SalesCompInsights

By Howard Woolf

Sales has to be one of the most difficult professions of all white collar jobs within a company.   You have all the responsibility, nothing that you can control and you are directly measured on the results. 

Think of the many influences on the sales outcome ranging from tough customers that always want more (and sometimes have very difficult and varied personalities), to the competition that is constantly pressing on your offering, to product issues or internal execution.  Arguably sales controls none of which, but is given responsibility to conquer and succeed.

When good companies recognize they have a ‘sales problem’ it may be that multiple issues within the business are resulting in poor performance. Unfortunately, the salesforce is often viewed as both the victim and the cause.  Given the myth that any good salesperson can sell anything to anybody, at times it becomes personal for management towards the sales leadership and the salespeople.  Often the salespeople criticize themselves.  After all, a good salesperson never makes excuses.

The cure requires focus on two elements.  First, understand the fundamentals that are causing the company sales to suffer.  This requires an honest assessment of all the factors from the quality and functionality of the offering to the competitive environment and the market conditions.   Given the results of the assessment, determine what it would take to maximize the success of the salesforce, short and longer term, and take those actions quickly.

The second area, maximizing sales performance, often draws much attention and many opinions. Many people believe they are experts at sales (even if they never ‘carried a bag’) and I have my opinion as well.  However, I carried a bag and successfully led salesforces in both direct and channel sales for products and professional services over decades. 

At the core of sales success, I believe, is consistently building the confidence of the sales professional.  It sounds simple but it is a rather complex set of issues.  Starting with the psychology of sales people who are in one the most cocky and confident while being also the most insecure people on earth.  Without Sales confidence, there can be no success in sales.  

Increasing the confidence of the sales force requires that the company first understand the attitude of the company’s functional leadership and down through their organizations.  They must look at their salesforce and respect them for the impossible job that they take on and the inability to make any excuses for lack of performance – despite the cause within or outside the company.  There is a key role for the CEO to play in making sure the organizational attitude is focused properly.

I once marveled at a Finance professional who tried to put in place ‘punishment’ for the salesforce by cutting their compensation as a cost containment tool after the salespeople had accomplished the goal they were asked to achieve.  I asked the person at the time, why aren’t we also cutting ‘your’ pay given the company had cost problems even though you did your job.

The lesson here is each job is valuable and should be treated as such – if the company is going to reduce compensation or any other reduction, the salesforce should participate equally (not more equally) than all functions of the organization – so if you cut everyone, it is ok to cut them too.  If you don’t cut everyone, sales should not be singled out   – they only get paid if the company is successful, even if the particular success was not part of their compensation plan.  Salespeople need to feel valued and supported – if you want them to face the odds and maximize the performance of the company. 

A high performance salesforce must have confidence and trust that their management will treat them fairly and with appreciation.   In fact, everything that the company does has to be for the Customer.  How a company treats their salesforce is the clearest indication of how they are treating their Customers.  If the salesforce is well supported, has the respect of the organization, are rewarded properly for performance (both upside and down) and have the backing of the company management – they will have the confidence that they can achieve great things and overcome many obstacles.

The most tangible way a company shows its support for its salesforce is in the sales plan and the related measurement and compensation.  It’s worth pointing out that it isn’t the absolute amount of the compensation that delivers the message but rather the fairness and accuracy of it. This provides a key management tool that enables sales success or if done poorly, destroys the fundamentals necessary for sales confidence and related success.

Sales compensation plans are easy to do – they are just not easy to do ‘right’.  One of the key ingredients to any good compensation plan is to limit the number of people who can ‘tune’ the plan.  Keep the plan simple and make sure it can be implemented well.  It always amazes me how many people think they are ‘experts’ in sales compensation but have never had to live on a sales plan.  The best way to keep it simple and straight is to avoid having too many cooks in the kitchen.

Company management may mistake sales compensation plans by themselves as the ultimate vehicle for making sales successful.  I would argue that the bigger problem is making sure the sales compensation system doesn’t get in the way and that it reinforces the confidence of the salespeople.  The mission for the Sales Plan is to provide the proper ‘aid to the sales manager’ who has the challenge of leading the salesforce to success.  As they say, the magic is in the magician, not in the wand.

