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.

What Makes This Group of Sellers Unique?

It used to be that inside sales was commonly seen as a lower-tier channel relative to field sales.  Inside reps could touch more accounts than their field counterparts in a given period, at a lower cost, making them well suited for covering lower-value customer segments.

With changes to customer buying habits, inside sales is playing a larger, more prominent role.  Indeed, a client recently confirmed this notion, sharing that he bought a $600k enterprise software application after researching options and receiving some over-the-shoulder support from the software company’s inside sales rep.  “If I can buy a $60k Audi without ever speaking to a salesperson, (it) seemed logical I could buy a software app without all the in-your-face, dog-and-pony shows.”

As prominence of the function increases, so too does the complexity and questions on how best to attract, retain and motivate inside sales team members.  We look at three aspects.

Culture and the Social Network

Generational nuances come up more frequently with inside sales forces because these roles are typically the first rung on the sales career ladder.    Inside sales is a tough environment, and the fate less certain than a field sales role.  There’s no loyalty.  Field sales is a career; reps increase their comp by staying in the role and being better at it; inside reps look for a job promotion instead.

For the manger, culture can work for you or against you.  Ring the bell, free pizza in the lunch room, public expressions or recognition and success – all less viable in a field sales environment; but skepticism and disappointment travel like wildfire in a call center.  Such conversations used to occur over cube walls, in the hallways or at the water cooler.  Today’s younger inside sales reps are more likely to stay in their cubes, texting and emailing as a way to stay connected to peers both inside and outside the firm.  These factors make it harder for the call-center manager to leverage the positive aspects of an inside team.

Steve DeMarco is VP of Sales for Xactly Corporation, and a long-time manager of inside sales resources.  Recently Steve spoke at the American Association of Inside Sales Professionals (AAISP) Conference, where much of the discussion was around how best to motivate “Gen Y” employees that fill the majority of inside sales seats.

Steve says, “Given all the sports and related activities that kids now participate in from an early age, today’s younger workers can be dedicated but expect structure and formal training for advancement, much more so than earlier generations.”

And Baby Boomers are entering or returning to inside sales at rates not seen in years, given the recession’s hit to retirement incomes.  “Everyone gets along,” Steve says of the two generations working side by side, “but management has to appreciate that what motivates one group won’t necessarily work for the other.”

Role Design: Inbound or Outbound

There are significant differences between inbound and outbound roles.  Of the two, inbound is more difficult to benchmark for determining competitive pay rates because the pay mix – the split between base salary and target incentive – is not consistent across firms using inside roles.  More challenging is the confusion many inside incumbents have around the inside role – is it sales?  Service?  Firms that haven’t nailed the culture, performance expectations and skill requirements will struggle.

We think of outbound sales roles as being similar to field sales but typically more transactional and data driven.  Issues pertain to account ownership and handoffs when both field and inside sales work on the same accounts and opportunities, or lower-value accounts migrate from inside sales to field coverage.  In these cases the sales credit mechanism must align with each job role’s point of influence.

Pay for Performance

Measuring performance for the inside sales role is problematic.  In call routing schemes managers can struggle to identify which rep influenced a buying decision.  Call routing and marketing campaigns influence overall sales opportunity for inbound roles, and have an impact on the customer experience – “my cable is down and you’re trying to sell me phone service?!”

Call centers have a tendency to overload reps with metrics.  Frequent spiff programs can conflict with, or dilute from, the core incentive plan.  Management has to filter out what are important-but-not-critical measures from those that link to profitable revenue growth.  Inbound roles do well with incentive credit schemes that retire quota at a rate that’s proportionate to the product’s or service’s strategic value, with a minimum customer-service score serving as the qualifier for incentive eligibility.  And quota must, for the inside role, adjust with fluctuations in call volume.

As we’ve said on these pages many times before, sales is, or should be, service.  Salespeople able to demonstrate this approach do well, particularly in the inside sales environment, where words, tone and timing account for everything.

Tales and Tribulations in Retail Shopping

One of my first jobs was a shoe salesman in a mall store.  What motivated me?  It wasn’t the money – horrible.  It wasn’t the job content.  I could have cared less about shoes.  Rather it was a way to make a little money while I socialized with friends staffing other retail shops in the mall.  This was long before Facebook.  What else was I to do?  I took the job because the chain’s district manager sold me on the idea that I could make a lot of money selling shoes.  Didn’t hurt that he arrived to our lunch meeting in a new BMW.  His proposition didn’t pan out.  I lasted about six months.

Don't Try This at Home

Why do I share this unfortunate chapter from my past?  We get that life is difficult for the retail store sales clerk.  It’s tough for their employers, too, with turnover at many stores ranging from 200 to 300 percent.  Is this a reasonable cost of doing business, or a decent tradeoff for low prices or convenience?  Maybe so for some environments, but not businesses that require motivated, knowledgeable and courteous sales staff.

