Sales Resource Group

Four Ways to Improve Sales Force Effectiveness

2010-03-01T16:10:00.005-05:00

By: Emilia De Simone, Director, Consulting Services

In the face of a highly competitive business environment, increasing the effectiveness of your sales force can significantly improve the financial performance of your organization. How do you improve sales force effectiveness? There are many moving parts that ultimately combine to form a sales organization which is driven to succeed. The following is an overview of some of the moving parts:

Clear and Well-Communicated Business Direction and Sales Strategies
- A sales organization cannot perform effectively without understanding the business objectives and sales strategies of the organization. Many organization do not invest in the time and effort required to communicate company direction and business priorities. This creates confusion among the sales force in that they cannot make the connection between the intent of supporting programs and processes and what the organization requires from their efforts.
A Sales Organization Structure Aligned with the Objectives of the Business
- To be effective a sales organization must have clearly defined roles and responsibilities that align with the sales activities required from the field. The sales organization structure should take into account market and channel objectives addressed in the sales strategies; product and account management strategies; how business development will be addressed; the technical or sales support required; etc.
A Sales Compensation Plan that Drives the Right Behaviours
- Sales compensation should support your business model and essentially be aligned with the goals and sales strategies of the organization. An effective sales compensation plan should communicate what you value as an organization and where you want sales people to spend their time and effort. Sales compensation costs can be very costly to an organization; ensuring you have the right sales compensation plan and performance metrics in place that drives the right sales behaviours is essential for financial success.
Defined Sales Processes and Performance Management Practices
- Once you have identified plan performance measures it is essential to have sales processes in place which enable efficient tracking and monitoring of performance. Further, identifying performance issues early in the performance year enables management to address concerns and coach staff to ensure financial expectations are met.

Perspectives on 2010

2009-12-31T11:53:00.004-05:00

While everyone is looking back on 2009 and reminiscing about what has happened in the past year, I thought that it has limited relevance for 2010. From a business perspective, most companies would love to forget 2009 as a time of restructuring, downsizing, re-strategizing or worse yet closing down. Rather, I - being a serial optimist - would like to look forward and present a few proactive thoughts about things that readers can do to constructively influence the performance and results for next year.

Critical to sales success in 2010 will be the need to drive new business growth and account retention. Further, ensuring that salespeople achieve or exceed their targets is also paramount to climbing back to the performance levels that preceded last year's recession. Having said this, sales management is usually not about personally delivering sales, but rather creating the environment that allows salespeople to be successful. How then do we do this for 2010?

First, you have to step back from the minutia, issues, customers etc. and look at the bigger picture. If you could fast forward to December 31, 2010, what would that look like? Creating that vision for yourself and your staff is essential for setting goals and objectives that are realistic and achievable. Further, having the end point sets expectations and allows people to strive and celebrate when they are reached.

Some additional elements of managing for success in 2010 are:

Preparation - For the next few weeks/months we will still be somewhat in retrenched mode (although with the New Year will hopefully come new budgets and decisions to spend) with some time available. Use this time to prepare and position your sales force for success. What do you need to do to remove roadblocks to sales execution or provide the tools for salespeople to sell more effectively? This might include information, resources, templates or training. Having a competent sales force has been proven to be the greatest factor in developing sustained competitive advantage.
Focus - Salespeople by their nature are positive and well meaning when performing their work. They have to be to deal with the rejection and frustration that often comes with performing in the sales environment. However, if their activities are unfocused and scattered, they will not achieve optimal performance and their level of frustration will escalate. Assist them in creating focus both through better direction on where to spend their time and effort and through sales incentives and compensation that reward them for delivering on the things that you value and want to pay them for delivering.
Channel Strategies - Clarity in articulating which sales channels and activities are strategic to delivering the sales vision for 2010 will assist salespeople to behave and execute actions that will increase expected outcomes and elevate close ratios.
Planning - Most customers have fewer people who can interact with salespeople on a regular basis, which means, unless it is a large/major account with dedicated resources, the amount of time and influence that your salespeople have with the customer is less than it was in the past. This means that with limited opportunity, their information content, presentation and solution to meet the needs of the customer better be spot on, or you will be in trouble. Therefore, more time on planning, assessment of the customer and their situation as well as quality in the alternatives, selection of the preferred alternative to offer the customer and how and what is presented will determine your success.
People - Getting performance and successful execution from its people is the only way for an organization to achieve targets and expectations. What do your people need to be successful in 2010? They need clear direction, performance management, proper incentives and rewards, coaching and mentoring to improve delivery and they need good management.

While all of this might sound like common sense and the "motherhood and apple pie" of management, we rarely allow ourselves to sit down and address these needs in a way that not only aligns with the business but translates into changes in behavior and sales activity. Instead, we prefer to be busy rather than effective.

If you believe in it are taking a few moments to set some resolutions for the 2010 New Year as I am, resolve to be a better manager and leader through thoughtful realization of the things that are within your control.

