SalesCompInsights

While many surveys exist for benchmarking sales compensation pay levels, growth expectations and other important metrics, we find few gather input directly from the plan participants.  Field input represents an important component of our consulting work and we encourage our clients to conduct field sensing activities at various points of the year.  This month we launched Rate My Sales Comp Plan, an ongoing survey series focused on the perspectives and insights of sales professionals.  So far we’ve gathered responses from approximately 1,000 salespeople at over 200 companies. 

The early results are somewhat startling.  Fully 30% of the respondents answered false when asked whether they understand their incentive plan. 

26% disagreed with the statement that their plan contributes to the profitable revenue growth of the organization, or said they didn’t know because the strategy isn’t clear.  More than 10% indicated that their comp plan is causing them to think about leaving or are in the process of leaving because of it. 

Given the importance of the incentive program, having 30% of the field not understand how they are paid is unsettling at best.  Couple that with a quarter of the field feeling like the plan is not aligned with the priorities of the business (or not sure what those priorities are).  As plan designers, we have to ask ourselves whether this is a symptom of complexity or communication.   Perhaps it is a bit early to be thinking about 2012 just yet.  But, it might be time to take the pulse of your field organization before 2011 gets away from us.

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.

(Almost) as sure as death and taxes, sales organizations build their incentive compensation programs based on a corporate philosophy or set of design principles.   Even if not formally articulated, your company is likely to have its own philosophy about sales incentives.  Examples might include target pay set to the 50^th percentile, thresholds so that 90 percent of plan participants should earn at least some incentive dollars, quota reasonableness to support 65 percent of team members overachieve,  and/or team players should earn more than lone wolfs for equivalent levels of performance

We observe many companies that document their overall compensation philosophy, but haven’t tailored it to the sales incentive program.  We think this is a mistake.  Your compensation philosophy should serve as a touchstone during the design process; as new designs or changes are discussed they can be tested against the company’s belief system.   We recommend our clients review and their incentive philosophy each year and create a set of design principles to support the planning process.  The output of this activity should be published to the field and eventually make its way into the plan launch materials.  Hearing the company’s belief system around incentive compensation and guiding principles for any changes increases the likelihood of acceptance and support by sales force.

More than a “touch feely” HR topic, disagreements on design philosophy can have very real implications.  Decisions ranging from eligibility, target pay, mix, accelerator levels, measures and crediting rules are all impacted by the philosophy of the organization.

One recent client transitioned its long term incentive program due to a shift in business strategy and determination that salespeople were significantly overpaid for their contributions.    On this point there was universal agreement.   On how to manage the transition, however, not so much.   Should the new designs incrementally reward people for doing the right thing or “haircut” earnings when they don’t?  Similarly, should the company ease the team into the new program and essentially keep them whole for the first year?  Or implement a hard cutover, with the belief that salespeople, like the rest of the organization, need to realize the urgency of the change.

We regularly hear about multiple design meetings with endless debate going nowhere, taking on the theme of Bill Murray’s “Ground Hog Day” — without the humor.   Salespeople ask, what was management thinking when it made changes to last year’s plans.  Or the company’s CEO suspects the sales comp plan isn’t up to snuff, but has no criteria other than revenue and profit performance on which to base this suspicion.   All three issues stem from a lack of clear design philosophy and unprincipled plan management approach.

Take another recent example where the design process started with the company’s leadership sitting down and saying, “what do we want from our sales compensation program?”    After summarizing what each leader did not like about the current plan, the group documented a brief but clear list of principles.  A myriad of decisions followed that helped align the program with the business needs and motivational aspirations of the sales force.  The group was able to efficiently test different design approaches, validate their choices and prepare for an effective communication and implementation campaign.

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.

Sales compensation plans need to be actively managed on an ongoing basis.  Those companies who think of their sales compensation activities as an integrated lifecycle are able to better align sales team behaviors, achieve their business priorities and react to changing market conditions.  That’s the basic theme of the web session Scott and I will be participating in February 23^rd.    The session is being hosted by Xactly and our co-presenter is Steve Cakebread, former CFO of Autodesk and SalesForce.com.    The agenda follows a combination best practices, case examples, and panel discussion with Steve.   We’ll be focusing on the activities, process and deliverables that help companies get the most out of their sales compensation investments.  In addition, Steve will be sharing his first hand perspectives as CFO of two leading technology companies.       

For those of you who may not be familiar with Xactly, they are one of the leading providers of sales performance management solutions, including territories, quotas, sales compensation and process enablement.   Their web site can be found at www.xactlycorp.com, where you can also register for the event.

It’s February 2 and you’re launching your 2010 sales compensation plan.

Like Punxsutawney Phil emerging from his burrow to predict the weather, your communication strategy can help predict the near-term future of the new plan.  Will this year’s plan launch be a bright beginning, or months of tumultuous, stormy confusion?