A good sales plan includes:

• Appropriate Goals (based on details of each assignment)
• Clear and accurate Measurements
• Related compensation rules
• Performance analysis
• Clear communication and reporting – timely and accurate
• Feedback on an ongoing basis
• Corrective action that is timely and visibly taken

Well intended plans fail when they are too complex or can’t be explained simply and the performance easily demonstrated.  A good way to tell if your plan is too ‘sophisticated’ is to weigh it – if it takes more than a few pages to document, it is probably too complex. 

Another area of concern is when management confuses ‘sophistication’ with the overall company performance needs.  This usually leads to ‘throwing’ all kinds of measurements and targets into the mix to the point where the key objectives are lost.   While appropriate Human Relations and Financial and Operational aspects should be embedded in the plan, the point of the plan is to support the ‘sales manager’ in leading the salesforce.

Successful plans are where the goal and desired behavior for the salesforce is clear, the communication and measurements reinforce it and the outcome rewards proper performance.  A successful plan protects the salesforce from being negatively impacted by forces beyond their control – given they were doing everything right for what the company asked them to do.

Having a simple plan is a risky thing for management, as it requires sales and company management declare specifically ‘what’ they really want the sales force to do.  Clear and explicitly stated priorities prevent future questions around, ‘why didn’t you measure (hold accountable) your salesforce on that?’  But, if you have management that is in touch with the market and knows the business and they can declare cleanly what they want sales to do, then the Sales Plan becomes a strong tool to get the core mission accomplished.

In the end, if you treat the salespeople the same way you would like to be treated on your compensation, you have the right solution at hand.  The weapon of choice is to do as much as possible to build the confidence of the salespeople.  From that flows competence and commitment that will maximize short and long term performance for the business.

Howard Woolf is the founder and managing partner of Howard Woolf & Associates, a professional services firm focused on helping companies improve business performance and sales effectiveness.  He can be reached at hwoolf@comcast.net.  

Top Questions Answered

This season’s brutal weather hasn’t slowed the number of questions from incentive planners and sales leaders.  Team- and goal-based plans are common themes.  We’ve handpicked a number of related questions from our mailbag, and hope at least a few are on your list of open questions.

Q: What is the ideal mix of individual and team measurement?

A: The ideal mix is consistent with the mix or relative share of the job’s responsibilities that are individual versus team-based.  In our experience team-based measures often take the place of what should be individual measures because either the company cannot measure individual contribution or it wants to avoid internal competition.  Good use of team measures is when the job carries responsibility for a goal that cannot be executed exclusive of other team members.

Q: Can one plan do all?  If a company has both Key Account Reps and Territory Reps, how common is it to have different plans?

A: Not effectively if the company has dissimilar requirements across the jobs considered, and the market requires different cash targets.  It’s for this reason that most companies have different plans to serve a diverse set of sales jobs.

For example, the requirements for a Key Account Rep and Territory Rep could be the same.  That is, base salary and target incentive, performance measures and pay frequency could be identical.  While in our experience we find the performance measurement similar – sales volume in either absolute or relative to goal, the pay targets are not.  Key Account Reps typically have a more-defined pool from which to fish versus the Territory Reps where the variability across territories is higher.  This means the Territory Rep carries a higher risk/reward proposition (higher incentive target as a percent of target total cash, higher upside potential).

There is an age-old debate around what constitutes a different plan.  This is a communication and administrative issue.  We say, if a sales manager can explain the plan to both audiences simultaneously, your one plan for different jobs passes the test.   Or if you can use an identical set of requirements in your system for paying both jobs, with only differences on your rate tables, your one plan passes the test.

Q: Given sales reps often have “unequal” opportunity with respect to their existing customer base, number of customers, type of customers, markets, etc., how do you effectively “level” the playing field among various reps?  

A:  This scenario is one of the strongest arguments for a goal-based incentive program.   With a goal-based approach you set a target incentive commensurate with the role and skill level.  Let’s say Scott and I both have a target incentive of $25,000.  Our goals might be very different, taking into consideration the factors your reference in your question.   If we both meet our goals we earn our $25,000, regardless of what our goals are.   The transition from a commission program to a goal-based incentive approach is one of the more challenging that we observe given the financial and cultural implications, but long-term it can be one of the most productive.

