Sales Compensation Trends. October 15, 2010

Transcription

1 Sales Compensation Trends October 15, 2010

2 Overview of Trends Response to severe economic downturn Preparation for economic recovery sales leads the way Daniel Pink s book Drive expect continued conversation about how this pertains to sales compensation plan design

3 Severe economic downturn impact 80% of companies have changed their quotas due to severe economic disruption* Many changed sales comp plan to: Improve alignment with business strategy 74% Decrease plan complexity 37% More emphasis on sales profitability 35% More emphasis on new business development (new customers; new products) 35% Changed sales role: more emphasis on new business development * 2010 World@Work Annual Sales Compensation Practices Survey

4 Preparation for economic recovery sales leads the way Channel strategy for some how to get closer to the customer especially for non-direct sales Job Content jobs designed properly to reach goals? (see Exhibits 2 & 3) Performance measures trend is no more than 3 More emphasis on communication to prepare front-line managers for launching new sales comp plans: Formal face-to-face training Informal local meetings Web training First forum specifically for sales comp established by World@Work:

5 Rules of Thumb for Sales Compensation Eligibility Exhibit 1: Broad Guidelines for Determining Who Is Eligible for Sales Compensation Source: Compensating New Sales Roles by Jerome A. Colletti and Mary S. Fiss Primary Contact External Customers Internal Customers Style of Initial Contact Principal Activity Type: Description Eligibility Persuade Buyer Direct Sales: Sales focus ONLY Yes Initiate Respond Facilitate Persuade Other Sellers (e.g., Distributors, Agents, VARs) Persuade Buyer Fulfill Customer Promote Administer Execute Indirect Sales; Assist external channel Reactive Selling on Demand or Service Opportunities Service: Service Focus ONLY Support: With Objectives Support: With Program Responsibilities Support: With processing focus Yes Perhaps/Often Yes Perhaps/Often No Perhaps/Often Yes Perhaps/Often No Perhaps/Often No

6 Rules of Thumb and Examples for Sales Pay Mix and Leverage Exhibit 2: Job Type and Pay Plan Design - Typical Pay Mix, Leverage and Measures by Type of Sales Position Source: Compensating the Sales Force by David J. Cichelli Job Type Title Mix & Leverage Measures Income Producers Agent N/A Commission on all sales Independent Rep N/A Commission on all sales Asset Manager 80/20, 2.5x Return on sales Geographic Rep 60/40, 3.5x All sales Direct Sales Representatives Major Account Rep 75/25, 3x Sales & Retention Telesales Inbound 80/20, 3x Up-sell, Cross-sell Telesales Outbound 50/50, 3x New sales Vertical Rep 70/30, 3x Vertical sales Indirect Sales Representatives Overlay Specialist Business Development Technical Support Channel Rep 75/25, 3x Sales & channel balance OEM Seller 70/30, 3x New placements Application Specialist 80/20, 2.5x Sales & new accounts Product Specialist 80/20, 2.5x Sales & Rep Balance Alliance Specialist 100/0, +25% New Alliances MBO Channel End User 90/ x Sell through Presales Tech Support 90/10, 2.5x District sales Postsales Tech Support 100/0, +10% District sales

7 Daniel Pink expect more discussion and controversy as it applies to sales comp Idea posed: Monetary incentives can damage human motivation and cause seemingly irrational behavior Better performance can be driven by autonomy, mastery of capabilities and working for a higher purpose Question by sales world: do Pink s arguments hold true in the sales environment? "Pink's book has lots of data from motivation experiments on adults, children, monkeys, and mice but no data about sales people." Expect more discussion about this, particularly pertaining to solutions sales versus product sales.

8 The following material may be too basic for the group, but just in case it is useful.

9 What is the difference between Sales and Marketing? Marketing includes: Discovering what product, service or idea customers want; Producing a product with the appropriate features and quality; Pricing the product correctly; Promoting the product; Spreading the world about why customers should buy it; Selling and delivering the product into the hands of the customer.

10 Definition of Sales Selling is one activity of the entire marketing process. Selling is the act of persuading or influencing the customer to buy (actually exchange something of value for) a product or service.

11 Quick primer on sales compensation terms Base Salary: Pays for ongoing value of position to the organization: job responsibilities; requirements to fulfill the job responsibilities. Bonus: A type of incentive. Payment typically tied to actual performance compared to a goal. Can be expressed as a percentage of salary, a percentage of a defined target incentive award, or a flat dollar amount. Commission: A type of incentive, also. Can be expressed as a percentage of sales dollars, a percentage of gross margin (profit) or a dollar amount per unit sold. Mix: The relationship between base salary and incentive-opportunity component. Expressed as a percentage of target total compensation, which is the pay level for achieving expected performance. The mix is realized when results are achieved at the meets expectation level. For example a 70/30 plan reflects a mix of 70% base salary and 30% incentive opportunity. Leverage: Leverage represents the upside earning opportunity. To calculate triple leverage, multiply the at-risk portion by three and add the result to the base salary. Prominence in the marketing mix: The salesperson s influence on the buying decision. Not an absolute measure but a relative one. Factors in the marketing mix: salesperson, pricing, advertising, product quality, sales org structure, level of customer service, proximity of sales force to ultimate user, etc. Barriers to entry into the sales job: The specific knowledge, experience, and personal contacts required to do the job.

12 The 5 W s 1. Who is the customer (for this role)? 2. What is the role providing? 3. Where is the process taking place? 4. When (how often) is the employee interacting with the customer? 5. Why are customers interacting with the employee?

13 Designing sales compensation plans 1. Understand and articulate the business strategy. 2. Establish a design team. 3. Assess the existing plan. 4. Design the new plan. a. Objectives. b. Sales job definition. c. Design of plan elements. 5. Implement the new plan. 6. Evaluate results.

14 Key design factors for sales comp Job Design: What is the job content? Eligibility: Which jobs have customer contact and are responsible for persuading the customer to act? Target Total Comp: At what market percentiles should base salaries and incentive opportunities be set? Mix & Leverage: What is the salary/incentive ratio (mix)? What percentages over target pay are acceptable (leverage?) Performance Measures: Desired level of production? (e.g., sales dollars, units)? What strategic measures must be met (e.g., product mix, profit)? Incentive Formula: Will bonuses or commissions be used or both? Formula Features: What are the caps, thresholds, performance periods and payment periods? When should sales crediting occur?