO approach paid consistently to the point where most reps expected to earn 100% of target – no more, no less.  In the view of the company’s VP of sales, the MBO approach coddled poor performers and short-changed the high performers.   The VP wanted more variability in cash pay to align with what he knew were different levels of contribution across the sales organization.

By moving to an approach that tied incentive opportunity to annual design-win quotas, management could justify higher pay for high-performers than was prudent under the activity-based, discretionary MBO approach.  This transition happened in stages.  As the company acquired more historical performance data, its confidence in setting reasonable rep-level quotas increased.  Gradually, it moved to a more pay-for-individual-rep-performance approach.

The transition was tough for many of company’s sales managers, who had enjoyed the relative simplicity of team-based, discretionary incentive approach.  Individual quotas required that sales managers analyze sales data for purposes of allocating quota and assigning sales splits.

The upshot in acquiring and analyzing sales data is management has become more educated on the business.  Sales reps and various levels of management can discuss progress in objective terms, using revenue and pipeline progress as common measures of performance.  As more data come into the system, the company has increased its investments in technology to automate functions like quota allocation.  Managers can focus more on outcomes and implications, and less on number crunching.

The results speak for themselves.  In the first year of the quota-based approach, the total number of design wins increased, as did the size of each win.  Performance has increased each year since.  While the company had always prided itself on attracting and retaining top-tier sales talent, its maturation from a pay system characteristic of an early-stage startup to one more common in a $6 billion, Fortune 500 firm happened with very little sales turnover. 

The company’s head of sales operations offers this advice for managers preferring use of a low-risk, MBO approach.  “Our best salespeople are risk takers that need stretch goals to perform.  Using a goal-based incentive compensation program is the most reliable approach for attracting these types of salespeople, identifying areas of sales weakness and growing year over year revenue.”

SCI Turns One, and Steven Levitt Sends Us a Gift

One year ago we started a blog.  Our purpose was and remains to this day: exposure.  That is, to expose the mystery and audacity that surrounds the subject of sales compensation and incentive management.  Not beyond audacity ourselves we launched our blog with the gratuitous headline, “Are Incentives Dead?”  Pure nonsense of course but you’d think by reading the real headlines of the day that incentives were on their way out, given what they did to the economy and all.

One year later the Dow is scratching at 12,000, and incentives are alive and well.   Yet the madness continues and we’re grateful for folks like Steven Levitt, author of “Freakonomics,” for providing us material we can poke holes in.  He, too is not beyond the flaunting of silly headlines, beginning the speech featured here by saying incentives don’t work and what does is tricking employees into thinking what they do matters.

                http://www.youtube.com/watch?v=FdkQwQQWX9Q&feature=related

The weakness in Mr. Levitt’s argument is that he confuses incentives with entitlements via a turkey (no kidding) and offers patronage as an elixir for worthless workers.  The final straw is his case study: Google — as if anything Google does can be easily replicated.  He makes Google out to be a bastion for its users’ privacy.  Freaky indeed.

So let’s break this down.

• Incentives don’t work because payees, after receiving their first chit (e.g., a turkey), forever feel entitled, and even cheated if the subsequent award is not larger than the first. 
• There’s no meaningful application of a “stick” relative to a carrot because employees, when faced with a stick, will quit (“slavery is illegal,” he informs).
• Better to, rather than offer a carrot, “trick” employees into thinking what they do actually amounts to something.
• Google employees, motivated by the company’s values, believe it’s more important to keep customers’ data safe than to prevent the next pandemic.