Q: What is the preferred approach for allocating quotas?   Is this typically a process of mutual agreement between the sales rep and management, or is it something that management enforces unilaterally? 

A: Goal setting approaches vary by industry based on the availability of data, go-to-market model and selling roles.  That said, we find that the most effective approaches use a combination of bottom-up and top-down input.   It is common for there to be a gap between what the salesperson says she can do and what the company requires in terms of performance.  While not a negotiation, there should be a clear and equitable set of logic used to close the gap.   Perhaps the most important characteristic is that the salesperson understands their quota, how the gap was closed and how it ties to the overall success of the organization.  Regardless of which approach is used, if the sales manager can’t explain it to their team, the goals will be viewed as arbitrary and unrealistic. 

Q: For goal based incentive plans, would you expect a normal distribution of performance, or a bi-modal distribution?

A:  When the goals are set correctly we would expect to see a normal distribution of performance.  The range of performance varies somewhat by industry, business model and selling role.  The company’s approach to goal setting – promote a culture of winners, 100% is stretch — also play a role.  The rule of thumb we use is to strive for a bell-shaped curve with approximately 60% – 70% of the plan participants achieving their objective.   With this type of distribution, the field force typically views the goals challenging, but realistic – a key characteristic from our perspective.    What varies then is the spread of the curve.   Consider a consumer product goods (CPG) manufacturer and software company.  We expect a narrower range of performance outcomes for salespeople in the CPG organization..  Most software firms have greater variability in the business, and software salespeople experience a broader range of quota-achievement outcomes versus those in CPG.    A final point, we recommend accelerators and thresholds, if included, be set with a goal of 90% percent of the population earning “some” incentive dollars and 10% earning a significant payout, in line with your industry’s pay benchmarks. 

Q: With goal based incentives, do you advocate setting annual performance goals, or goals with shorter time-frames?

A: In general we observe shorter performance cycles (e.g., monthly) as more effective for promoting line of sight and urgency.  However, in businesses with complex, long sales cycles and infrequent but huge deal values, each month in isolation says little about performance success.  In such circumstances annual goals are typical.  To gain the benefit of more frequent performance periods, management will often tie quarterly milestones and cumulative performance to annual goals.  Rarely do we see performance cycles beyond one year due to fiscal reporting norms.

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.”

Santa’s View on Pay for Performance

By Jason Kearns, Canidium, and Scott Barton, NewSigma

It’s the most highly anticipated time of the year: year end, holidays, bonuses and token gifts.  This year, many cash-hording companies will open their purse strings to say thanks to their overworked masses.  It takes the form of monetary bonus, gift card or Honey Baked Ham.  IKEA recently announced that it was gifting all employees a new set of wheels (two per, to be precise, 12,400 sets of bikes total in the US alone).

http://www.msnbc.msn.com/id/40641253/ns/business-going_green/

The uniqueness and relative infrequency of these “gifts” make them special.  A smart organization can realize and expect benefits from seemingly random acts of kindness that far exceed the initial investment.  No surprise that Tammy happily put in her whole Saturday after receiving that Starbucks card.

Whether it’s a card, check or Christmas dinner, by giving the gift the company says and ideally the employees hear some very positive stuff:

• We are a strong company.
• We care about our employees.  Even at the expense of our bottom line.
• We value your loyalty.

In the context of a total compensation package, holiday bonuses for most companies are a footnote.  But start a rumor of empty stockings this year and get ready for mutiny.  It’s as if some employees would rather have the annual Butter Ball than this year’s merit increase, regardless of the incremental number of birds such merit would procure.  We savor our traditions.

For our purposes of sales force effectiveness, what is the value of extending unconditional holiday gifts to the sales individuals who presumably already qualify for bonuses throughout the year?

Sales people are motivated by compensation and they are compensated based on performance.  Is there value to treating sales people as “normal” employees for this annual occasion?

The negative argument is made by the economist posing as a psychologist.  Sales people won’t appreciate a token award.  They already strive for significant performance awards and they’ll view a small gift as an insignificant gesture.  Besides, sales people get rewarded for company success as a direct result of their performance.  Token gifts are a waste of money.