All the best for a happy and prosperous New Year.

Where Will Compensation Levels Land Next Year?

2009-12-07T15:21:00.009-05:00

By: Matt Tyre, Director, Client Services

Game planning your incentive compensation program is very difficult in a fluctuating economy; it's hard to predict whether the economy will steadily climb or have some setbacks for 2010. So, how does this impact your program?

You can protect your company, customers and employees by instituting policies and providing increased communication to your sales force. These protective measures are important to all parties involved in the compensation process.

What you can do is introduce legal terms and conditions in the plan document to sales people and ensure that the company reserves the right to adjust targets where necessary. Assessing and establishing targets is very difficult in the most stable sales environment. Therefore, when the market is in a state of flux, it is even easier for the company to miss, and either set targets too high or low. Communicating to your sales people upfront that the company has a right to make changes if required avoids issues with your sales people questioning why the targets are changing in the future. Of course, this could impact a sales person's compensation payout negatively in their eyes. However, as a company you are protecting your sales person from under payouts if the targets are set too high in a flat economy. The protection for the company, in this case, is against large win-falls for sales people if targets are set too low and the economy corrects itself and shows in the positive territory for 2010.

You don't want to de-motivate your sales force with the wrong incentive plan. This will impact how they interact with your customers. These cases can be avoided by simply stating a policy to change the targets to appropriate levels as required. The message can still remain positive in the communication to ensure there is buy-in to the new policy. Leaving the company open to potential issues with your incentive compensation program can be very costly.

Reward vs Incentive Program - Which is Which?

2009-11-30T15:15:00.007-05:00

By: Matt Tyre, Director, Client Services

I had a lengthy discussion today with a company about the differences between a rewards program versus incentive program. I decided to write about it as i thought this might help others who would like to know the difference between these closely-related programs.

The two types programs are listed below with differentiating factors and examples to help paint a more vivid picture.

Rewards Program

Is a type of incentive that is typically an annual or longer-term program
Usually results in a onetime bonus payout at the end of the year
Doesn't greatly impact daily behaviour
Example: Bonus on annual company performance

Provides a longer term line of sight

Incentive Program

Are types of compensation that track, and payout, for short-term performance (bi-weekly, monthly, quarterly)
Payouts are recognized upon achievement of the measure
Typically bonus and/or commission
If designed and communicated efectively, they can greatly impact daily behaviour
Example: Monthly commission on margin with a modifier on new accounts

Provides a clear, short-term line of sight that can be impacted by daily activities. This incentive tells the sales person to meet margin performance objectives that they can impact and focus on new accounts. When properly communicated, sales people know where to spend their time and effort.

These programs provide two very different sales cultures within an organization. Your industry vertical, regional location and/or your existing sales culture, would also help define which program is better suited to your company.

Are Your Sales People Working in a Black Box?

2009-11-24T11:25:00.005-05:00

By: Matt Tyre, Director, Client Services

Recently I was asked by a customer 'how many of my sales people should hit target?' The easy - although unrealistic - answer to this question would be 100%. However, many factors contribute top the success of a sales team, thus making an exact number harder to predict.

An organization could ultimately be setting targets too high and that could be the culture in their industry or company. When you have this culture, companies tend to set stretch targets and the mindset of sales people is that they desperately need to push to meet individual targets for their team to hit their numbers. Sales people in this environment typically do not have visibility or full transparency to performance targets and actual performance. The sales people are pushing to meet whatever goal is communicated by management and these figures move around. This is what we call working in a black box. In this scenario you will almost certainly see underachievers. Communication from sales management is that they will compare peer-to-peer performance versus defined metrics not against their personal targets.

In other cultures, if the plan is designed with reasonable goals that don't fluctuate up and down, with traceable results, then 60%-70% of your sales people should be on target with the plan.

Not all employees and new hires will have the competencies to be successful, and consideration should be made to focus efforts on the hiring process. Companies that invest in this process, and scrutinize recruits beforehand with online competency tests are increase their chances for having a successful sales team by weaning out those candidates that may be a wrong fit within the organization.

Training your sales people to improve sales performance and opportunity is another element that will contribute to better overall performance. The constant reminder of a winning process can never be a waste of time. Frequent meetings to talk about wins and how successful sales people achieved wins can help other sales people follow in this process.

Lastly, mentoring top sales people can help contribute to the overall team success. Deploying the top performers to work with employees in the bottom 30%-40% will only help the entire sales team. The saying 'You're only as strong as your weakest link' may be cliche, but definitely applies in the context of the success of a sales organization.

If your sales people are not achieving results in the 60%-70% range, then they should be put on a development plan to improve their performance, or ultimately be replaced in the organization. Often, the mindset of the sales person that is underachieving is that they would want to move on as well if there is no mutual reward for the individual and the company.

Achieving this mark is important for an organization. If the sales force is motivated, successful and meeting objectives than you will see a positive work environment. If this is not the case, you will find the reverse effect.

