SalesCompInsights

Getting the Most Out Of Your Newly-designed Program

As a manager or administrator of the sales compensation program, what should you care about?  What measures characterize a well-functioning sales incentive plan?  You’re in an excellent position to assess how well the plan is working.

Getting Started

Can you imagine a car without instrumentation?  Your only indicator of success would be a safe, timely arrival at your intended destination.  The scenario is analogous to a sales compensation plan where payments issued are the only measure of success.  Like cars, complex incentive programs need regular monitoring and maintenance, less something unexpected goes wrong and costs dearly to fix.

Most managers of incentive compensation accept that ongoing measurement of the plan’s performance is good business practice.   The problem lies in execution.  What should be measured?  How do we get the data?  What do we do with the information?

Start by focusing on a few fundamental measures.   Your car, for example, is a sophisticated piece of engineering.  There are plenty of things that can go wrong.  Yet most drivers focus on the speedometer, fuel gauge, service-engine light and thermostat.  For each of these devices there are standards that indicategood operation and potential problems.  Without these standards, the underlying information is of little value.

For your sales compensation program, we suggest four key measures and corresponding standards you monitor to ensure your plan operates properly:

1. Pay Distribution
2. Performance Distribution
3. Return on Compensation Investment
4. Sales Time Allocation

Pay Distribution

Most companies track what they pay their salespeople and  standards for responsible pay.  Often missing is measurement of an effective pay distribution for specific classes of salespeople.

The measure starts with acceptable ranges of pay around a midpoint or median amount.  Ideally your standard comes from a published compensation survey that covers the specific jobs in your sales organization.   Compensation managers often fret over the “right” survey, while sales managers usually discount any survey referenced for their team.  The most important thing is to find a survey(s) that your stakeholders agree represent your industry, and then use the information. You want the midpoint (50^th), 25^th and 75^th percentile pay amounts for eachjob.  These amounts include base salary, incentive target, incentive actual, target total cash (a.k.a., on-target earnings) and actual total cash.

Pay Distribution Sample

Each quarter you want to measure the degree your pay distribution represents a normal distribution around your standard range.  A compressed curve, where your 25^th and 75^th percentile actual incentive pay is well inside of your standard range, suggests lack of meaningful pay differentiation across your job group.  A bi-modal curve, where distributions concentrate around the 35^th and 65^th percentiles, may reflect underlying causes such as poor goal setting or territory alignment and result in a very expensive outcome, especially when the plan uses accelerated pay rates for above-goal performers.

Performance Distribution

Similar to pay, we suggest analysis of acceptable ranges of performance.  Managers fret here, too, over the right standards of performance distribution, which can be measured on a both absolute and relative basis.  Don’t sweat the details.  With anything close to a normal distribution across a large population of like jobs, your plan would appear to be working well relative to a performance standard.  Obviously a normal distribution that is set left or right of your standard calls into question goal reasonableness, as does bi-modal or skewed (biased to the right or left of median) distributions.

Performance Distribution Sample

If your plan has multiple performance components, your options are to measure each component separately, or calculate weighted average performance using an attainment rate from each component.  Either way, the more components in your plan, the less clear and consistent the company’s determination of “good” salesperson performance.   It’s a reminder to keep the plan simple.

Return on Compensation Investment (ROCI)

On our sales compensation dashboard, ROCI is like the check engine light on your car.  It lights up when something is amiss, and you or a trained expert must then dig a little to find out why.  I once paid $130 for a mechanic to diagnose what turned out to be a loose gas cap.  The ROIC measure is often not a practical means for measuring the health of your sales comp plan, but we argue it’s necessary in some form.

At the heart of this measure is an answer to the question of, “what performance (return) should we expect for the amount of compensation (investment) we spend?”  Industry standards range from useful to irrelevant, depending on your business and the operational diversity of your peer group. If the standard isn’t already well known to you, it’s probably difficult to obtain.  That said,  published surveys with ranges of acceptable ratios for pay-to-production by job type are available for some industries.  If the published survey doesn’t cover your industry or jobs, you can initiate a custom survey using a third-party to maintain participant-data confidentiality.