The positive argument is rooted in culture.  Gestures of good will pay forward — employees say good things about the company to each other, their friends and their family.  Sales people speak of the company  favorably to their “family”– the company’s customers.  A united culture drives teamwork and overall performance.  We’re all in this together.

As you consider that holiday-gift line item tied to the sales segment of your employee population, think about the degree to which your sales culture represents the company culture at large.  Even within the sales force you may have different animals: field sales, inside sales, technical sales support, and so on.

Are we splitting hairs?  Who wouldn’t appreciate a holiday ham?  We argue that sales people are different based on their expectations of pay for performance.  There’s less risk of entitlement coming into play, and more danger of mixed messages when you award the low performer that special gift.  How would the accompanying note read?  “We made our profit target despite your weak contribution,” or, “Thanks for your poor performance.”   There’s a chance that your gift giving to low performers could alienate your super stars.   After all, even ole Saint Nick himself discriminates between the naughty and nice.

If we could put a bow around this topic, it is that whether or not they view themselves as different, your sales people are, or rather should be, treated differently from those who don’t have pay at risk and generally have no idea of their overall worth to the business relative to their pay.  Intrinsic rewards certainly have a legitimate place in the sales performance management portfolio; how you play that gift card requires more thought for those employees with a direct connection to the company’s top line.

This post represents the first is a series published in conjunction with Canidium, an SPM technology and business-process improvement firm.  www.canidium.com

Top Questions — Answered!

We get a lot of questions through this blog and during the course of our consulting work.  Sure, we try to answer all of them in a timely and concise manner.  But this time of year, with Black Friday, plan redesign deadlines and the like, some questions fall through the cracks.  While a few are random (“Is that Tom Cruise pictured on your ‘Show Me the Money’ blog?”), most are quite common, so we’ll attempt to answer the short list of most frequently-asked questions.

1. Team-based incentives — when are they appropriate?

When one individual alone cannot achieve the objective.  Now this oversimplifies things a bit, but it’s a good rule of thumb.  We see instances where a company pays individuals based on team outcomes when it’s really the individual’s contribution that matters.  Yet the company uses a team measure because it can’t measure individual rep influence.  Unfortunate, but necessary in some cases.

In our line of work, the most common application of team-based measures is for global account teams that cover multiple buying influences.  One member of the team can only get the ball so far before having to pass it to a team member.  The company may use MBOs for measuring milestone achievement of each individual rep, but ultimately its the sale that matters and the team must work together to make it happen.

2. Thresholds — when should they be used, and how best to set?

When there is a minimum level of sales required for some level of incentive pay.   How best to set?  The exercise is similar to setting quotas.  After all, a threshold is nothing more than a type of goal.  Difference being, the threshold goal can really rile emotions if set such that too many salespeople fall below the goal.

From an academic perspective, thresholds are part of the payment slope designed to manage the pay distribution.  That is, you’d like there to be a competitive and meaningful difference in pay between a high performer, an average performer and a low performer, assuming all three have a place in your organization.

We see thresholds commonly used in plans for jobs covering accounts or territories with recurring revenue.  Management wants to motivate growth, and avoid sales complacency for earning variable pay on “guaranteed” sales, so it sets a threshold based on this recurring revenue.

An extension of this approach is to set a threshold, but use it as a point to change the rate slope.  That is, pay a discounted rate for the first sale, and all sales up to a threshold performance level, beyond which you apply an accelerated rate up to quota.  The purpose is like an accelerator but below the goal.  Get your reps motivated to push to the next level, and reduce the sting for performance below threshold.

A related question is how best to use a threshold on a cumulative, year-to-date measurement approach (this one’s for you, D.W.).  There is an approach for this, but to adequately explain would exceed my 800-word limit.  And herein lies the problem associated with using thresholds.  The company’s efforts to explain fall short of the salespeople’s capacity to understand.  The simpler approach is to manage performance such that those falling below the threshold earn nothing — no incentive, no base (as Donald Trump would say, “You’re fired”).    Often sales leaders say they’ll do this but do not, thus the logic of a threshold.  And so it goes.

3. Trailers — when and how to use on monthly recurring revenue?

Use only when your competitors do and limit the trail period to (if you can) two years.  Consider using thresholds when you can accurately predict the renewal rate.