What Affects Sales Motivation?

2009-11-10T15:53:00.006-05:00

By: Matt Tyre, Director, Client Services

Recently I participated in a study conducted by a business school that looked at influencing factors that motivate sales people. Motivation factors could be positive or negative as viewed by sales people. For example a Pay & Rewards can be motivating if performed effectively by companies or the opposite can occur. Sales people may be completely demotivated based on a poor program that doesn't provide expected pay & rewards for performance and results. The choices by organizations impacts the total rewards mix and the success of the company and sales force.

So what are motivating factors affecting sales people (in order)?

Pay & Rewards
Achievement
Personal Life
Relations with Customers
Relations with Colleagues
Work itself
Job Security
Status

What were standouts from the list that had more positive influences in motivation was Personal Life and Relations with Customers. These two factors clearly showed that sales people are motivated and find little issue in these areas.

Personal achievement does motivate sales people, but almost equally will demotivate if underachievement is a trend within your company.

What factors are de-motivating the sale force?

Recognition
Growth Opportunities
Company Policy & Admin
Career Progression
Responsibility
Working Conditions
Relations with Supervisor
Supervision

Not providing enough recognition for individual or team achievement can make for a negative work environment. Recognizing your sales people is one of the largest motivating factors and can influence the desired behaviours that a company seeks from their employees.

Company Policy & Administration ranked in the top three demotivating factors, however the majority of the feedback was negative, making this a bigger issue. Many companies have cut back resources and stretch resources thin over the past decade. One of the impacts is sales people responsible for their own administrative tasks and proposal which tie up much of their time and keep them from performing selling activities. As organizations have put this pressure on their sales people, they need to consider the competencies required for these administrative tasks, as well as the impacts of sales people not actively selling to perform administrative tasks.

Survey Author: Beaumont, Paul, Anthony - DipS, MCIM, Chartered Marketer (Mature Student, MA Sales Management, Portsmouth University)

Survey participants: 632

Will Money Buy Happiness for Sales People?

2009-11-03T09:20:00.006-05:00

By: Matt Tyre, Director, Client Services

In the mind of great sales people you may think that compensation is the primary driver in attracting, motivating and retaining their talent. I was in discussions with a Sales Executive recently and we were talking about what would attract a sales person at the senior management level to make a move from their current position. To be honest, I was not shocked to hear that monetary compensation was not their only motivator. Looking at a balanced total reward mix (compensation, benefits, recognition, work life balance, and career development opportunities) was more important to experienced sales people. Younger, less experienced sales people will typically look at money as the main attraction. Senior sales people seem to be more selective on what will attract them to make a move or stay with their current organization.

Here are some key motivators that came up in my conversation:

Work flexibility - working from home and flex hours
Less travel
Reduced distance from home to the office
Other monetary benefits - stock options, deferred profit sharing programs
Desire to have a leadership role
Willing to take slightly less in monetary compensation if some of the above concessions can be made.

You can see that work life and career-advancement opportunities seem to play a prevalent role in the discussions, more so than money. Sure, if you're offered an obscene amount of money most sales people will strongly consider the option, however it just goes to show that money doesn't by happiness and that to get great sales people to work for your company you must look at the total reward mix to attract them.

If you are in a senior management role, what would motivate you to make a move?

Who Really Owns Sales Compensation? Poll Results

2009-10-27T11:51:00.007-04:00

By: Adam Johnston, Marketing Coordinator, Sales Resource Group

We recently posted a blog posing the question, "Who Really Owns Sales Compensation?" We followed this article with an informal poll and the results were slightly predictable, however still very interesting. Of 35 responses, 62% indicated that Sales is responsible for the compensation program. Also, more respondents noted that Human Resources(15%) should own the sales comp program than Finance(6%).

What I found most interesting, however, was the number of respondents that believed there should be a shared responsibility for the sales compensation program. In our poll, 18% of those who participated believe there should be a shared responsibility between all functional departments (Sales, HR, Finance and IT).

While not completely scientific, it was still interesting to see the overwhelming belief that Sales should hold responsibility for the compensation program. I think the strong support for shared responsibility, in our poll, hints at the belief that while Sales should be held accountable for the compensation program, each department should have a hand in it's development and administration.

What is a Sales Compensation Framework?

2009-10-15T10:08:00.004-04:00

Sales compensation programs need to have consistency across an organization as a whole. Typically a framework is developed to create the alignment across multiple business units and within the job functions. With this approach you provide the individuality that each business unit needs, but holistically the company has a similar structure in their comp plans.