Our rebuttal:

• Incentives are not entitlements.  Entitlements motivate loathing and bitterness.  Incentives motivate performance.  An employee can’t rightfully expect an incentive without having performed first.
• Sticks work.  Fear and risk of income loss can be as motivating as the opportunity for upside.  We don’t, however, promote beatings.
• Trickery in the workplace is counterproductive.  A spiteful coworker once put refried beans on my phone’s earpiece which cost at least 10 minutes of otherwise productive time not counting my scheming for revenge.  Really, can Levitt be serious on this point?  We believe it’s good practice to express appreciation for one’s hard work, and bad practice to make a deadbeat feel like they’re actually of value.  Levitt makes it sound as though you have to trick employees into thinking they contribute because they really don’t and then maybe they will (I was tricked into believing my earpiece was bean free when in fact it was not).  This stuff has no place in the workplace.  We say “stick” rather than “trick.”  If the unproductive non-contributors don’t quit, fire them.  Give tricksters twenty lashes.
• And seriously, Google employees taking a bullet before leaving the door ajar on your personal data?  Or using it against you.  I’m fearful just mentioning the mighty G in vain less I suffer broken kneecaps from their hired goons who are following my every keystroke.  Apparently Mr. Levitt, in all his work with Google, somehow missed the parade of perks ranging from morning mango-rub massages to afternoon hand-crafted beer bashes, with Jimmy Buffet working the tap.

Speaking of Google (I’m living dangerously here), a fellow consultant who had been doing a lot of work there, appeared in our office one day looking dejected.  “What’s wrong?” I said, obvious to her absence of perky demeanor.   “I went to get an Odwalla smoothie from a case at Google yesterday and saw in its place a coin-operated machine.  They’re making you pay for these things now.”

Why on earth they would do that, I wondered.  Terribly un-motivating.   Perhaps it was on Mr. Levitt’s advice, to fend off a groundswell of employee anger for eight ounce bottles not being replaced with half-gallon jugs, and so on.  Whatever the reason I was so certain this move was a bad one that I sold my Google stock. 

It closed at about $300 a share that day.  It’s above $620 now.  And Levitt probably sold 5 million copies of his book since then.

No matter.  We stand our ground on good incentive design principles and call out any cheap shot to grab attention, using blatantly-untruthful pronouncements like, “Incentives Don’t Work.”

Like healthcare costs, state university tuitions keep rising in an otherwise non-inflationary period, and taxpayers want accountability.  The Wall Street Journal described in an editorial on Monday how Texas A&M is attempting to measure professor productivity and performance, and tie it incentive compensation. 

http://online.wsj.com/article/SB10001424052748703860104575508052117098986.html

Critics of the plan say it’s too simple and dangerous, and a threat to the university’s integrity.  Some believe if the university must tie pay to performance, that it spread the bonus pool across a larger population of professors.

Sound familiar?  Critics of pay for performance believe it’s best to toss the baby if the measurement system isn’t perfect.  Or, if a bonus must apply, give a little something to everyone, making the pay program more of a gesture than a mechanism for behavioral modification.

In the competitive marketplace, we hear this occasionally but for the most part it’s accepted that jobs with measurable contribution to the organization’s value have a portion of their pay tied to performance.  Customers and shareholders assess firsthand the cost-benefit tradeoff, and determine the organization’s value accordingly.

Intriguing in the case of state-sponsored education is the consumer isn’t necessarily the payer, making a first-hand benefits analysis difficult.  Regardless, the payer has limited elasticity.  Jack the costs high enough and something’s got to give.  Take employers’ reaction to ballooning healthcare costs.  Rather than increase their budgets proportionately, they passed a larger chunk onto the employees.  Similarly, states are passing a higher and higher share of their college subsidy to the consumer, or parents of the consumer.  But unlike insurance, colleges are not regulated.  If the consumer doesn’t recognize value for the spend he or she can take their business elsewhere.

That’s why the regents of Texas A&M, and we suspect those in other colleges, are taking a hard look at the tried-and-true system of pay for performance.

Santa’s View on Pay for Performance

By Jason Kearns, Canidium, and Scott Barton, NewSigma

It’s the most highly anticipated time of the year: year end, holidays, bonuses and token gifts.  This year, many cash-hording companies will open their purse strings to say thanks to their overworked masses.  It takes the form of monetary bonus, gift card or Honey Baked Ham.  IKEA recently announced that it was gifting all employees a new set of wheels (two per, to be precise, 12,400 sets of bikes total in the US alone).

http://www.msnbc.msn.com/id/40641253/ns/business-going_green/

The uniqueness and relative infrequency of these “gifts” make them special.  A smart organization can realize and expect benefits from seemingly random acts of kindness that far exceed the initial investment.  No surprise that Tammy happily put in her whole Saturday after receiving that Starbucks card.