The majority of companies we encounter use an internal standard of ROIC based on external or market-driven standards of target pay amounts and the company’s revenue or gross-margin goals.  Logic being, if the company pays competitively and hits its financial objectives, then it is “safe” — for now (i.e., the check engine light isn’t illuminated).

What if the plan uses multiple performance components?  Or it includes supplementary components, like those for short-term promotional campaigns (a.k.a. “spiffs”)?  Another complexity arises when performance uses measures other than financial units, making comparisons of pay-to-performance rations across multiple measures meaningless.  In either case, managers can track what they pay for each component, and assess whether the spend is worth the result.  The more components, the more likely one or two components will be ineffective– i.e., not producing compensation.  Administratively, the company spends money supporting a plan component that isn’t producing fruit.  And from the salesperson’s perspective, the opportunity isn’t worth their time. 

Sales Time Allocation

“Whoa,” you say.  “I manage the sales comp plan, not the salespeople.”  Fair enough.  But the reason you love sales comp is because of its implications for the company’s profitable growth. 

Devilish Details

Of course, you can’t rely exclusively on these four measures to ensure the health of your sales compensation program.  Once you have nailed the basics, you should explore upgrades to your dashboard to include other dimensions, such as administrative expense per payee, or number disputes per incentive dollar. 

The time should be now to start measuring your sales compensation plan effectiveness.  Come third quarter, questions will surface around what’s working and what’s not.  Armed with output from your four plan-effectiveness measures, you’ll have definitive answers.

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Extinction of the Sales Rep?

Like the internal combustion engine, direct selling persists despite technology and cultural shifts suggesting its demise.  Certainly, many of us in direct-selling roles consider much of today’s technology critical to our selling success.  But the fundamentals of sales success are as old as the wheel.

Notwithstanding there are bold pronouncements of how the internet will significantly marginalize the direct selling role.  Selling Power magazine publisher Gerhard Gschwandtner goes as far to predict that in nine short years only 3 million of the roughly 18 million salespeople employed in the U.S. need report for duty.  “In a digital age, every part of the sales and marketing process can be automated,” reports Selling Power.

The article goes on to say that increasingly, customers will make decisions based not on slick sales demos and well-timed follow up calls but on the advice of peers through social networking.

If you’re a salesperson reading this, you know there’s always been a social network, and you’re rather certain you’ll always be able to get a job as a sales professional.   Sure, customers get a lot of information that wasn’t available before.  You do also and use it to your advantage.

More at issue is how the sales compensation professional accounts for these multiple channels of influence relative to that of the salesperson.  One director of compensation for a consumer products company explained, “Customers used to rely exclusively on the sales rep for a lot of the information they now get over the web.  Our reps don’t have the same degree of individual influence (on customer buying decisions), but we pay them like nothing’s changed.”

Indeed, a recent study by Deloitte & Touche suggests that most companies have not found the right way to pay for sales performance, with significant implications for sales productivity. 

One would think we’re not prepared for this new age.  Like having bought an electric car and finding its plug incompatible with your garage electric socket.   But in the world of sales comp we’re convinced that all seemingly new trails have been previously trodden.  So we refer to our shelves and dust off the volume on “Alternative Channels.”  Not surprising the lessons in this volume seem particularly apt to the likes of Twitter and Facebook.

It goes something like this:  rep, having spent all available selling time with end users, must now shift some time to those “channel partners” influencing the customer through alternative channels.  Do we pay the rep differently for this shift in behavior?  Of course we do.  The solution could be as simple as measuring all sales volume in a particular, geographic territory, but paying at a reduced rate in recognition of the greater efficiency (and incremental cost) associated with the alternative channel.

This is a simple example.  Your reality may be a bit more complex – e.g., channel partner influence spans multiple, direct-sales territories.  At a minimum you may be looking at a less-aggressive pay mix to accommodate a job role with less direct influence and a higher skill level.  Or maybe performance measures not tied to transactional sales volume.

Case in point, GlaxoSmithKline reported changes to compensation for its direct sales reps, away from prescription sales volume and toward customer feedback, knowledge of the business and overall contribution to the business units they serve.  While at the time of this writing we can’t be certain GSK’s changes come in response to the massive number of tweets, posts and walls related to its product, we’re pretty sure the model of putting armies of direct sales reps on the ground of healthcare facilities, loading them with free samples, pens and bagels, is long in the tooth.

