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.

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

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

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

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

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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.

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

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Sales Productivity Takes a Big Leap Forward

One of the most challenging decisions facing sales leadership is whether to move from a commission to a goal-based plan.  By commission, we mean the relatively simple approach of sales x payment rate = payment.  In a commission plan, payment rate gets the focus – bigger the better for a salesperson.  In a goal-based plan, it’s all about the goal or quota: goal achievement = payment.  There are derivations of these approaches: variable-rate commission schemes where the payment rate changes based on a goal-achievement threshold.  But fundamentally, the commission plan provides a target share of each sale to the rep, where the goal-based plan provides a target payment when the rep has met the required goal.

Two years ago we worked with the sales force of an incumbent local exchange carrier (ILEC).  In 2009 the sales organization adopted a quota-based plan after having used a commission plan.  The firm’s head of HR said moving to a goal based sales compensation program was relatively simple, and one of the better things they’ve done.

In 2008 the company was struggling.  Yet most salespeople earned variable pay based on recurring revenue from previously-done deals.  Many in management thought reps viewed their variable pay as an entitlement, and were not sufficiently motivated to grow new business. 

The program changes for 2009 included a minimum performance threshold for incentive eligibility, and use of both cumulative and discrete goals for monthly payments, depending on the job role.  The new program simplified the calculation methodology by using a standard approach across various performance measures, whereas the previous plan used a variety of calculation rules.  In exchange for the threshold, the plan offered higher payouts for over-goal performance.

During 2009 the company operated under bankruptcy protection in one of history’s worst recessions.  Yet the sales organization performed admirably, coming in for the year just below the goal.  In 2010, management kept the same basic plan structure but increased the goals and minimum performance threshold.   The company emerged from bankruptcy in October and finished the year at 107% of plan.

The company’s mood for 2011 is bullish.  Management has refined the sales comp plans to place more focus on strategic product sales.  A benefit to goal-based plans is management can shift strategic emphasis by changing the quotas and payment rates, without structural changes to the program.  This consistency is a welcome change for reps that grew accustomed to constant changes to the plan, and given all organizational changes. 

Goal setting and allocation is never easy.  “We did a lot of work behind the scenes,” says the head of HR.  “But this paid off in making the program appear simple and sensible to the field.” Management restructured the way in which marketing and sales worked together in goal setting by setting up a core team and calendar, with shared accountability for revenue goals across functional groups.  This helped the entire process become more transparent – a criterion for effective goal management in the sales organization. 

 “Managers often fear they’ll lose their best salespeople by making incentive pay contingent on goal achievement.  You have to take risks, and work through the fear.  If you have solid relationships – salespeople with customers and management with salespeople – fear of losing sales talent is probably overblown.” 

The company lost some salespeople during the transition, but most are back. They’re excited about the culture and being a part of what the company now stands for: a high-performing organization.  Setting goals at the sales rep level enabled the company to take a big leap forward.

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.

Leveraging the Power of Sales Compensation

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

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

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

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

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

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

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

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

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

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

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

Flexible With the Course While Staying True to Plan

Joe Glenn has been managing field-based and inbound-phone salespeople for over five years.  During that time his company, specializing in communications and computer-services, measured sales performance on a product-unit basis.  The approach is common in retail and consumer-sales environments, and can be effective for driving transactional behavior from salespeople.  Where the unit-based approach falls short, though, is on goal alignment.  That is, the sales organization can exceed its unit goals while the company misses its revenue target.  In many such unit-based incentive plans, reps focus on those products they can most easily sell without appreciating the financial consequences to the company.

Changing a sales force’s incentive plan can be dicey stuff, particularly when the company adopts new measures of performance.  In Joe’s case, not only did he have to onboard a new measure, but each rep would carry a quota and minimum performance standard.

“We have a very flexible, adaptable sales force, which makes annual changes to the sales comp plans relatively straightforward,” said Joe, who about one year ago started sharing with his sales teams the revenue-plan concept.  “They were on board – it made complete sense to them.”  New goals and a goal-setting paradigm raise the stakes, however.  “Salespeople want to know the goals are reasonable and ultimately, do-able.”  Without the benefit of historical data, salespeople didn’t really know whether their revenue-based quotas were in line.  Adding to the anxiety the plan featured a 75%-of-quota threshold.

Creating quotas was another issue.  Joe’s colleagues in sales operations used the company’s billing system as the source for transactional revenue data, a formable task that didn’t come on line until December.   The new incentive plan was slated for rollout the following month.  Joe was forced to use a limited set of historical data for setting Q1 quotas.

The company launched its new plans during the final weeks of December 2010.  Early into January, salespeople, checking their progress against quota on a daily basis, were becoming concerned.  For most reps, their performance was trending well below where they needed to be to reach the threshold, and earn incentive pay.

Rather than waiting until quarter or even month end, Joe took action.  He and his operations colleagues dove back into the data in search of assumptions that, given the benefit of hindsight, might be off.  

The prospect of adjusting quotas mid-cycle is typically fraught with issues.  While in principle Joe believes an organization should stick to its goals, the revenue quotas were new, and he couldn’t risk the organization having a poor Q1 – a likely scenario should the salespeople disengage after perceiving they couldn’t hit the threshold.

“For the quotas to be effective, we had to be open to regular course corrections,” Joe says.  “This could not be a ‘set-it-and-forget-it’ approach.”  He used a transparent process with company leadership to keep them appraised on the evolving quota-setting methodology.  As more data became available, Joe revised his assumptions.  This included expectations for optimal business mix at the assignment level, and factoring customer churn into a four-year, revenue-per-unit (RPU) projection for acquisitions, where discounted monthly recurring revenue in the first year gives way to more typical RPU rates in Year 2 of the contract.

Joe also added a feature to the plan threshold by including a relative-ranking threshold by market.  Threshold would now be either the 75^th percentile performer in each market group, or the absolute approach (75% of individual quota), whichever was lower in the period.  This tactic provided a reality check to performance in the greater Kansas City market, where unusually harsh weather hammered field sales efforts.

While January revenue results came in below even the revised plan number, February’s pipeline is strong, and Joe projects a record Q1.  His sales teams viewed the revised goals challenging but reasonable, and after shaking off the initial anxiety, set out to beat them.  From leadership’s perspective, the additional analysis and revised goals provided a level of granularity that helps each salesperson focus on the right mix of business.  Reps are selling smarter, and thinking more long term.

One can argue that if the company hits its revenue plan, which in Joe’s case appears very likely for Q1, the course taken to get there doesn’t really matter.  Joe will tell you his approach of staying flexible, transparent and course correcting as he goes has everything to do with a favorable outcome.

Joe Glenn is a director of sales for a communications and computer-services company serving California, Kansas and Missouri.

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

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.