Whether it’s a card, check or Christmas dinner, by giving the gift the company says and ideally the employees hear some very positive stuff:

• We are a strong company.
• We care about our employees.  Even at the expense of our bottom line.
• We value your loyalty.

In the context of a total compensation package, holiday bonuses for most companies are a footnote.  But start a rumor of empty stockings this year and get ready for mutiny.  It’s as if some employees would rather have the annual Butter Ball than this year’s merit increase, regardless of the incremental number of birds such merit would procure.  We savor our traditions.

For our purposes of sales force effectiveness, what is the value of extending unconditional holiday gifts to the sales individuals who presumably already qualify for bonuses throughout the year?

Sales people are motivated by compensation and they are compensated based on performance.  Is there value to treating sales people as “normal” employees for this annual occasion?

The negative argument is made by the economist posing as a psychologist.  Sales people won’t appreciate a token award.  They already strive for significant performance awards and they’ll view a small gift as an insignificant gesture.  Besides, sales people get rewarded for company success as a direct result of their performance.  Token gifts are a waste of money.

The positive argument is rooted in culture.  Gestures of good will pay forward — employees say good things about the company to each other, their friends and their family.  Sales people speak of the company  favorably to their “family”– the company’s customers.  A united culture drives teamwork and overall performance.  We’re all in this together.

As you consider that holiday-gift line item tied to the sales segment of your employee population, think about the degree to which your sales culture represents the company culture at large.  Even within the sales force you may have different animals: field sales, inside sales, technical sales support, and so on.

Are we splitting hairs?  Who wouldn’t appreciate a holiday ham?  We argue that sales people are different based on their expectations of pay for performance.  There’s less risk of entitlement coming into play, and more danger of mixed messages when you award the low performer that special gift.  How would the accompanying note read?  “We made our profit target despite your weak contribution,” or, “Thanks for your poor performance.”   There’s a chance that your gift giving to low performers could alienate your super stars.   After all, even ole Saint Nick himself discriminates between the naughty and nice.

If we could put a bow around this topic, it is that whether or not they view themselves as different, your sales people are, or rather should be, treated differently from those who don’t have pay at risk and generally have no idea of their overall worth to the business relative to their pay.  Intrinsic rewards certainly have a legitimate place in the sales performance management portfolio; how you play that gift card requires more thought for those employees with a direct connection to the company’s top line.

This post represents the first is a series published in conjunction with Canidium, an SPM technology and business-process improvement firm.  www.canidium.com

Where Robin Hood Meets Santa Clause

What on earth, you ask, do MBOs, Robin Hood and Santa have in common?  Well, it’s like this: MBO’s, when used in a large sales population, take from the rich (your successful salespeople), give to the poor (your laggards) and are a gift to sales managers that are better at being one of the guys than they are leaders to their respective teams.

By the way, if you’ve stumbled upon this site in search of a holiday-themed Robin Hood DVD or tips for pulling off your own management buyout, give us a second to define before you leave the acronym as used in the comp world:  management by objectives – a.k.a., key sales objectives.  A guy in the U.K. told me once MBO stood for “My Bloody Obstacle to driving real pay for performance in this place.”

This statement pretty much sums up the issue.  Granted, it’s just one perspective.  Ask a sales exec who has worked over a prolonged period with MBOs and you’ll hear a woeful tale of administrative complexity and undifferentiated pay distribution.  But ask a line sales manager, “How’s that MBO program workin’ for ya,” and expect praise for the flexibility and fairness provided by MBOs.

