In many companies, this time of year is when plan designers (Sales Ops, HR/Comp, Sales Finance) focus attention on determining if change is required in the sales compensation plan. Typically, when change is recommended, gaining approval for the new plan involves a presentation to C-suite executives. Over the years, we have observed hundreds of such presentations and found that the three biggest missteps in selling a new or revised sales compensation plan to C-suite executives are:
The core message is wrong
Questions from different points of views are not anticipated nor answers to them prepared prior to the presentation
Potential holes in execution are not identified or addressed and, therefore, distract from new plan design and its expected outcomes
To help design teams avoid these errors and successfully gain approval for a new plan in a timely manner, we’ve identified 5 tips to follow in preparing and delivering your presentation to C-suite executives. The description of each is provided in our article, “Engaging C-Suite Executives in the Approval of a Sales Compensation Plan” at WorldatWork.org, available at: http://tinyurl.com/mq4g97g
At WorldatWork’s recent Spotlight on Sales Compensation conference (Chicago; September 9-11, 2013), Jerry Colletti led a panel discussion on this topic. The panelist were: Katie Donohue, Sr. Director, Global Compensation and Sales Compensation Strategy, Medtronic, Inc.; Kerry Heiss, Director, Sales Operations, StandardAero; and Lisa Soderquist, Vice President, Human Resources, Allergan, Inc.
The panel discussion centered on:
A brief overview of sales compensation philosophy best practices that contribute to a solid cultural foundation about sales compensation decision making
Insight into how these three companies used sales compensation philosophy and guiding principles to align their business executives and sales leaders around how to structure, manage and assess sales compensation plans for optimal enterprise success
How to respond to issues business general managers and sales executives raise when an initiative to implement an enterprise sales compensation philosophy is desired by the CEO and/or other C-level executives
A lively discussion between the panelists and the session participants resulted in the following conclusions:
The granularity of a company’s philosophy and guiding principles is based on the company’s organization culture, business objectives and degree of difference across its BUs.
Inclusive development (of philosophy and guiding principles) is needed to ensure senior leadership and sales management acceptance; this is important contributing to sales compensation knowledge sharing across the enterprise which demonstrates value.
Specific guidelines should be developed to address specific issues, e.g., determining right mix by job/job family, how to use SPIFFs, how to assess plans consistently across BUs, world region geographies.
Global regions’ regulations and practices must be addressed through a defined process; and accountability for communication with work councils/labor unions must be clearly assigned to those in positions to best represent the company at local levels.
Sales executives and business general managers need to own the philosophy and guiding principles so that it is clear that they embrace and understand them and, can enthusiastically communicate them.
Next to the widely held opinion that sales compensation plans contribute to business success is an expectation that there is one best way to assess plan effectiveness. Many of us grew up with the “magic bullet” concept that science was going to invent this one universal panacea that would solve our problems through all of time! Unfortunately, the “magic bullet” concept does not apply to sales compensation plan assessment. There is no one best way of assessing plan effectiveness.
We believe that there is a range of three alternative approaches to plan assessment. At WorldatWork’s Spotlight on Sales Compensation Conference, September 10, 2013, we presented a working session on this topic that:
Explained assessment basics
Identified the three levels of assessment
Provided a perspective about when and how to match an assessment to a particular business situation
Described each assessment approach and how to present results to management
Summarized key principles in selecting the right approach to assessment
In our June 18th blog post, we make a case to clarify the job before leaping to a conclusion about how to shape the compensation plan. For jobs that are truly executing to the classical BD role we described, we offer the following guidance to incentive plan designers:
– Incentive opportunity. Typically, BD incentive plans are not “capped”. However, contrary to popular beliefs held by some leaders of BD functions, “the sky is the limit” is not the prevalent benchmark when planning either the target incentive opportunity or the upside incentive potential. We have recently examined BD incentive compensation practices in three industries: Professional Services; Power Utilities and, Training & Education. While we have seen actual incentive earnings in the range of $200k to $900k, the incentive opportunity is rarely set at more than 50% of target total compensation (common range 25% to 50% of TTC). Further, it is not uncommon to see 2.5x to 5x leverage on the incentive opportunity. It is our opinion that the reason high-earners realize significant pay outs is that they significantly over-achieve on their assigned goals.
It is important to keep in mind that the incentive target, upside opportunity and range of earnings is very much a function of the BD role’s stage of development. Frankly, that is what makes it difficult to have in place the right plan at various points in time – time frequently defined in years and not quarters!
– Plan type. One of the most common types of BD incentive plan is one that includes two elements – incentive pay (either commission or rate per point bonus) based on sales (bookings) and/or revenue (payment) and, SBOs (strategic business objectives) bonus. Generally speaking, we believe that companies prefer to use a rate per point incentive formula in plan design rather than a commission rate to deliver incentive pay for financial performance metrics because doing so balances cost of compensation against the profitability of the business sold. SBOs are common, particularly in plans for start-up BD jobs because of the long cycle time associated with new business wins.