And while the industry overall has pared back considerably the number of direct selling jobs over the past three years, most firms are now hiring – GSK posted ten new sales representative jobs in the last 24 hours.

In fact, many companies across multiple industries appear to be on a sales-rep-hiring binge.   Far from being on its way out, the direct sales rep is in demand.   Three-quarters of the respondents in SalesGravy.com’s annual survey of sales hiring trends say they plan to hire salespeople in 2011.   A tech client having returned from her annual sales meeting last week said over 40% of the audience had less than 12 months’ time with the company.

Are we in a bubble-building mentality, soon to wake up and discover we have too many salespeople for the work required?  In all respect to Mr. Gschwandtner, we think not and hope his prediction is way off base.  The direct sales rep of the future will succeed in part by leveraging massive amounts of information that until recently didn’t really exist.  It’s a different, more complex job role though, and companies hoping to reap productivity from these jobs must adopt their sales compensation programs accordingly.

Know Which Investments Will Pay Off

As referenced earlier on this site we recently hosted a web session with Steve DeMarco, VP Worldwide Sales at Xactly, and polled the 500+ registrants for their views on sales force investments.

Not surprisingly given recent economic trends, many companies are adding headcount, training those resources, and arming them with the content and collateral to help them be more successful.

Interesting, it was additional headcount or training that over 20% of the respondents found did not provide meaningful return on investment (ROI).

The good news for companies making or contemplating investment in the sales force is that many folks appear satisfied with the return on such investments. 

Whether you’re satisfied or not assumes some mechanism for tracking your ROI in this area.  Clients frequently ask how they measure ROI in the sales team.  Simply, ROI is the incremental gain in sales from each incremental dollar spent on the sales team and various support mechanisms.   More complex is the interpretation in short-term trends (“we’re spending more as a percent of revenue this quarter than last”) and competitive benchmarking (“we spend 7% and our competitors 9% — is this a good thing?”).

Making sense of data derived from sales force ROI analysis is a little like fixing your dishwasher – seems simple at first but you can quickly get in over your head and have nothing to show for your effort.  Our advice here is select one or two measures that address what’s on the mind of your executive team (related to investments in the sales force, that is).  

The CFO of a medical device distributor told us recently that he asked his head of sales comp why the company’s sales comp expense is increasing when revenues are flat.  The sales comp head apparently replied, with a somewhat blank stare, “Let me get back to you on that.”  The executive told us that was about three weeks ago.

This is a big topic with big implications.  Stay tuned for examples and cases of measuring ROI on sales investments and the implications for sales incentive design and program management.

David Stein, founder/CEO of ES Research Group, Inc. and publisher the popular blog “Commentary on Sales Leadership” for leaders of customer-centric enterprises, recently sat down with our own Mike Meisenheimer to discuss trends in sales compensation.

In this column, “Show Me The Money,” David and Mike observe companies having seemingly everything in place for sales success — hot product, well-oiled sales methodology, tools, support, references, technology, training, coaching, leadership.  But if the sales compensation approach is poorly designed or managed, salespeople won’t stick around, or the company faces the difficult scenario of having to correct an overpay situation (and then the salespeople won’t stick around).

Mike describes during the interview what are three common symptoms of poorly-managed plans:

“1) Under-merchandising the plan launch. Rather than a robust strategy that involves sales management and engages the field, an email comes from corporate; 2) Limited progress reporting; plan participants don’t receive regular updates on their performance; and 3) Lack of detailed incentive reporting.”

There are good insights to keep in mind as you work over the ensuing weeks to redesign your company’s sales comp plans for 2011.

In our last post on this topic we shared ways that companies in the banking and other regulated industries change their incentive plans to address regulatory concerns.

Now we’re turning our attention to the management side of the equation — i.e., processes, standards, decision accountability and tools.

My first experience managing incentive plans in a regulated environment was with a large brokerage firm.   The industry was still reeling from a few high-profile incidences where brokers were found pushing mediocre investment products in part because those products paid them the most commissions.  Our company vowed to NEVER wind up on the front page of Section C in the Journal.