We’ve seen a number of SaaS companies pay reps a flat commission rate on 100% of the monthly recurring revenue (MRR).   There’s no trailer, just an annuity so long as customers renew.  After Year 1 or 2 the company discovers it can no longer grow the business with the size sales force in place because reps are making plenty of money off of the annuity stream — they have no incentive to grow the business.

Trailers require the rep to sell new business as the MRR credit from old business trails off.  Simple enough.  Insurance companies have been doing it for years.

It’s a seemingly unfair transition though for people expecting a flat rate on an annuity stream.   And probably tough to fathom for early-stage companies with hungry reps that can and want to double their earnings every year.   Yet at some point the hunger goes away, and the company struggles to grow with its existing sales force.  The longer a company waits to institute a trailer, the more compounded the problem becomes, and the longer the trailer period, the more difficult to align rep and company growth expectations.

Stay tuned for more insights on FAQs.  If we missed one of yours, please let us know.

For many firms, our company included, it’s planning season and time for offsite meetings to motivate focus and collaboration.

If you’re like me, you have attended many of these meetings.  And while you may appreciate the face time with people who you rarely see, the strain of long days, late nights, rich food, packed flights and being away from home leave you wondering, couldn’t we have just done that (meeting) by phone?

I’m happy to report a renewed sense of hope for the offsite, having just returned from one.

In planning the meeting we set a few, basic requirement that, in hindsight, paid off:

• Set an agenda: no out-of-the-box-thinking here but we spent a lot of time on the agenda to ensure we got the best use of our time together.   We also set a realistic set of objectives, and in the meeting stuck to the plan.  Again, basic stuff but in past meetings it seemed that offsite meant it was acceptable to be running two-hours behind schedule all the time.  I’d get distracted wondering whether I’ll get cut from the agenda or miss my flight home.
• Challenge ourselves – physically: part of what makes our leadership team work well is we share an appreciation for the outdoors and physical exercise.  In principle and for the meeting we wanted to mix things up, use different parts of our brain.  Sitting in a conference room, then on a bar stool, followed by a two-hour dinner and then a four-hour trip home isn’t mixing it up.  There’s an evening of bowling or line dancing at a dude ranch, and for some, this creates the needed balance.   Not for us.  Sequence matters also.  We wanted to do the physical stuff first so we could share a sense of accomplishment and appreciate, not dread, the hours of sitting and thinking that would follow.
• No PowerPoint: our desire to ditch the tool on which we so frequently rely fit within an overall theme.  That is, create a meeting environment radically different from what we are accustomed to.  For example, we (by accident) met in a room with only couches – no desks.  Lunch each day was off premise.  The meeting site was in a city where we’ve never before met.  Perhaps these things aren’t practical.  I’ll argue they made us more productive.
• Put it all in perspective: I know.  Nice cliché.  Granted, we didn’t bullet this one on our meeting mission statement.  We didn’t have a meeting mission statement.   Our primary goal was to free ourselves from distractions and use the power of our collective thinking to produce a good business plan.  I found in past venues that the planning and preparation for these meetings along with the lofty expectations and political posturing can takes one’s site off the goal.

Funny (to me anyway) that we met these requirements just half way through Day 1.  This was at about 7,500 feet on Mount Rainier, one of the premier volcanic peaks in the Cascade Range of the Pacific Northwest, after scaling about 2,000 vertical feet and traversing glaciers.  We had spent so long climbing that we lost sense of what lay behind us.  Upon turning around, and seeing only that which was built without human intervention, I concluded this meetings a success.

I’m not suggesting you plan your upcoming sales comp plan design kickoff meeting on the side of an active volcano.  But try kicking off the meeting with a venue that leaves your audience unable to say, “Here we go again.”

Joining or assuming leadership of a new sales compensation group brings its own set of challenges and opportunities.   The structure of the program, sales model, company leadership and team culture all come together to determine the right approach and priorities.  Through our consulting work we’ve observed many situations where this transition has been managed successfully (and unfortunately some less successful ones as well), from the perspectives of both the company and the person taking on their new role.     