– Performance measures and incentive weights. The two most common performance measures included in BD incentive compensation are: 1) Sales (or Gross Margin) Bookings; and, 2) Revenue. Typically, 70% to 80% of the incentive opportunity is associated with the financial performance measures; the balance is allocated to the SBOs.
– Payout frequency. While companies favor annual incentive plans for their BD jobs, it is common to provide a payout opportunity on a more frequent basis (e.g., quarterly).
– Long term incentive (LTI) opportunity. The continuity of account coverage – that is, keeping in place the same BDs – is an important consideration to business success. This is particularly true in companies where a new market development program is in the early stage of its life cycle. Building business in new markets with new accounts involving six or seven figure deals often occurs over several years. Thus, we believe it is appropriate to adopt cash LTI to reward and recognize BD employees for their contributions to long term business success. Our experience shows that the following factors are important to consider when designing a cash LTI for BDs:
– Plan period – typically, three years
– Size of LTI opportunity – typically, a “carve-out” of annual overachievement dollars, e.g., if OA is 3x, the carve out may be .5x
– Actual earned long term incentive is a function of two variables: # of years of annual plan achievement and, actual earned incentive in those years.
WorldatWork’s 2013 SPOTLIGHT ON SALES COMPENSATION, The Westin Hotel, downtown Chicago, September 9-11.
This is the fourth year of Spotlight and Colletti-Fiss, LLC is proud to be both a sponsor and presenters at the Conference. One of our sessions is focused on how to think differently about approaches to plan assessment:
“Assessing Sales Compensation Plan Effectiveness: One Size Does Not Fit All”
Jerome A. (“Jerry”) Colletti
Mary S. Fiss
Wednesday, September 11th – 11:00 am – 12:00 pm CT
Next to the widely held view that sales compensation plans contribute to business success is an assumption that there is one best way to assess plan effectiveness. This is not the case. Rather there is a range of assessment alternatives to consider. How to think about assessment largely depends on who is asking the question about plan effectiveness and why it is being asked now. This session will present three alternative approaches to assessing a plan, describe when and how each may apply to a particular business situation and the outcomes provided to management
If your job is to help senior executives reach a decision about what type of plan assessment is needed in response to their questions about plan effectiveness, this session is definitely one you will want to participate in!
At this year’s conference, over 30 sessions on strategy, incentives, governance, sales quotas, and automation are offered. Spotlight on Sales Compensation is the premier sales compensation event of the year. It is where thought leaders, practitioners and service providers in the industry gather to keep up to date on trends and practices and, to stay in touch with colleagues and friends. For a complete list and description of the conference events and sessions, see: http://www.worldatwork.org/salescompspotlight/html/index.jsp
In our opinion, jobs with the words “business development” in the title are often incorrectly labeled. Generally speaking, business development jobs follow one of two approaches when implemented: 1) A sales orientation – there is an assigned responsibility for defined sales results as the principal priority; and, 2) A market/industry orientation – the responsibility for sales is secondary, typically as a support or enabling role to sellers. The principal priority is to establish a company presence in a new market or geography.
Our experience shows that over 80% of jobs titled “business development” manager or director are not truly a business development job in the classical sense of the intended role. Mistitled BD jobs are often:
Designated a BD because buyers in the industry or market prefer not to deal with people in jobs titled as a “seller” e.g., Federal or government agencies like DOD, Homeland Security
Called business developers because incumbents are chartered to deliver large and/or long cycle sales which “develop” over time and involve many players on both the customer’s and company’s part, however, what is being sold is not new
Assigned to work on tasks and activities (e.g., bids and proposals) that are an essential part of winning new business, but are not the core accountabilities associated with a BD job
Invariably, jobs misclassified as business development roles create compensation problems for a company. These problems range from setting inappropriate TCC levels, mix and/or leverage to incentive pay schemes that are inconsistent with the desired job behavior and performance. Our case for achieving clarity in the definition of a business development job is based on the principal of paying jobs right; that is, pay for what the job is chartered to do and the results expected.
Companies that want to get past the confusion associated with misclassified BD jobs should confirm that there is a clear and shared understanding among top executives about what a true (or, classical) BD job is. Based on examining business development practices in a wide variety of B2B industries and companies, we suggest that the job description of a classical BD job include accountability for three key outcomes:
Identification and qualification of new profitable growth opportunities in new markets – either new industries, new geographies or both
Compilation and summarization of data to size the opportunities and assess the degree of fit to a company’s current capabilities and resources
Development of a business plan that lays out a blueprint for shaping new solutions or offerings, the go-to-market strategy for winning new business, the roles of key functions (Marketing, BUs/Products, Sales, Finance) in making the plan a reality, and the financial outcomes expected
Our next installment to this topic will provide some examples of how the BD job is compensated when incumbents are executing to these expected outcomes.