There’s both math and psychology involved here.  Crunch historical data from a group of MBO payees and you’ll see over time a trend of decreasing pay distribution.  That’s because the supervisors and managers scoring their teams don’t have the heart to tell Larry Laggard his performance blows and he’s not earning a bonus.  To keep the budget in check, the scorekeeper trims a little off of what would have gone to Slammin’ Sam (the high-performing rep) and gives it to Larry.  Steeling from the rich to give to the poor.

There are legitimate reasons for putting MBO’s into place.  For example: a technology company needs its business development reps to stimulate product development and customer engagement across different markets.  One size does not fit all reps, and the product isn’t expected to be sales worthy for at least two quarters.  The structure of an MBO allows the supervisors to customize a set of objectives for each rep that will drive future sales.

At some point though, these reps will want sales and the compensation that comes with those sales.  After all, they’re sales reps, right?  Where MBOs get misapplied is when management requires a sales professional to do the job of a marketing or product specialist.  In a small organization, that’s likely and expected.  But it’s not optimal and should be considered temporary.  Again, salespeople sell.  Other jobs do, well, other things that aren’t directly connected to sales.

Indeed there are requirements to every sales job that fall short of sales-related activity: fill out reports, dial into weekly sales calls, drive the product team from Japan around to a few customer sites, etc.  The more your salesperson earns in variable pay as a percent of base salary, the more likely he or she will look to excuse him/herself from such chores.  And then you as the manger can get into a discussion around the reason they’re paid base salary and role of being a being a good corporate citizen and so forth.  Yet they look at you with glazed eyes.  You can tell they don’t care and won’t do what you ask.

It’s tempting then to put some of these non-sales tasks into variable pay, tied up all pretty in a MBO package.  Then they’ll care, right?  Wrong, if they’re good salespeople.  They want to sell, gosh darn it, and earn good pay for those sales.  MBOs are a wing-clipping for high performers.

I’ve not yet gotten into the gritty underbelly of MBO administration.  Best case, managers articulate and document “SMART” objectives, salespeople acknowledge them, managers submit the objectives for executive approval, and later meet as a group to calibrate scores before meeting one-on-one with the reps.  Uggh.  I’ve actually seen an MBO for a manager plan with the objective being proper administration of the MBO process.  Anyway, the savvy manager will attempt to sidestep all this admin stuff.  And who can blame them?

In the early days of my incentive management stint at a large brokerage firm – and sorry to those who’ve heard me tell this story for the thousandth time, but it’s a good one and is relevant here – during a tour of retail branches, I sat across the desk of the manager for one of the firm’s Manhattan branches.  It was mid-December and starting to snow outside.

Leaning back in his reclining chair, he says, “What I need is a very simple compensation approach for these guys (financial consultants and customer service reps).  Give me a stack of hundred dollar bills and I’ll hand ‘em out to those that are getting the job done.”

He was dead serious.  And his grey hair, pinstripe shirt with suspenders and large waistband suggested he’d been at the business a while and probably knew what he was talking about.  Yet I had an image of this guy in a red suit and white beard, with a sack on his back for all those bills.  Maybe it was the time of year.  Come to think about it, the assistant manager looked an awful lot like Little John.

We subscribe to the notion of the sales compensation plan as a tool for sales management.  Whenever possible, this means that sales management should be part of the design team.  They may not own every decision, but certainly theirs is a voice that should be heard.  And perhaps more importantly, this means that sales management should lead the communications effort.    We observe many companies where sales leadership actively, and enthusiastically, participates in the evaluation and design of the new incentive plan.   They recognize the impact the plan can have and want to maximize the likelihood of success for the business, their team and themselves.  When it comes time to communicate any changes they line up in front of the organization to help people understand why the changes were made, what the changes mean and how best to win under the new plan. 

Unfortunately, “many” doesn’t mean the same thing as “all.”   Based on several years of survey data, we’ve observed that in 20% and 30% of responding companies, the incentive plans are designed by corporate staff, with limited input from line management.  These companies would argue that a corporate approach makes the most sense for a variety of reasons.    