Christy Roberts leads the sales compensation program at high tech firm AMD.   Christy had the opportunity help the industry leading company transform the way sales incentives are designed and managed.    We recently caught up with Christy to hear her thoughts on what it takes to build out a successful sales comp competency. 

SalesComp Insights: It is a bit unusual to find such a large company without a solely dedicated owner of sales compensation; can you provide some background on the situation?  

Christy Roberts:  AMD is an engineering company at heart, and continues to be to this day.  In the ongoing process to ensure AMD’s competitive edge our executives looked internally at our sales organization.  We have dedicated ourselves to a sales transformation and with that journey AMD saw the need to engage a subject matter expert in the area of sales compensation.   

SalesComp Insights: What did you observe as the biggest differences moving from an established sales comp organization to creating a new one?   

Christy Roberts: The biggest difference is speed of adoption.  It is imperative that your vision and philosophy are quickly introduced when creating a new organization.  It seems with more established organizations you must move slower and be more cognizant of the political ramifications of making changes.  With a new organization, you must immediately frame the way you want your organization to work.  It is a small, yet very open, window that you must take full advantage of.  If you hesitate the window will close very fast.

SalesComp Insights: With such a unique opportunity to create the function from the ground up, what priorities did you decide to focus on first?

Christy Roberts:  We decided to focus on two areas:  tools and governance.  Our tool is antiquated and does not meet the goals of our sales organization; we needed something nimble that can change with our fast paced business.  So the first thing we looked at doing was implementing a new sales compensation incentive system.  The second priority was that of governance; we needed to ensure our policies were not only documented and distributed, but adhered to.  This creates a large change management effort that although seems easy on the surface, can be very complicated and sensitive when implemented at a global level.

SalesComp Insights: Looking back, are there any tips/techniques you can share that have really helped?

Christy Roberts: Prioritize the tactical items separately from the strategic items.  When you are trying to build a new organization, it is easy to get lost in the day to day tactical work that needs to be done.  Ensure that you prioritize them separately and ensure you keep your eye on the strategic items to ensure movement on that front.

SalesComp Insights: What about any expected, or unexpected, challenges?  

Christy Roberts: I think my biggest challenge was creating the culture that sales compensation can be a controlled, non-stressful event.  I think we tend to look at things from an emotional level since it deals with employee’s pay.  It was important for me to back up claims with actual data so we can prove that this can be done in a way that deals with the issues without being a fire drill. 

SalesComp Insights: What’s next as you start to prepare for 2011?   

Christy Roberts:  Ensuring our data can support the design that we want to launch.  I find the biggest pitfall is designing a sales compensation plan that your data cannot support.  I am also a large advocate of gaining input from the field level sales force, so I will be creating a global sales compensation committee to help with the design phase. 

SalesComp Insights: What advice would you offer for someone going into a similar situation or thinking about transforming their sales compensation function?    

Christy Roberts: I think going in with an open mind, and making sure you do not come across as the “know it all” but as the subject matter expert.  It was top of mind that I did not say anything negative about current design or process as it was most likely one of my co-workers that created that work.  Let go of preconceived notions of what you have done in other companies, as many times those ideas might be good but not perfect for the new company you have joined.

A colleague recently sent me an article by Peter Bregman with the following theme:

“People are more likely motivated through purpose and affiliation than cold, hard cash.”  This peaked my curiosity, so I daringly hit the link.

http://peterbregman.com/2010/02/03/a-story-about-motivation/

The article cites three examples:

1.  A disabled man struggling in the rain to board an Access-A-Ride van gets help from on-looking volunteers while the van’s driver sat by idly.

2.  A Duke University study found people paid to complete a computer-related task performed at a lower level than those not paid.

3.  An AARP request for lawyers to help needy retirees at a reduced fee rate went unanswered, until the request asked that lawyers provide the service for free.

After initially dismissing the article as irrelevant to the world of sales management, I decided these examples were not only meaningful, but instructional for sales leaders and complementary to sound incentive design practices.

We recently helped a medical device manufacturer realign its sale compensation program with new business priorities and engage its sales force through the transition.  The company operates a high-margin but maturing business.   Through acquisitions the company now had an opportunity to penetrate its existing account base with a line of new disposables, and enter a new market segment through an equipment leasing program.   