One of my first observations was the fragmented nature of our company’s incentive management practices.  For example, product groups would develop promotions and offer incentives for the salespeople to sell certain products without any consideration of how those sales could distract from other sales initiatives.  Similarly, sales managers could run their own campaigns without any thought to program ROI, regulatory compliance or sound incentive design principles.

The second issue was the degree of transparency related to how the company’s various programs paid.  While I started to build an inventory of the various incentive programs out there, it wasn’t complete and I could not easily say how much the company paid each sales person or for each product.

That last question is one that for many incentive managers falls in the “nice-to-know-but-I-have-bigger-fish-to-fry” category.  For me it did until one Tuesday in late November.  The NASD (now FINRA), governing body for the securities industry, issued a request for the payment amounts going to each salesperson for a particular bond type over the past two years.  Date request due: November 29 — the Tuesday after Thanksgiving.  I’m reading this memo on the Tuesday before Thanksgiving! Man how I would have loved to, after first ensuring the email wasn’t a prank by someone, push a button that would crunch the numbers and issue the report while I was packing up for the Thanksgiving holiday.

This wasn’t to be.  My group worked the entire weekend (downtown San Francisco is terribly depressing on Thanksgiving day — not so much as a turkey sandwich is available). We had no formal way of collecting pay program details and ensuring those programs were in line with our standards (of which we had very few).  Worse, we did not have a centralized database for storing performance and pay information.  Trying to collect this information was like a scavenger hunt.  Reporting these data in some coherent fashion was yet another humbling exercise.

Somehow I survived and the firm is still in business.  But the memory still stings.  The lesson: know what plans you have and how they pay.  This goes for regulated and unregulated firms alike.  If you can’t answer this question within 48 hours and a few easy key strokes, then prepare to miss your favorite holiday.

Better yet, take note of these steps:

Step 1: Document Who’s Accountable for Which Decisions and What Information

Critical processes such incentive plan redesign work best when the company has established clear accountability for each process step and decision.  Use a reliable accountability matrix, such as RACI (Responsible, Accountable, Consulted, Informed), to delineate roles.  Some regulatory bodies require the involvement of your company’s board or risk officer for major incentive policy decisions.

Step 2: Map and Optimize the Critical Processes

We think of processes for incentive management falling into four buckets:

1. Evaluation of Results
2. Design or Redesign of Plans/Programs
3. Implementation of New Plans
4. Administration, Reporting and Dispute Resolution

Within each bucket is a set of processes to ensure these things get done effectively.   At it’s core, incentive management focuses on the administrative processes — after all, if you’re salespeople don’t get paid, they don’t sell.  Yet there’s much more.  My Thanksgiving from Hell required processes for reporting and evaluation, but a lot of the pain came from the fact that the company had no good process for designing new programs.  Each bucket is important and requires clearly mapped processes.

Step 3: Establish Standards for What Makes A “Good” Plan

In the first part of this series we discussed many of the guidelines that banks are using in an effort to align with the Fed’s pay-risk-mitigation principles.  These address plan features and policies like base-incentive pay mix, types of performance measures and goal, etc.   There are principles and standards for the management practices as well.  E.g., number of acceptable pay adjustments per total payees, number of times the steering committee meets to review plan evaluation results.  Each of the four buckets above should have a set of standards that management compares to the company’s actual practice.  Any gaps between standard and actual form the basis for change.

Step 4: Leverage Tools Appropriate for Your Incentive Management Requirements

Many companies we encounter can effectively manage their incentive programs using spreadsheets and emails.  Many cannot.  This was certainly the case for the brokerage firm mentioned previously.  The company knew what it had was inadequate but viewed the solution as being too complex and too expensive to pursue.

Tools for incentive management can be relatively complex.  Many companies use multiple systems to determine sales performance and complex plan rules for paying the salespeople.  Yet there are good systems on the market today for managing such complexity, and you needn’t try to automate all processes at once to make an impact.   Focus on the critical processes first, optimize those processes by removing design features that add complexity but aren’t necessary for meeting your strategic goals,  principles and requirements.

