SalesCompInsights

Wait . . . what’s that?  The holidays are over already?  But there are still plenty of cookies to be eaten and I’m positive Scott is hiding a present or two that he meant to give me but just forgot.  Ah well, Happy New Year and welcome to 2011.  

For many companies, the next several weeks will be busy with sales meetings and new plan rollouts.  A cross-functional team worked on the designs, the CEO agrees the new plans will help him make his bonus and the CFO signed off on the numbers.   All we need to do now is send out the announcement email, right?  Wrong.  Three more boxes still need to be checked:

• Program documentation:  At a minimum, the communication package should include a participant guide, terms and conditions and a participant calculator.  The participant guide provides an overview of the plan, highlights performance expectations and explains the reward opportunity.  Also known as the 1 – 2 pager, the participant guide is role and sometimes person specific.  The terms and conditions document on the other hand details sales crediting rules, eligibility and other related policies.  Normally it can be applied across the program participants.  And the calculator is just that – a way for plan participants to run what-if scenarios and determine what they can earn in the coming year.  More and more the participant calculator is being integrated into the administration system.   FAQs, presentation materials and administrator play books should also be on the list if time permits. 
• Communication approach:  We can’t say it enough times; sales management needs to take the lead on communicating any plan changes.  The more significant the change, the more comprehensive the communication strategy.  Ideally the timing works out where the VP Sales can present the plan at the national sales meeting, followed up by breakout groups where sales leaders can discuss the details with their teams.  If not, we recommend an all hands conference call/WebEx, with similar follow up meetings.   When the change is really significant and part of a broader sales transformation, it might be time to think about a road show, job aides and other events.  In any case, we like to conduct a post-launch survey to test people’s understanding of the plans, find out what worked and what didn’t and if necessary, prepare a contingency plan.
• Administration preparation:  Hopefully your administration team and IT group  participated in the design process, gathered the associated requirements and made any necessary process/system changes.  If not, hopefully they received the new requirements and will have the process/system changes  ready for the first payout.  In either case, the changes must be tested and validated prior to opening up the system to the field.  Nothing will kill the new program faster than incorrect checks (except for maybe a sales leader that opens with “well, guess what they did to us this year”).   Once the calculation rules are correct, the next order of business should be an easy to use, easy to understand incentive statement where a participant can see a summary of their performance, earnings for the period and the details that went into calculating the payment (i.e., the transactions).  Managers should be able to easily see the results for their team and other stakeholders will likely have a list of reports that they need. 

Unfortunately, we observe many companies that invest significant amounts of time and money into the design process and assume they are finished.  Certainly the finish line is near, but next several weeks will have a big impact on the success of your new plans.

Documenting Your Sales Comp Plans, and Preparing the People Who Must Use Them

If you’re like us, this month has you focused on documentation of new compensation plan rules.  This is a thankless yet critical endeavor.  Done exceptionally well, clear, complete documentation might put a significant dent in the numbers of queries and disputes coming from the field.  Done poorly, communication of sales comp plan changes could put a dent in your company’s sales productivity or contribute to a class-action lawsuit.

We’ve all heard the request, usually from a sales leader, to “get the plan details on one page.”  The request is reasonable from a sales manager’s perspective.  As a sales rep my attention span lasted about one page, assuming the text font was around 10 points.  If I got to Page 2 and didn’t see any dollar signs, I checked out, and trusted the company wasn’t out to screw me.

But tell your company’s legal counsel your aim is to document all the pertinent plan rules using 300 words or less, and they’ll say your setting the company up to be screwed by the sales force.

Can’t we all get along?  Indeed, you can meet both needs.  Salespeople need a concise summary of what’s changing and what they must do differently to maximize their income.  Sales managers need coaching on how to use the new plan to motivate necessary behaviors.  Lawyers need a document that leaves no room for misinterpretation of sales credit eligibility.