The leadership team decided on two design principles that tie nicely to the point of the article.  First, successful integration of the acquired businesses represented a purpose higher than anything the company had attempted previously.  Yesterday’s model for success was today’s recipe for failure.  Success for the sales organization equated to success for the integration and success for the future.  Second, sales success would be multi-dimensional, and not tied exclusively to variable pay. 

In an effort to keep the incentive plan simple, leadership approved a plan that paid for the strategic value of growth goal attainment on disposables, and initial contract value for leases.  Thus, salespeople could earn competitive incentive pay at the expense of margin, or by falling short of their equipment sales goal. Given the historical focus on margin and equipment sales, this represented a significant change in both culture and the compensation program.  Another dimension, and in hindsight a critical element, was a quarterly campaign to celebrate members of the sales team that demonstrated how to leverage the new business units.

A key point of the article is that people are motivated by purpose, and by being part of a story.   The company described above institutionalized a new definition of success.  Everyone in the organization had to buy in, or move on.  For salespeople that really stepped up, went above and beyond and performed exceptionally, there was a story, very public but personal, about what they had done, and how their individual efforts contributed to the company’s success.

Cash may be king for most salespeople, but purpose and a story provide serious leverage.

The Wall Street Journal reported recently that more and more brokers are breaking away from the traditional wirehouse firms to boutiques, or to become independent advisors, and taking clients with them.  In 2008 alone, net outflow from the big firms was about $20 billion in client assets.  In the three-year period ending in 2008, the number of brokers serving retail investors at major firms fell 14% while the number of independent financial advisors (IFAs) grew 29%, the Journal reports.  

http://online.wsj.com/article/SB126256739671014281.html

Certainly the last two years were pivotal ones for the industry.  Thousands of brokers from the likes of Merrill and Bear flat out lost their jobs and had to go elsewhere to earn a living.  Yet the trend of breakaway brokers started before the crash, and persists through the recovery.

Incentive pay practices get creative when there’s lot of movement of the kind of people a firm wants to retain or hire.  Call this a golden moment for the incentive professionals in the retail brokerage industry.

We’ve thought for some time the incentive practices at brokerage firms were a bit primitive.  Despite a myriad of complex product offerings, radically-different margin levels across those products, and the heavy hand of regulation, the incentive plan designs at many retail brokerages look like what you’d expect for a car salesman –luxury and SUVs fetch 8%, compacts 3%, mid-sized 5%.  No wonder Phil Angelides likened selling investment grade mortgages to used cars when grilling Goldman’s Lloyd Blankfein during a recent government-sponsored, big-bank bashing session.

And yet this seemingly broker-biased structure generally gets poor reviews from the folks the plan is supposed to motivate.  In our work we hear too many brokers say they find the plan too complex, the goals too high and the pay opportunity not in line with what they can (or should) influence or in conflict with the customer’s interests.

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Big firms contend that turnover is largely that of underperforming brokers.  While the broker’s decision may be voluntary, the incentive plan forces their hand because of a steep reduction in pay when the broker’s production falls below a certain level.   Thus for those who can produce, bigger is better.

Regional brokerage firms, beneficiaries of the breakaway trend, provide a different view.  Bradley Hofmeister, executive vice president and associate national sales manager at Waddell & Reed, a Kansas-based regional advisory firm, says even strong producers at wirehouse firms grow disenchanted.  And while becoming an IFA works for some, it’s not for everyone.  Waddell & Reed, which offers independent brokers an open platform for trading equities and funds, saw 80% of its new advisors come from the wirehouse firms. 

“People want to be part of something,” said Hofmeister.  “Many wirehouse producers felt they were left out to pasture (from the industry’s implosion).  Here they discover a place where they feel they belong, where they’re wanted and valued.” 

What has surprised Hofmeister about many of the advisors coming from Wall Street is their strong desire for continued professional development, collaboration and teamwork. 

Sound like your average Wall Street broker?  Maybe the cut-throat-competitive culture that defined the retail-brokerage powerhouses of Merrill, Morgan and Smith Barney has run its course.  While we believe pay opportunity will remain on the short list of attributes for staying at or leaving a firm, dare we say that it’s the soft stuff that counts.  Even in the rough-and-tumble word of Wall Street.