*   *   *   *

Building solid processes, decision accountability, standards and tools enables a well-functioning incentive system and just might help your work-life balance.  After all, requests for information always come right before a holiday.

Anyone who has ever managed an ICM system transformation has a story to tell, and some advice to pass on.  We find particularly interesting those cases where the management considered third-party vendors – Callidus, Varicent, Synygy, Xactly and the like – but ultimately decided to build the system in house.

We recently caught up with Linda Quong, who as VP of incentives for a major brokerage firm helped lead a build-versus-buy decision that resulted in a build.  Her advice: consider the new system a means to an end, sell to your sales force and keep expectations in check.

SalesCompInsights: What was the situation when you were considering a new system?

Linda Quong: “We had new, very ambitious leadership that wanted a revolutionary compensation approach.  The plan we ended up designing required precise, daily data – actually intra-daily data – and included over 100,000 transactions each day.”

SCI: How did you determine which vendors to consider?

LQ: “ICM is a very niche, specialized market.  There were only a handful of vendors that had done anything close to what we were asking for.”

SCI: Were there any that stood out?

LQ: “Not really.  All of these applications appeared to do the same things, though each one got there a little differently.

SCI: What was the deciding factor to build a system in house?

LQ: “Budget and time.  The upfront costs of a third-party solution just didn’t compare to what we could do in house.  Plus, we had an extremely aggressive deadline to deliver the system.  To try and implement a new third-party solution in that timeframe would have been extremely risky.”

SCI: What about the ROI from reduced errors, more sales productivity and less administrative effort because of a more flexible system?

LQ: “Here’s the thing: we had very complex plans, unreliable data and deference to the sales force.  These were major barriers to getting a sufficient return on the investment.”

SCI: Understood, but didn’t the vended solutions offer a lot more flexibility and scalability?

LQ:  “Scalability, yes.  Flexibility, not in all cases, and certainly not without a steep price for customization and the potential issues that might have caused with future upgrades. Our in-house team could fulfill most one-off customizations we requested, whereas some of the third-party solutions hesitated a bit when confronted with some of our requirements. Ultimately, the vendors thought they could deliver, but in most cases we would have been the guinea pigs for their development teams.  To me, this defeated part of the purpose for using a third-party system, which was to rely on their established technology. That said, I think in hindsight that we would have been better off long term with a third-party system.  But in the short run, we couldn’t base ROI on reducing our administrative headcount 30%.  That just wasn’t going to happen unless the out-of-system issues I mentioned earlier were resolved.”

SCI: Interesting – if you had to do it all over again, you’d go with a vended solution.

LQ:  “That’s right, especially with the way the business environment has changed in the last couple of years.  Non-core functions are getting cut back, and more jobs are being outsourced.  And I think the vended solutions have continued to evolve and are much stronger now.  Before, we had a well-staffed, responsive IT team almost completely dedicated to us.  We could hire administrators to build a new plan in the system.  The company runs those functions pretty lean now.  More and more, outsourcing of non-core functions makes good economic sense.”

SCI:  Has the company simplified the plans, and become stricter on allowable adjustments and exceptions?

LQ:  “Not really, but I think a vended solution can more effectively address these things.  If you’re paying big bucks for a new system whose success is contingent on these issues getting addressed, well, those things had better get addressed.  Suddenly, there’s a lot more riding on resolving these issues than just background dissatisfaction.”

How do you do this?  What makes the vended solution different?  Certainly you were investing big bucks in your home-grown system to make it work.

LQ:  “The vendors do a very good job at showing off all the application’s bells and whistles.  This wasn’t so compelling for our finance team, because they were comfortable with their own models and access to data.  The sales force was a different story,  though. They had no comprehensive reporting or analytical tools, and were using various one-off solutions. Had we sold reporting and analytics to them, then sales leadership would have been powerful allies in fighting for the required budget.”

SCI:  We hear a lot of companies say that they’re skeptical of vendor demos, because demos are not a good reflection of how the system will run in the company’s environment.