There are two levels in the framework process. First is looking at the company as a whole and then looking at each business unit's:

The second level is taking this information and looking at the key elements in each business unit. Some elements included in Sales Compensation Frameworks:

Sales Roles
Pay Mix
Metrics for Measurement
Performance and Payout Frequency
Individual/Team Measurement

When designing a framework you can take a basic excel spreadsheet and build a table. The table should be presented in a way that you can compare the jobs and the differences in mix, individual or team metrics, and the performance and payout frequency. When you build your framework you should see some consistency in some of the measure/metrics, except the variability by role and level of responsibility. An example would be to have a sales rep focused on individual gross margin sales and a manager being rewarded on the sum of all sales for their sales reps and for their region in gross margin sales. The consistency in the design will unfold and should ultimately tie back to the business goals and objectives for the company and their business unit.

Top 5 Reasons to Redesign Your Sales Compensation Program

2009-10-13T11:00:00.004-04:00

By: Matt Tyre, Director, Client Services

Year after year companies apply changes to incentive compensation plans, which drives some sales people crazy. Some companies are more consistent than others and have found balance in their program. They may apply tweaks that are required but that is all. So why do companies continue to make changes to the program? Below are the Top 5 reasons why changes are made in order for sales people to understand the rationale.

Top 5 Reasons to Redesign your Sales Compensation Program

The company recently went through a merger or acquisition
The strategy has changed (typically with new management or change in market)
The program is not achieving the desired behavior from the sales people
The program is paying out too much or too little in incentives
The program is not aligned appropriately to your companies market segment or industry vertical.

Leave a comment and let me know what you think

What are People Saying About Sales Compensation on Twitter?

2009-10-08T13:58:00.005-04:00

The sales incentive compensation conversation is a contentious and varied topic. Every professional has their own opinion about how to motivate sales people, whether incentives actually work, how does technology simplify the process, etc. At Sales Resource Group we encourage open dialogue on all topics relating to sales compensation and performance management. Find us on Twitter here.

Stay involved in the conversation in real time and contribute your own thoughts

Who REALLY owns sales compensation? You Decide!

2009-09-30T10:38:00.018-04:00

We posted a blog recently trying to justify the role of each department in the sales compensation design and communication process. We received several observations and mixed opinions; now we would like to hear from YOU! Who do you think owns the sales compensation responsibilities?

This poll requires the latest version of Adobe Flash Player 10. If you cannot view this poll please download the latest version of here.

Who Really Owns Sales Compensation?

2009-09-24T14:50:00.005-04:00

By: Matt Tyre, Director, Client Services

Tuesday was an exciting, and illuminating, day of discussion at the Toronto Board of Trade. Sales Resource Group hosted a sales compensation planning session for the upcoming year and some interesting discussion came out in the seminar-closing round table. Many questions were asked about different industry issues and trends; however one question seemed to be the hot-button topic of the day, who owns sales compensation; Sales or HR? With a varying group of professionals from industries such as office supplies, retail, telecom and financial services, the response was one that didn't settle the debate concretely. The mix from the group was exactly 50-50. So it seems that sales compensation is an entity that's ownership hovers between Sales and Human Resources. Some groups were transitioning the ownership from Sales/Sales Op's to HR, which doesn't set any trends, but may be an indication of where some organizations believe the responsibility belongs.

The relationship between both HR and Sales is critical in the success of the incentive compensation program and executing sales strategies. As companies invest millions in incentive payouts it is important that the roles and accountabilities are defined. The key is to ensure that all departments provide value in the process and have responsibilities for the outcomes. Ownership lies with each group fulfilling their obligation to the process and knowing what they are accountable for.

Here is a list of key responsibilities by department:

Compensation Plan Assessment
Compensation Plan Recommendations
Compensation Plan Framework Development
Conceptual Plan Design
Compensation Plan Modeling
Final Plan Development
Plan Document Communication
Plan Communication to the Field Sales people (in collaboration with Sales) – Supporting Role

Sales

Develop Sales Strategies and Communicate to HR
Review and Approve Recommendations - Ensure Alignment with Strategies
Review and Approve Framework - Ensure Alignment with Strategies
Review and Approve Conception Plan Design - Ensure Alignment with Strategies
Provide Targets to HR for Document Communication
Approve Final Plans
Plan Communication to the Field Sales people (in collaboration with HR) – Lead Role
Review Performance vs. Targets

Finance/IT

Access to Data
Confirm Available Metrics for Plan Designs
Costing of Incentive Program (Finance)

HR/Sales Op's/Finance/IT (Depending on the organization)

Calculate Commission and Bonuses

Obviously, responsibilities vary by organization. The list provides guidance to what departments own which elements in the process. As you can see, mo individual department owns the design process; instead it should be a collaborative effort to ensure the strategy of the business is met. Where it becomes unclear in most organizations is who owns the calculation process. Who manages calculations, adjustments and approval of the calculated incentives? We have seen this vary from all departments (HR, Sales, Finance, and IT) but whoever owns it, is accountable for providing timely and accurate calculations to the sales force. This critical piece may require involvement from all the groups to complete the fulfillment of payouts, which is the most important aspect to the sales person. If your sales people are delivering on the desired behaviour of the plan and the payout process is managed effectively you will have a positive sales environment for your company.