More concerning is the design process that is supposed to include sales management but doesn’t.    There’s the scenario where the VP Sales is chartered to design the plans, but is not involved in the final decisions.   Or the scenario where the VP Sales doesn’t believe any change should be made and avoids the design team meetings.   Then there is the arms crossed passive aggressive meeting participant;  I’m here, but don’t ask me to do anything that could hurt my people.  Any of these scenarios can lead to the dreaded “look what they did to us now.”  With the credibility of the plan now in question, a significant change management opportunity is lost and the odds of success go down significantly. 

As we enter the final weeks of 2010, it is critical that sales management supports the new plans.  The bigger the change, the more important it is that you’re sales leaders are armed and ready to effectively communicate with their team members.   If there is any question about their support, address it immediately.   With so much riding on the success of your incentive program, you can’t afford to have your most important stakeholders waving goodbye as the rest of the troops head off to battle.

Facebook, WikiLeaks and the Power of Peer Pressure

During Thanksgiving dinner my extended family (NOT pictured left) seemed intent on discussing Facebook.  How it’s necessary, how it’s evil.  Why in heck does Uncle Lou have a page?  Dude — stop texting at the table!  And so on.  The following week I’m inundated with news on the latest WikiLeak — scandal, crises, gossip — over state department wires.   Then yesterday I’m in a debate with a company’s sales and HR leadership over company policy on employees sharing their earnings info with co-workers.

So we’re in a controversial age over privacy and promotion of personal data.  I hadn’t thought this subject yet hit the shores of sales compensation land.  But  having now thrown it around our brain trust here at SCI (pictured above left), I’m confident saying the trends that have seeped into so many areas of our daily lives, driven mostly by technology and the Internet, has applicability to policy and preferences over the privacy of pay data.

Let’s be clear.  We’re talking about sales compensation specifically.  Please don’t go posting all your employees’ base salary levels on the company’s website as a way of demonstrating your hipness.

There are varying degrees of appropriateness and purpose here based on the structure of your comp plan.  To be safe, take base salary out of the equation.  So then do we socialize actual incentive earnings?

Many companies frown upon the idea.  Some go as far as suggesting that if a sales rep utters a word over his or her earnings to anyone other than spouse, then they’re fired.  This was basically the declaration of one executive in the meeting yesterday.  He had reason to be upset.  Despite the company’s efforts to keep its sales compensation data confidential, someone on the inside — a salesperson presumably — was disclosing details on Vault.com.  Management could try to fire the person or people responsible but had no way of identifying the perpetrators.

Consider companies where using personal pay references during team coaching and recognition events is encouraged, and celebrated.  My first experience with this was during a job interview for a sales position where the hiring manager said, “Our top salespeople made $xxx,xxx, $yyy,yyy and $zzz,zzz last year.  Here are their names.  You can call them.”  I felt a rush then, and always have since in meetings and ceremonies where personal pay is put forth for consideration.

If your salespeople are driven by both internal and external competition, and you have statistics to be proud of, then post it.  Get it out there.  Not only the ranked performance levels, but the corresponding pay also.  Attach names.  Get personal.   Your average performer will react differently to the pay figure versus the performance of Rep #1.   And for #23 out of 200?  Shame on him.  Perhaps the DMV is hiring.

This sounds harsh, but it’s characteristic of the increasingly-transparent world in which we live.   I took quite a beating over stuffing and cranberries due to the low number of “friends” reported on my Facebook page.   And that’s probably okay if this metric is important to me.  Point is, variable pay opportunity should be important to your salespeople, as should peer pressure be effective for motivating action.

Granted, details on your company’s incentive pay opportunity may not be ready for public consumption.  Maybe comparing competitors’ pay to your company’s own reveals a weakness, or your salespeople can’t figure out how the top five reps in the ranks made what they did.  Better then that you don’t publish this stuff.  Ignorance is bliss.

We caution such policies of secrecy, if only because everywhere we turn, it seems the genie is out of the bottle.