LQ:  “Companies should be skeptical.  Otherwise, people get bowled over by all the cool features and lose sight of the work and the importance of having the right source data necessary to make these systems work correctly.  My point is sales and other functions in the company, like our business intelligence group, had a lot to gain from the reporting and analytical features in the system.  We had a very prominent sales leader who, if he thought a tool was critical, could see that we made it happen.”

SCI:  So sell to your sales department

LQ:  “Yes, if sales has a lot of influence in corporate decisions.  Keep in mind it’s a slippery slope.  If you oversell the system capabilities and then can’t deliver, you may be out of a job.”

SCI: Any other advice you’d provide to our readers?

LQ:  “Focus on one or two core functions, like reporting and analytics, which are really broken in the company today.  Build very detailed requirements on those functions and make sure vendors can convincingly demonstrate how their system addresses these issues.  Use your network to find companies using the application that you’re considering, and spend some time with those administrators and sales people to understand the application’s benefits and tradeoffs.  Take a hard look at where you will be in 3-5 years.  It’s easy to stay with the status quo to get you from quarter to quarter, but is that going to be good enough to meet future business needs? Finally, look at a system as a lever for addressing non-systemic issue, like unreliable source systems or burdensome management processes.  There’s no silver bullet, but a new system can be the impetus for a real transformation.”

Here’s the situation: years of sustained growth, multiple acquisitions, complex sales compensation plans, manual and unreliable systems, ongoing disputes from the sales force on payment accuracy.  We met with a sales operations team of a large financial institution back in 2007.  They were done with the band aid approach to fixing the system.  Time to transform the entire operation, get ahead of the curve, become a strategic resource to the organization.

The situation is not unique.  We’ve listed what are common issues that can drive a complete transformation of the incentive management function:

• Incentive management (IM) technology platforms are disparate and lack functionality;
• Processes for plan adjustments and redesign lack analytical decision-making rigor;
• IM staff is reactive, not proactive, in keeping the incentive plans aligned with the needs of the business;
• Leadership is unclear as to the effectiveness of its incentive compensation investment.

In solving these issues, the company needed to ensure its incentive compensation plans were effectively managed, and aligned with the needs of the business, and enabled through a robust technology platform.

The solution approach focused on three discrete areas:

• Incentive operations: people, processes and tools that report performance and payment data, address disputes and adjustments, and provide analysis for ongoing incentive plan alignment;
• Incentive compensation plans: structure and policy for motivating the required behaviors and delivering compensation to specific sales and service job roles;
• Technology: applications for measuring and reporting sales and service performance, and facilitating incentive compensation management, including goals, payments, analysis and ongoing administration.

Subsequently, the project approach included three work streams designed to identify current state practices, desired-state practices, gaps and action plans for closing those gaps.

The company formed a task force to execute the three-phase initiative, along with an executive steering committee to guide progress and decide on structural elements.  The 30-week effort provided these outcomes:

• Formation of a formal IM governance structure, including:
  • Decision rights and accountabilities for the analysis, redesign, approval, implementation and ongoing management of the incentive plans;
  • A cross-functional incentive advisory panel chartered with the delivery of outcomes tied to an annual incentive management calendar;
  • An executive incentive leadership team chartered with addressing recommendations from the incentive advisory panel;
  • The role and staffing requirements for staff positions responsible for execution of incentive management functions;

• A comprehensive redesign of its incentive compensation plans for key jobs to realign goals and payment opportunity with the company’s strategic objectives; the redesign included development of plan design principles and operational standards to guide future plan realignment efforts;
• Funding and implementation of a “best-of-breed” incentive compensation management application.

By using a comprehensive approach, the company transformed its incentive management function to one capable of meeting the needs of the business for years to come.    The business impact includes:

• An increase to the company’s return on its sales compensation investment – more revenue and net operating income relative to the sales and service compensation spent;
• Increased sales and sales support productivity through a reduction in the number of sales and staff time previously engaged in IM activities;
• A reduction in the time required to cost-model and introduce incentive components and campaigns for new products;
• A reduction in the number of performance and payment reporting errors tied to sales credits.

Granted, this is a tough pill to swallow, but it’s a very comprehensive approach.  Just fixing the plans, the technology or organizational structure is piecemeal.   It’s a band aid.  Sound familiar?  Time to transform.