Knowing Your Role

2009-09-17T09:10:00.006-04:00

By: Matt Tyre, Director, Client Services

In the world of sales and incentive compensation we design plans for roles and positions. I have heard over the years different titles used to describe functions in a role, with much inconsistency. In HR, the Compensation Analysts are responsible for job matching and finding market data to determine what level the company is paying it's sales people relative to the market. They look at their company role/job title as a starting point to try and match it to a job title in a survey and then they can narrow down the search by reviewing the descriptions. This is usually a daunting task because few companies have consistency in the titles and descriptions of their roles to that of their competitors. The Comp Analyst's objective is to analyze the companies roles and match them up to a position in an industry survey. The problem is that there is no standard that every company follows. Most companies don't use role titles correctly, simply because they don't know any better. Let me give you an example to explain the confusion, if you are given the title of "Sales Rep" and the company tasks you with managing recurring accounts, does that description fit the job title? The answer is, no it doesn't; ladies and gentlemen, you are an Account Manager.

I would like to provide you with three role/position titles to possibly help you get closer to standardizing your compensation structure.

Sales Representative - Typically a "Hunter" role, looks for new accounts, territory oriented, may have some accounts that they manage, but have focus on delivering a stream of orders
Account Manager - Typically more of a "Farmer" type role, retention focused and nurtures the relationship with their accounts to grow the installed base.
Account Executive - Generally handles larger accounts and bigger opportunities in the market place (with bigger target expectations as well). Often has a combination of both account management and new accounts, with a greater focus on new business development.

Sales and HR need to be in sync to make sure there naming conventions have common terminology when compared to the market standard.

The Seven-Year Itch Between HR, Finance and Sales

2009-09-15T14:27:00.007-04:00

By: Matt Tyre, Director, Client Services

In the world of incentive sales compensation there is a relationship between Sales, HR and Finance. This relationship somewhat resembles a marriage in that, many marriages reach a certain point - once considered to be the seven-year mark - where one or both individuals develop an itch that needs to be scratched by someone new. This, obviously, creates a rift in the relationship that can mirror the struggle that many corporations face between departments when it comes to sales compensation management.

In some companies, the marriage between these departments is strong and fulfilling, and other companies seem to have a relationship teetering on the edge of divorce.

Like many divorces, the question that ultimately comes to mind is, "why didn't it work?" The power struggle for control or the unwillingness to communicate effectively are two major contributing factors that weigh on the relationship. In some companies HR has the responsibility in the design process and in others it is Sales that control the design process, while excluding HR. Regardless of blame or responsibility, the ultimate question is, if your company has a rift in these relationships, what changes need to be made to salvage them? Well, in a marriage we can leave and start anew, however in this case, as a business, the only solution is to address these issues head-on.. consider it therapy. Now I am NOT suggesting you fire your VP of HR, Sales, and Finance so the relationships are all new, but rather arrange for the parties to discuss how to better manage the relationship and address the issues between them. Each contributes to the success of the incentive program and plays an integral role.

These Responsibilities include:

Finance - Provide costing, data access, and identification of metrics available from a design perspective, some cases calculate incentives.
Sales - Have the strategies, direct field sales insight (i.e. customer/product knowledge), key contribution in the design process, and in some cases calculate incentives.
HR - Provide market data analysis, acts as an intermediary between many departments and turns the concept plans into the execution phase by communicating the plan documents to the field sales force, and in some cases calculate incentives.

In some companies the responsibilities vary between departments

Here are some common issues that may be factors in your relationship:

Exclusion in the decision making process - Sales, HR and or Finance may limit the involvement of one another and become territorial.
Communication breakdown - Failure to communicate effectively between departments.
Lack of understanding roles - The lack of understanding of the contributions that each department makes to the process.

If I can take this analogy one step further, we can look at the field sales people as children of the relationship and the negative impacts of their parents (department heads) are visible and will leave scars. Could be a bad plan design, or lack of trust in data, or sales people not understanding the plan, all because of relationship issues throughout the company. The end result is that the sales people will struggle to meet expectations and flounder, instead of flourish.

The only way to save the relationship is to open dialogue between these departments and address the issues before itch becomes too difficult to scratch.

Tomorrow's Blog: Knowing Your Role

Why is ICM Viewed as a Burden and Not a Blessing?

2009-09-14T09:36:00.007-04:00

By: Matt Tyre, Director, Client Services

Like a kid on Christmas morning, this is the time of year when everyone is getting really excited about starting the planning process for their new incentive compensation plans that they will develop for next year (You can almost hear the sarcasm in my keystrokes, no?). All joking aside, the reality is that incentive compensation is an effective way to motivate sales people and reward for performance. The burden of this exercise is the time and effort invested by many people in a company to get to the end result. The burden of endless meetings, market data analysis, costing, modeling, plan design, target setting, approval process, and final communication to the field, is a daunting task for everyone. The burden weighs on Sales, HR, Finance, and in some organizations IT. The issue is that most sales management teams don't embrace this challenge and associate the impacts that the incentive program has on driving the business. The compensation plan supports the sales strategies of the business and acts as a conduit to enable the sales force to reach milestones that are important to the company. The blessing is seeing sales people focus on the reward that is driven from their commission or bonus plan and in turn drive the business in the right direction.