Take this scenario.  Wednesday afternoon Mike and I are killing time at the Philadelphia airport and come across a Blackberry store.  Prominently displayed is a new Playbook, RIM’s answer to Apple’s iPad.  Mike is a dedicated Blackberry user and appears particularly interested.  We start fiddling with the thing, and can’t, after about two minutes of trying, get to a web page.   All we see on the screen are photos taken by other shoppers/travelers.  By the looks on their faces, they, too, struggled to get the Playbook “playing.”

We strolled to the other side of the store, where another Playbook sat perched on a stand.  This one had what looked like a browser on its screen.  We try in vain to locate a search or address window.   All we get is a “Windows Live” login screen.  There’s a seemingly useful menu bar that sporadically appears on the screen’s header but when pulled down disappears.  Ever get a contact lense stuck behind your eye ball?   “This sucks,” we say, and walk off.

Our experience with the Playbook was short lived.  The store clerk seemed unconcerned.  Maybe she thinks the device sells itself (it doesn’t), or that we already own iPads (we don’t).  Whatever the case, she may have been able to salvage the situation…and did not. I expect that in situations where the product could use a little help to capture hearts and minds that someone is there to sell it.  Playbook needs, in its current form, a few good salespeople.

I’m loathe to use “best practice” examples, because of the “yeah, but” responses these examples might elicit.  But here it goes.

I don’t mean to pick on airport vendors, but a little kindness goes a long way.  After all, most people in airports are grumpy, and they have plenty of options for food, drink and general time-killing.  Take this sandwich shop in DEN.  I use its name, Paradise Bakery, to promote its business.  Recently I walk up to the counter and am blown away by how friendly, efficient and seemingly grateful the guy on the other side is for my business.  “Yeah, but he’s probably the owner.”  Good call.  Though I observed he wasn’t the lone friendly guy in an otherwise surely operation.  If anything he was setting a good example for the others.

Take another example: the now defunct WaMu.   Management there, in the bank’s hay day, concluded that losing a newly-hired-and-trained teller after six or eight months wasn’t good business.  The bank had spent all this money to make their branches look like an employee breakout room at EBay (lots of open space with colorful, creatively shaped chairs and little tables).  So why have the cool branch experience ruined by a service representative who could give a flip?  “Yeah, but WaMu got seized by the Feds – its management is being prosecuted.”  True.  But let’s separate the unsavory lending practices from the solid execution on the retail floor.  WaMu determined it could increase engagement and reduce turnover by paying more and demonstrating to tellers that this tough, first occupational step could lead to a meaningful career.

When the news arrived hard and fast that WaMu would cease to exist, I’m sure many of the tellers felt like I did a few weeks into my shoe-salesman career – this isn’t turning out the way I expected.  But many of these folks did continue on a path toward a meaningful career in banking, with Chase or another institution admirable of WaMu’s practices in this area.

Takeaway?  In an increasingly electronic, mobile, Facebook-Google-Amazon-Groupon marketplace, face-to-face customer experiences matter more than ever.   As a business person, who do you want facing off with the customer?  We’ll take the knowledgeable, engaged salesperson every time.  Sure, they cost a little more, but it’s a cost of doing business.

RIM Playbook, R.I.P.

By Elliot Scott

A soccer teammate of mine from high school (let’s call him Ronaldo) now works as a finance manager in a company that manufactures equipment for the construction industry.  With the decline in the real estate market, times have been tough for the company and its sales force.   Inside the company the pressure to change the sales incentive plan is builidng.    

Several years ago, when times were good, Ronaldo’s company changed the sales incentive plan.  They moved from a commission plan (sales people paid a % of revenue on each sale with the commission rate tied to level of discounting) to a plan based on % attainment of an annual revenue quota, measured on a quarterly year-to-date basis.  Since that time there has been a gradual crescendo from the sales force of, “The old plan was better.”  But are the salespeople complaining simply because payouts are down?  Or are they right that for their situation the old plan really is better?  Since I am a student of the game (sales comp, not soccer) Ronaldo asked me if I agreed. 

Being a consultant, my answer was simple and direct:  “Well, that depends….”