Forget about all the reasons why you still haven’t communicated the new plan.  Better that you focus now on how to maximize this annual event to ensure your sales reps get what it is that’s changed, and focus on selling.  Falling short here could mean your reps spend time that could otherwise go into selling, on trying to figure out how they’re going to get paid under the new plan.  Or worse, they dismiss the plan all together. Poor communication has a direct impact on sales productivity.

Who’s Responsibility?

You might have several people participate in the communication process -  message creation, materials development, logistics, local communication.  But, ultimately sales leadership bears the responsibility and needs to be heavily involved in the strategy, formulation of key messages, and initial communications.

If you happen to be in the unfortunate position of trying to launch a new plan, and the head of sales has not bought into the changes, we predict a long, dark winter.

We worked with a large technology-communications firm last fall and heard very few of the sales representatives understood how the incentive plan worked.   In diagnosing the initial issue, we learned the head of sales could not decide on certain details of the new plan.  The CEO, growing impatient over the sales head’s apparent foot dragging, made the decision for him.  Predictably, the plan communication was a mess.  Sales did not own the change-management effort because it did not support the underlying changes.

Once sales is on board, remember the other stakeholders.  Your plan administrators, those responsible for configuring the necessary systems and managing the plans ongoing, have a key role. Ideally they would have been part of the plan design process, but if not, be sure to include them early in the communication schedule.  The devil is in the details, and you don’t want your administrative team becoming expert on the plan’s inter-workings during the first incentive run.  Make sure all messaging gets vetted through this group before going to live to the field.

HR, Finance and Legal are other communication stakeholders.    While these functions are rarely contributors to the communication strategy, they each need to understand the messaging and mechanics in order to support the plan once it is launched.

What to Include?

While the specific messages will certainly vary by company, those companies that rate their communication campaigns as a success typically include these four components in the messaging:

• Sales strategy: which products will be sold to which customers using which roles delivering which messages;
• Territories and quotas: updated account/territory assignments and targets for the upcoming year;
• Plan changes: side-by-side comparison of new plan to the old, how the changes support the new sales strategy;
• Earnings examples: step-by-step illustrations, using reasonable scenarios, with an emphasis on how to win.

Another common trait of a successful campaign includes an audience/materials matrix and detailed calendar.

The type and extent of materials is largely a function of company size.  If your firm generates over $100 million in sales or employs over 100 salespeople, you need more than notes on a napkin and a handshake.

For the salespeople:

• Participant Guide: Key elements of the plan (e.g., measures), eligibility, high-level crediting rules, plan mechanics (e.g., tiers, accelerators); may include examples and FAQ;
• Terms and Conditions/Plan Governance Polices & Procedures:  Detailed crediting rules, escalations, related policies, etc. that are standard across all plans;
• Goal Sheets:  Where appropriate, used to provide quota values, with signature line; may include account assignments if used;
• What-if Calculators: A spreadsheet-based tool to project earnings based on an individual’s goals, target pay and performance results;
• Plan/Schedule Overview Presentation:  Describes business and sales strategy, compensation philosophy, key aspects of the plans (including changes), why any changes were made, why everyone should be excited, and how to win;
• Calculation Examples: Detailed illustrations of the plan’s mechanics.  May be used in plan document, overview presentation and local presentations, as necessary;
• Video/Job Aides: Provides further explanation under circumstances of significant change and may include CDs, web video, laminated cards, etc;
• FAQ: List of ~20 expected questions about the plan changes and related policy;
• Management Training: Guidelines and education on how to communicate, manage and support the new plans as appropriate
• Web Site: Used to store materials and introduce new communications

For Administrators:

• Design Guide & Implementation Training: Helps administrators understand new plan changes, implications for the administration process and guidelines for plan modifications;
• Admin Playbook: For operations and support team members to manage the day-to-day aspects of the program;
• Escalation Procedures:  Documented process used to surface and adjudicate issues;
• Processing Calendar: Documented calendar for when changes need to be in, when calculations will be run, reports available, etc.

Once your team is, and messaging and materials are, in place, you’re ready to start the process.  We prefer a cascading approach – global messaging, regional discussions, one-on-one.  Each group responsible for delivering on one of the milestones during the sequence has got to be well prepared.  The most critical member of your communication team, aside from the sales head, is the line manager.  He or she must be able to use the plan as a lever in the motivational tool kit.  This responsibility lives well beyond the initial rollout.

For those of us on the West Coast, we can’t appreciate the tradition of the groundhog’s weather predictions.  Let it snow in the hills up to March Madness and we’re happy.  Perhaps then a more fitting Groundhog-day analogy is the movie.  Recall if you will the main character, Phil Connors (Bill Murray), engaged in a hated assignment.  Poor Phil finds himself repeating the same day over and over again.  While his goal each day is the same – get the girl, keep from going mad — each instance is enough different so that he believes he can make a difference.   With a good plan on how to communicate the new plan, you too can make a difference.

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!