WorldatWork’s 2013 Spotlight on Sales Compensation Offers Unique Learning and Networking Opportunities!
WorldatWork’s annual Spotlight on Sales Compensation conference is where thought leaders, practitioners and service providers in the industry gather to keep up to date on trends and practices and, to stay in touch with colleagues and friends. The 2013 conference will be held in downtown Chicago at The Westin Hotel (September 9-11). See the following web page for details and well as other reasons why you don’t want to miss this conference:
This is the fourth year of the Spotlight and Colletti-Fiss, LLC is proud to be both a sponsor and presenters at the conference. One of our sessions is actually a panel discussion and Q&A on:
“Aligning Diverse Sales Management Cultures through a Common Sales Compensation Philosophy”
When it comes to simple remedies to shortfalls in sales results, few are more seductive than those involving a change to the sales compensation plan. This may explain why more than 80% of companies tweak their plans annually rather than redesign them to align with new business strategies. In many global companies, a wide cultural diversity in thinking about sales management hampers designing and managing with sales compensation plans so real business change can be realized through new selling behavior. One solution is to gain leadership support for a well-articulated sales compensation philosophy.
Moderated by Jerry Colletti, the panel of practitioners includes:
Katie Donohue, Senior Director, Global Sales Compensation & ER, Medtronic
Research shows that in some businesses up to 40% of customers are typically unprofitable and that often only 5% to 15% of customers generate 100% of company profits (see Jonathan L.S. Byrnes, Islands of Profit in a Sea of Red Ink, Penguin Group, 2012). Sometimes forces outside of a company’s control are blamed for adversely impacting profitability. For example, the 2.3% medical device excise tax which went into effect at the beginning of 2013 (as a result of the Patient Protection and Affordable Care Act) has that industry scrambling to find ways to cover that cost and still achieve aggressive profit targets expected by Wall Street.
Increased attention to sales profitability often causes top management to look to Sales and the role it plays in contributing to profitable results. This is because the sales force often has the opportunity to sell products at a high price point even though they may believe that price is an obstacle to winning business. Research by Ignite Selling (see “Are You Still Blaming Price?” www.igniteselling.com ) reports when buyers are asked to rank their top two criteria for choosing a vendor or supplier, price was only in the top two for 15% of those buyers surveyed. The most common purchase decision criteria were: post-sale support, supplier innovation, reliability, ease of use and price (in that order!).
If your company is evaluating the opportunity to place more emphasis on profitable selling and, one solution you are considering is linking sales profitability to the sales incentive plan, then our recent WAW article, “Connecting Profitability to the Sales Incentive Plan” will provide you with guidance relative to four key questions:
Which sales jobs are best suited to the use of profit measures?
What types of profit measures should be adopted?
How much incentive weight should a profit measure be given?
What changes in selling behaviors are potentially associated with sales profitability incentives?
Increasingly, companies recognize that employer branding is an important source of competitive advantage. Presenting a compelling story about a company as a great place to work is a critical tool in attracting and retaining the quality of talent required to sustain market leadership. We believe that employer branding can be extended to how a company designs, implements and manages its sales compensation plans to help achieve sales force talent goals.
A common sale compensation brand is defined by the processes and characteristics used to align it with a company’s total reward philosophy for its sales force(s). If your company is interested in moving beyond an “apple pie/motherhood” statement of sales compensation philosophy into the realm of how to best use sales compensation as true competitive advantage to win and retain the right sales talent, then you would benefit from an understanding of:
The five internal factors that directly contribute to a company’s sales compensation brand
The principal external factor that should be considered
The four phases of a typical sales compensation branding project and how each phase is executed
The seven major benefits an effectively executed sales compensation brand provides to a company and its sales force
With Q1, 2013 results in hand, many companies are now focused on the probability that the annual business plan will be met or exceeded. In companies where there is a Q1 shortfall, to gain or accelerate momentum in business growth, top management look to their sales forces to accelerate sales results.
Because sales reps hold valuable relationships with customers, motivating and rewarding the right behavior is Job #1 for the sales compensation plan. Companies may risk, however, those valued relationships with customers when “turbo-charged” incentive techniques are misused. One incentive technique that is particularly attractive to companies when regaining sales growth momentum is fast start bonuses.
If your company is contemplating the use of a fast start bonus in Q2 or HY 2013 and, you have questions about…
What is a fast start sales incentive plan
Business situations that are right for fast start sales incentives