This may come across as stereotypical of sales managers, but some seem to have other priorities before dealing with the annual incentive compensation responsibilities, and this task shouldn't be ignored or neglected. I know Sales Management needs to focus on many other elements within their job function but the attention to this one detail is a testament to your management ability. The impacts of poorly executed incentive compensation will impact your bottom line, and to put it bluntly, I am sure that is the forefront of your business objective.

Below is a list of exercises that I feel are generally the foci of Sales Managers:

Target/Quota setting
Recruiting and Training
Evaluation
Budgeting
Expenses
New Business Development
Account Management
Forecasting/Funnel Management
Recognition Programs
Compensation Plan

I am sure I missed a few elements, but the point is that the priority for compensation won't be on the top of the list and that is to be expected. BUT, you might be surprised with the impacts on the business if this one sales function is executed properly. Embrace the burden and see how your sales will be positively impacted.

Tomorrow's Blog: The 7-Year Itch Between HR and Sales

The Trickle Effect of Poor Sales Incentive Compensation

2009-09-09T10:51:00.008-04:00

By: Matt Tyre, Director, Client Services

Every year Sales and HR organizations invest time to develop incentive programs for their sales people with positive intentions. Here are three situations that can arise and result in negative impacts on the program.

Rolling out plans late in the year
What are the most common reason that plans are rolled-out late? Well, as sales compensation administrators might tell you, it is often the decision making process that stagnates the green light for plan approval. The approval process in some organizations has to go through multiple departments and levels of management, which slows down the communication of the plan to the sales force. Issues could also stem from target setting, to the lack of urgency. Some sales organizations don't connect the level of importance of the sales compensation program as the direct link to supporting the sales strategies. The impacts of a plan being rolled out one-month late, for example, is that your sales people lacked reinforcing direction for one-twelfth of the year that should drive the behaviors the company is expecting. One-month's lack of focus equals trickle effect number one.

Poor communication is common
The communication of a plan is as important and the design itself. It needs to be clear, understood and positively reinforced so the impacts produce the desired results. Consider this, for example, a new plan is rolled out and the sales people have not bought into the plan. It is beginning to create negative behavior within the organization. This behaviour runs juxtaposed to the original intent of the incentive program and creates an inefficient working environment. It is hard to measure the impacts of a mass exodus of sales people and customers hearing negative condemnation of the company. However, such could be the result of trickle effect number two.

Complicated or incorrect design leads to a myriad of issues.
Finally, a simple plan that can be understood easily by a sales person will deliver desired results. A complicated plan that confuses a sales person will create no behavioral change and in turn is a waste of resources - both time and financial - to the organization. If you want your sales people to focus on sales of widgets, pay them for widgets sales. If they can impact margin, incent them to focus on margin. Metrics that are key foci for sales management, that you want to have your sales people focus on, must be within their ability to impact. For example, many organization want to focus on margin, but if the sales person in unable to impact the result, it shouldn't be in their plan. Build plans that are within the sales persons' control, where they have the ability to influence the results and recognize a reward. Poor results stem from a lack of focus, and lack of focus stems from complicated incentive plans. This illustrates trickle effect number three.

The trickle effect theory outlines that each time a negative-reinforcing element in your sales incentive compensation plan occurs, it happens at a a cost to the business. The goal is to avoid these mistakes to ensure an effective incentive program and achieve desired results. When incentive compensation is managed effectively and is supporting the strategies of the company, positive results ensue.

Tomorrow's blog: Incentive sales compensation, burden or blessing?

SRG President David Johnston joins Podcast on Salesopedia.com

2009-09-08T11:44:00.004-04:00

Follow the link below to hear Sales Resource Group President, David Johnston interviewed for a podcast on Salesopedia.com.

Top 5 Words to Have in your Sales Compensation Vocabulary

2009-09-08T09:28:00.009-04:00

By: Matt Tyre, Director, Client Services

Here are 5 HR/Sales incentive compensation terms to communicate more effectively with your sales people in your plan documents.

Target Total Compensation (TTC) - at 100% performance what a sales person can earn.
Interpolated - paying in between performance tiers.
Strategic Initiative/MBO - qualitative or quantitative performance measure.
Threshold - meeting a minimum expectation of performance to earn an incentive.
Holdback - holding back a portion or all of an incentive until performance milestone is achieved.