A question we hear frequently in our line of work is, “who owns the sales compensation program?”  In principle, it’s the head of sales, as sales leadership theoretically has accountability for motivating the sales force, and sales compensation is a key motivational tool.

In practice, the answer depends on the organization, and in many companies the ownership over sales comp isn’t clear.

According to OpenSymmetry’s annual sales compensation practices survey last year, 31% of the study’s respondents said the sales function is the organization’s designated owner of the sales compensation program.   Finance was the second most frequent response at 21%, ahead of HR at 17%.  In specific industries the numbers differ.  While the data are fairly consistent since we began the research in 1990, we observe in our work with financial services firms, retail/commercial banking in particular, a shift to finance and HR, away from the lines of business.

In cases where sales does not have formal ownership of the program, we have seen instances of sales leadership not engaged in the requirements phase and final determination of program changes.  This is unfortunate, as the sales leaders may not stand behind the requirements of the new program, yet must motivate his or her team to perform consistent with it.

Having formal accountability does not guarantee meaningful influence.  Leaders over the various stakeholder functions often debate over how best to fix the current plans, or even what’s wrong with them in the first place.  Too often we observe sales leaders making a case for change based on anecdotes and exceptional circumstances – e.g., “Competitor X just offered our top AE a $50k signing bonus.”

What’s missing from these debates is a set of principles, requirements or criteria for shaping plan design decisions, and data to indicate how well the current plan meets those standards.

We recently polled a group of sales, finance and HR leaders on the approaches they use to evaluate how well their sales compensation plans are performing.  Over half said they had no formal process for measuring plan effectiveness and ROI.  Clearly, there’s opportunity for fact-based decision making.

Below we list the most frequently-used reports for analyzing the sales compensation program.  Taken in aggregate, these reports help measure a company’s return on its sales compensation investment:

1. Group Pay Distribution: checks for plan participation rates, compensation efficiency and trending relative to competitive benchmarks for 25^th, 50^th and 90^th percentile earners ;
2. Individual Pay-and-Performance Correlation: identifies potential over- or under-pay scenarios – see scatter plot, left;
3. Quota Attainment Distribution: checks for quota reasonableness and identifies potential over- and under-pay scenarios and engagement issues – see distribution chart, below;
4. Compensation Cost-of-sales Trending and Benchmarking; measures total compensation (individual contributor, supervisor, region/division management) as a percent of revenue relative to competitive trends;
5. Administrative Efficiency Ratios; includes administrative FTE per payee, adjustment volume (occurrence and dollars) rate and system costs (hardware, software and professional-services fees).

(Charts courtesy of Xactly Corporation)

Evaluating the program through robust analytics is but one lever in an overall process for effective program management.  Other attributes include an annual calendar for planning and ongoing program-management activities, and clear accountabilities and decision rights for supporting the program across various stakeholder functions.

The company’s program requirements to a large degree dictate the data necessary for the ROI analysis.  Many firms can’t easily source the data needed, and thus require some investment to enable the analysis.  These are good investments because they provide greater overall program transparency.

The role of the sales leader is to motivate and engage the sales force to sell more.  Sales compensation is a key mechanism.  More important than program ownership the sales leader’s influence over plan change decisions based on objective criteria and analytical findings.

Welcome to our blog. 

SalesCompInsights was created by Scott Barton and Mike Meisenheimer.  In our 30+ combined years of working on sales compensation design and management, we’ve collected a lot of  intellectual capital and developed a few opinions on the subject.  So it’s time to share.  This includes reliable information on sales compensation principles, as well as current trends and research. 

Over time SalesCompInsights will continue to evolve based on feedback we receive, specific requests and changes in the broader sales compensation world.  

From time to time, we’ll ask our clients — professionals in sales, HR, finance and sales ops — to comment on industry trends and news that impacts sales compensation policy and administration.

We’d like to hear from you.  Please let us know if there are specific topics you’d like us to cover or comment on posts you find of interest.  Share with us your own sales compensation insights as they pertain to plan design, implementation and administration – things that worked, things that didn’t or questions you’d like to get answered.  We also appreciate a good story. 

We hope you find this site of value.  If you don’t, let us know that, too!