Sounds easy but consider a story of things going awry.  John Jones – not his real name but since this is true story I can’t have you all LinkIn-ing the real guy (and sorry to you real John Jones’s for getting drug into this by chance) – takes a job as a territory rep for a software company.  The company’s comp plan is about 20 pages.  For me, it’s a good read.  But John doesn’t think so and tosses it aside.  John understands from his boss his annual sales quota and the list of accounts he’s to target for new business.  Unbeknownst to John, one of his target accounts was recently acquired by another firm, headquartered outside of John’s territory, and covered by another territory rep.  Cut to the chase.  John discovers through some account tracking system that this target account bought a bunch of product, and thus as rep for the account he should earn credit.  Well, he didn’t because the other rep worked the target’s HQ contacts for a big deal that just happened to ship the product into John’s territory.

Any reasonable person would conclude John is not eligible for credit, because he did nothing to motivate the sale.  But John, like the loving family that went berserk when rich grandpa went on life support, turned his back on reason to focus on the big bucks at stake, and John’s attorney apparently thought the 30-page plan document enough unworthy to pursue a case against the company.  I’ll spare you the gory details.  Let’s just say you have the power to avoid such nastiness by ensuring your salespeople, sales managers and the company’s legal representatives know what they need to know about the incentive plan.

In this case, John could have gotten by just fine with the documents he actually read – nothing more than a quota sheet and list of target accounts.  Once he earned credit, the plan was such that he didn’t need an Excel spreadsheet to calculate the payment.  John’s boss should have known from the 30-page document that that accounts with locations outside the HQ’s territory are under the jurisdiction of that region’s sales manager (a peer of John’s boss, in this case).  And the company’s legal counsel might have determined – and I’m only speculating here – that the document was not sufficiently clear on the circumstances under which a territory rep does not earn credit for a sale into his/her territory.

Fortunately most of companies we work with do a good job on the 30 pager, meaning that it’s exhaustingly thorough on the conditions for credit eligibility, and ineligibility.  Their lawyers review and eventually sign off on the documents, and it stands the test of time, for a while anyway, because it pertains to all plans and programs and gets positioned as the final authority for any plan-related questions.

Unfortunately most companies do a poor job of ensuring their reps know how the plan converts sales credits into variable pay, and managers know how best to manage their people in line with the plan rules.  It’s absurd, but way too many sales managers, when asked by a rep, “Can I do this, or how do I get paid on that,” delegate the answer to a document or a phone number or a website.

Neither you nor I will solve this chronic dereliction of duty overnight.  It’s a journey, takes a village, and so on.  We have only a few more weeks, not counting Thanksgiving week, to finish documenting the plans before primping the dogs and ponies for our “Get Rich 2011” new plan rollout world tour.  Before hitting “send” to distribute your final draft to the approval powers, test 1.5 page summary and manager’s talking points with your mom.  Seriously.  She’s not going to violate your company’s confidential information, she’ll better appreciate what you do all day (my mom always says, “I think Scott does something in finance” – thus I apparently don’t walk my talk), and if she gets it, you can be reasonably assured your sales managers will also.  I’m not implying your sales managers have motherly instincts, or that they’re not capable of reacting to test material.  It’s just that I’ve found sales managers as testers of content tend to pass on the level of critique that such material deserves.  Maybe they don’t want to hurt the comp guy’s feelings for fear of getting thumbs down on a future exception request?  Or perhaps they do not want to admit they don’t understand something they think they should?  Probably they’re focused on hitting their numbers before year end.  Mom has no such agenda.  Get her on your calendar.  She’ll appreciate the gesture, and you’ll execute that much-needed simplicity check.  Two birds with one stone.

Assuming then you’re square with mom, you’ve gotten approval on your docs and decks and are ready to board the tour jet, think about how best to use the feedback you’re likely to receive during the road show.  This allows you to ditch those hypothetical Q’s that get used in the back-office production of Q’s and A’s.   Frankly, I struggle to come up with good questions during my sleep-deprived, turkey-induced late-November state of mind.  And delivering answers on the fly during the road show can come back to haunt you.  Explain you’re still working through some of the plan’s finer details, you want feedback, and that sales management can expect to get a full briefing on the complete set of questions and corresponding answers before the plan becomes effective.  Remember, you ultimately want your sales managers to answer the questions, versus passing the buck.

I could dedicate an additional 1,100 words to what needs to happen after the plans go live, since this is another area in dire need detail.  For now though, having exceeded by 1.5 page limit, I must trust that you are now prepared to or comfortable with mitigating some of the risks inherent in documenting your plans and preparing the people who must use them.

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.

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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.

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!