10 Steps to Designing a Compensation Plan for a New Hire

2009-09-03T09:57:00.006-04:00

By: Matt Tyre, Director, Client Services

This week I had the opportunity to work with one of our customers in the software industry on a sales incentive compensation plan for a new hire. In designing a plan we assessed many elements of the role and the anticipated impacts on the business. I thought it may help others out there trying to find simple ways to learn how to design plans. Here is a high level, 10-step approach!

Have a company framework - a framework provides consistency in the plans for the company, from a communication and design perspective. This should include consistent measures/focuses so all your sales people are rowing in the same direction.
Establish the Role - In this case it was an entry-level, New Business Development role, or in simple terms, a Sales Rep. When establishing the role we know the nature of the position; where a Sales Rep is a hunter, and the Account Manager being a farmer.
Establish Target Total Compensation (TTC) - Look at market data to establish what the job is worth and what the business can afford. Also, audit the current compensation pay structure for current employees, so you are providing fair and equitable pay for performance.
Establish your mix (eg. 50/50) - The mix is how much of your total target pay is base and how much is target incentive. When setting up the mix for the role recognize the impacts of higher or lower base salaries it will help in establishing the performance and payout frequency for your sales people.
Establish the key metrics and measure of performance for the role - The metrics should be measurable and link back to the objectives and strategies of the company. If a company is quite simply looking at revenue figures, than a metric for gross margin dollars doesn't link back.
Establish the type of incentive(bonus, commission, MBO) - Depending on the role, sales life cycle, individual or team performance, etc. a bonus or commission may apply more appropriately in the defined performance measures. In setting up your measures look at individual and team performance. In this case, we looked at a very simple individual performance metric of revenue and applied a single fixed commission.
Establish the performance and payout frequency - This was important as we increased the frequency to accommodate the cost of living and having a lower base salary and being paid out on incentives quarterly was to long of a period. We increased the pay and performance periods to monthly.
Set targets - Set realistic targets that can be achieved by at least 70% of your sales people. If you set stretch targets that are unachievable you are driving the wrong behavior with your sales people. When you look at target setting you can look at previous year's performance in the territory or if the person has been with the company for while you can look at the trending numbers to set proper targets.
Set Commission rates - look at the profitability of your business to establish how much you can pay and still reach the profit level you are trying to achieve. Also, consider what the market is paying and if it applies to your business.
Costing/Modeling - how much will this plan cost the business if the sales person hits x%? Run the numbers against previous year's data to see if their performance is the same as last year; what will it cost?

After constructing the plan in an hour, the President of this software firm presented the plan to the candidate and they start next week! Our customer is happy, and so is their new employee.

Hope these simple guiding principles help to design your own sales compensation plans!

A world without incentives...

2009-09-01T14:28:00.005-04:00

Don't start looking for the rabbit hole yet!

By: Matt Tyre, Director, Client Services

What would life be like without incentive sales compensation? How would a world with just base pay positively and negatively affect sales people and companies? The state of which incentives have changed and become more complex in the past 50 years is amazing! The K.I.S.S. theory (keep it simple stupid) seems to have been all together lost as we continue to see some of the most complex plans from organizations in many different industries. Each plan has its own uniqueness and not one of them is the same. All of them are complex and when we see plans like this I think about the sales person struggling to understand their compensation plan. Sales people have issues with simply understanding how they are getting paid. Plans are so complex that it has put many organizations in positions to have plans communicated later in the year and not delivering the desired behaviours until it is too late to really impact the results for the year. Also, with complexity comes the increase in administration costs for organizations.

My first impression is life would be a lot simple to administer pay for sales people without incentives, so this could be a large savings from an administrative cost to an organization. Fewer resources would be required to manage compensation from the design, administration and calculation standpoint. Sales people would focus solely on selling and be less concerned about being paid properly (i.e. shadow accounting). The KISS theory could be applied because the plan is simple; here is what the role pays, period. Market data would still be relevant to identify which percentile your company pays your employees. The overall program to be competitive in the market place would be simplified by not having to work into market job analysis incentives and target total compensation (TTC).

The down side to a world without incentives is the fixed cost of sales people with salaries for an organization. Companies would not be paying for performance and they would only have fixed expenses, regardless of the talent levels of individual sales people and delivery of results. In the current state, the pay for performance protects the company from sales people not meeting objectives and offsets the resource costs for unproductive sales people. Having only base salary would discourage top performers as they would not see a monetary increase in a reward, however, other recognition programs could be introduced.

A cultural change would have to be developed in a world without incentives. All great sales people have competencies and qualities that would thrive in either environment. Good sales people have drive, ambition, initiative, and pride to succeed. There are great employees today that are on salary that will work hard for a company without incentives. However, the all mighty dollar does influence good sales people. The incentive to work harder with even just opportunity to earn more money is common place and to remove this culture entirely would take decades to influence with a suitable solution to meet the intrinsic needs of the sales person and environment.

Let's put one idea out there and by no means is this bullet proof, but we are only imagining a world without incentives, so let pretend, shall we?

Q: We have no incentives so how do pay for performance equitably across an organization and the market place?