The choice of whether to use a commission or a quota-bonus mechanic is one of the cornerstone decisions in any sales comp plan design.  Fortunately, there are a number of rules of thumb to help you evaluate the options, if not come to consensus.  The ones most relevant to Ronaldo’s company are:

1.  Is their sales force a “hunting,” new business acquisition sales force, or is there more “farming,” or account management?  Commission is much more common and appropriate in hunting sales forces where the immediacy of commission is a key lever to attract and retain the appropriate type of sales person.
   • Well it turns out that yes, this is a hunting sales force, and management would like them to be even more aggressive.  Score 1 goal for commission.
2.  Is territory opportunity balanced?  If territory opportunity is even, and it is difficult to argue that any group or region has a far greater likelihood of selling much more than another, then commission works very well.  If not, the use of quotas can level the playing field by managing the inequity in territory opportunity.
   • In Ronaldo’s company, territory opportunity is not well balanced.  Quotas range from $800,000 to $2.5 million.  That’s not enormous variation, but score 1 goal for quota-bonus.
3.  Even if territories are not perfectly balanced, is there an objective and accurate way to measure territory opportunity?  If not, then it will be difficult to set quotas based on anything other than past performance, which increases the perception of the “success penalty”:  If sales people believe that doing well this year will cause their quotas to rise significantly next year, the motivational impact of the plan is diminished and the case for a quota-bonus mechanic is weakened.
   • Ronaldo’s company lacks good data on the market potential in each territory, and quotas are based primarily on the prior year’s performance.  The sales force has a high level of distrust of quotas, not only because the overall number cannot be allocated objectively and fairly to each territory, but also because the overall number has been unrealistic for a few years.  Score 1 for commission.
4. How “lumpy” are the sales?  Quota-bonus plans work best in environments with low variability of sales performance.  If a $2 million quota is expected to be attained with 1,000 sales averaging $2,000 each, a quota-bonus plan is more applicable than in an environment where a $2 million quota is expected to be attained with 2 sales of $1 million each and quota attainment might easily range from 0% to 300%.
   • In Ronaldo’s company, sales range from $5,000 to $500,000, with a few outliers up to $20 million.  If you can manage the outliers, a quota-bonus plan should be workable. However, sales are sufficiently variable during the year to require a quarterly year-to-date quota-bonus mechanic.  This is a common mechanic but adds complexity, further diminishing motivational impact.  Nevertheless, quotas are workable.  So score 1 for quota-bonus.
5.  How important is the sales person’s role in discounting?  Commissions offer a simple and effective way of focusing the sales person on discounting.  A rate table based in whole or in part on level of discount allows a sales person to immediately understand the impact to his/her pocket book from each level of discounting.  With a quota-bonus mechanic, the “line of sight” to discounting is seldom so clear, and often involves the calculation of an overall weighted average discount, that changes with each sale
   • The sales force at Ronaldo’s company has significant influence on discounting in most sales.  Score 1 for commission.
6.  Is it important to balance sales across product lines?  Is it critical for the sales people to sell a certain specified amount or mix of products in order to meet strategic objectives, or manage production or inventory?  Or is achieving maximum revenue at minimum discount the only thing that matters?  Quota-bonus plans do a better job of managing the former.  With a commission plan, the sales person will want to maximize commission on each sale, with little regard for the mix of sales over the course of the year, and will sell to his or her comfort level.
   • In Ronaldo’s company the answer to how important overall sales are relative to the sales of each component part depends on who you talk to.  No score on that one.

Based on my conversation with Ronaldo, and the final score of 3-2, I’d say the sales force has a good case for moving back to commission.  A commission plan is workable in his sales environment and will be more effective at driving the results most important to the company:  new business acquisition and lower discounting.

And while it is true that sales people, like the rest of us, prefer compensation plans that pay them more money, I doubt that is the only reason they prefer the old plan.  In my experience, most sales people prefer commission.  The motivational impact of knowing what you will make for each sale not only drives performance, it also adds interest to the job and a sense of ownership, particularly if you are money motivated and independent…as good sales people tend to be.

The company should also not overlook the following:  (a) Listening and responding to the concerns of the sales force will build credibility, loyalty, and motivation.  And (b) it has been several years since the plan has changed.  The novelty of change and the ability to use the new plan to help communicate and reinforce key sales strategies should both have a positive impact.

As a final note, while a move towards a commission based plan appears to make sense in this case, there are also reasons to retain the influence of quota attainment in the plan.  For this company, the main argument against moving to commission is territory imbalance.  So the influence of quotas should be retained but made secondary.   We’ll address techniques for this in a later post, but feel free to contact me at escott@newsigma.com  if you have a specific question I can help you answer.

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.  

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.

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.”

Putting the Horse Before the Cart in the Utility Industry

Recently I exchanged messages with a colleague who was disappointed that her sales compensation design initiative for 2011 got stalled.  “All that work and nothing to show for it,” said the director of compensation for a fast-growing, mid-sized software company.  “They just weren’t ready to pull the trigger,” she said of senior management on what would have been a major change for a field-based team of technical specialists.