A: Our only option is to move the base up or down based on performance.

Q: How do we measure how the base goes up or down?

A: In place of increased incentive pay, there could be the following:

A points system for promotion or lateral advancement within the company
A points system for merit increase of base pay
A demerit points program for under achievers

The points program applies change in the target base pay amount for a role to ensure the sales people are paid according to their performance levels. The base pay amount which is currently set annually would be reviewed and changed on a quarterly, semi-annual or annual basis, depending on the role, sales life cycle, etc. This would allow sales people and the company an opportunity to benefit on positive results, while maintaining the companies' ability to adjust the pay for poor performance. A role would have a starting base amount set at market value. Based on the performance of the employee they can increase or decrease the base pay amount by a determined percentage basis point. Maximum increases and or decreases could apply to ensure stability. A new hire has an opportunity to come in at market value and based on the performance can earn more or less. With this model companies would not be changing the design every year, they would only be concerned on what metrics to measure against, what weighting and the amount of percentage points to increase or decrease. Simple! Companies would align the business goals with the compensation plan in the same way as we see today, using points that weigh the objectives and drive the desired behaviours from sales people. The approach is much like a Percentage of Base Salary approach but allows the company to move the base salary around based on their performance levels and gives the sales person control over how much they bring home.

Here are two examples of an under and over achiever:

You can see that the base pay would change in the following year and the new compensation plan would apply at the new base pay amount. If the employee over or under achieves than it will take them until their next performance evaluation to see an increase or even another decrease.

Incentives absolutely can have a positive impact on the way in which we influence sales people. The realistic direction that companies' need to consider is simplifying the plan design and communication, and ensure that data is available to calculate incentives. If you find the incentives that you are setting to be too complex, think about how the sales person feels and the impacts that may have on the business. Ultimately a base salary will suffice, because if you don't effectively design and roll out plans on time, the negative impacts on behaviour will be more harmful than simply providing a base salary.

David Johnston on Salesopedia.com

2009-08-31T09:30:00.014-04:00

Rewarding the Superstar

We are currently in the era of the superstar athlete, where individuals that are the elite of their sport can make millions of dollars per year, on contracts spanning many years. While there is consensus, that these individuals should make more than the average player, there is considerable controversy over how much even the best athlete in any sport is worth. The player (and particularly their agent who gets a cut of the contract) will say that they deserve a share of the financial success of the team, particularly if they lead the team to a championship.

They also subscribe to the free market approach, which says that supply and demand, should determine how much the best should get paid. It should not be surprising then that the high performing, elite salesperson (especially those that are critical to the company making their sales targets) should want to be rewarded in the same way.

To read more go to Salesopedia ».

Half a World Away... Same Issues

2009-08-14T10:31:00.006-04:00

By: David Johnston, President, Sales Resource Group

I am writing this blog from my hotel room in Kuala Lumpur, Malaysia. Having taught in Asia several times, I am still amazed that in vastly difference cultures and organizational philosophies, that when it comes to sales, the problems that companies face are the same as those in North America. In particular, the struggles to set targets that are fair and reasonable so that salespeople are focused and motivated. Further, there is a lack of good performance management systems and the ability to track and hold salespeople accountable. Finally, the capability to assess the quality, performance and accountability of their Sales Managers underlines their concern about economic recovery and positioning themselves for future sales success.

Performance management and the systems to track and accurately, consistently measure actual versus targets in a timely and simple fashion is the holy grail of business today. Particularly in sales, during the current global recession, it is the optimum time to create and implement the capability to position the organization to take advantage of any pending upturn in the economy. However, the commitment to finance and resource such projects must become a high enough priority to make it happen. Research has shown that salespeople well managed, through effective performance management programs perform better and deliver improved revenue and profit performance... anywhere in the world. That is how I see it... how about you?

Join Sales Resource Group on Facebook and Twitter

2009-08-13T15:31:00.014-04:00

Now find Sales Resource Group updates via Twitter and Facebook. Find all the news and blog updates for SRG at your finger tips.
Sales Resource Group Inc. on Facebook

Global Sales Environment Ahead of Malaysia Trip

2009-08-06T09:18:00.004-04:00

By: David Johnston, President, Sales Resource Group Inc.

I am leaving next week to travel to Kuala Lumpur, Malaysia to teach a course on "Sales Excellence in Turbulent Times". As I was putting the materials together, I was struck by the scope of just how hard the current recession has been hitting sales organizations. The potential exists for 50 million people globally to be out of work (Wikipedia). In order for us to come out of this recession it is essential that we create a planned approach to coming out of this economic situation.

We have a perspective on what the causes and implications are for our organizations and are struggling to extricate ourselves from it. It is important to recognize however that this is a global crisis. I am looking forward to presenting to sales executives from the Pacific Rim and gaining an understanding from them what causes and solutions they feel are appropriate for their sales organizations going forward. I will blog on it upon my return.