Those of us in the sales compensation profession often take such change requirements for granted.  Yet the pay plan governs how salespeople earn a portion of their total cash, cash used for mortgage payments, school tuition, weekly groceries, and the like.  While a change to the program might not influence the actual cash earned, the salesperson perceives he or she must now change their daily routine – difficult for anyone, and in particular for a relatively autonomous, confident sales professional.

No less challenging is the case where leadership requires behavioral change from a team of field professionals thinking of themselves not as salespeople, but rather account managers or some job role other than sales.  The utility industry provides a keen example. Take large energy utilities, like Southern California Edison, Pacific Gas and Electric Company, Florida Power & Light or Southern Company.  Historically, account managers maintained service-based relationships with large commercial users to cover rate schedules, address service issues as they came up and inform customers about the availability of various voluntary programs and services.  There was no “selling,” so to speak.  Yet with the advent of customer choice in more recent times, and an ever increasing emphasis on energy efficiency and renewable resources, utility companies started facing many of the same pressures found in competitive industries.  This included the need to motivate or change customer behaviors; field sales, or…um, account-management, was an obvious lever for doing so.

Bob Kinert is a 30-year veteran of leading sales and service organizations in the utility industry.  He reflects on a campaign at one of the nation’s largest investor owned utilities that hinged on its field account managers convincing customers to adopt discretionary programs, like energy efficiency, and demand response.

“Essentially, these are consultative sales roles: listen to the customer, understand their issues, develop and present the customer with solutions and influence them to take the desired action–help the commercial customer realize they can be more competitive if they change how the manage their energy.”

These non-threatening concepts can meet significant resistance when applied to an industry and culture that views itself as being all about service with little or nothing to do with sales.

“You’ll get an account manager that will say they’re not a sales person,” Bob continues.   “Their perception of sales is outdated and not positive.”

The irony is these professionals routinely do many of the things a salesperson has to do under the mantle of service.  What’s often lacking though is some of the key sales skills imbedded in the sales process.

In working through the transformation at a prominent Fortune 200 utility in California, Bob focused first on the process and skills enhancement, long before any consideration for changes to the compensation approach.

“We had to get people to realize they’re in a consultative selling role, without alienating them.” 

This meant focusing on organizational and individual sales capability as well as change management without overemphasizing goals and outcomes.  Good service representatives know how to establish relationships and deliver on customer driven needs, but don’t necessarily follow a structured process for proactively seeking out and capturing every opportunity. 

Each step of the transformation, compensation included, is contingent on the cultural shift.  And the shift isn’t one sided – i.e., management can’t expect to pull the account managers over to their side while holding their own position.

“Each side has a range in which they are willing to move.”  Bob references “Latitude of Acceptance,” a crucial part of the Social Justice Theory (SJT) that deals with people’s change in attitude.  “For a lot of managers, the pace of change may be slower than preferred, but for the account managers, a more gradual approach is simpler, less risky.”

Regarding a new, risk-based compensation approach, Bob expected the transition to be a gradual process as well.  “We had to see the culture shift first, and then introduce concepts such as market potential, goal-setting logic and goal reasonableness.”

I worked with Bob during this period to help design a new sales compensation program.  It was, relative to other engagements, a far more inclusive process with field management, very data driven, and conducted at a much slower pace.  Bob’s mantra was, “You have to involve the people who will be impacted by the change in the change process.   Sales compensation isn’t something you can craft behind closed doors.” “Go slow to go fast.”

As a result, the utility account managers accepted the change in the approach to compensation, taking it in stride with little fanfare.  As anticipated, some veteran account managers embraced and leveraged the compensation opportunity more than others and did quite well.  Not surprisingly, new people hired into the organization from the outside with a consultative sales mindset tended to benefit the most of all.   

I thought of how the lessons from Bob’s experiences applied to my colleague’s situation at the software firm.  She shared with me that leadership kept a tight lid on its plan to introduce the new, at-risk compensation plan, for fear of “spooking the herd.” 

“But people found out about it anyway, and what they heard wasn’t always accurate.”

The concern boiled up through field management to the company’s senior leadership.  Leadership’s initial reaction to this feedback was, “We’re going to do this, and the reps will just have to accept it.” 

So the work on designing a new compensation plan continued right through December.  But eventually the leadership believed that flipping a switch to an at-risk compensation plan would alienate the team, and felt the company couldn’t risk this group alienating customers.

“We tried to move too fast, and didn’t involve the field to the extent we should have,” she said in retrospect.  “And when we did get their feedback, things like ‘we didn’t sign up for this (sales-like job),’ we dismissed it by saying, ‘get over it.’”

The time she and others spent working on a compensation approach that wasn’t implemented could have been used instead on teaching processes and practices paramount to the job role.  Compensation is the easy part, once the organization is ready.

Bob Kinert is Principal at Kinert Consulting.   You can reach Bob at (916) 337-6929 or bobkinert@comcast.net

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