Is the Commissioned Sales Force Right for Today s Semiconductor Industry?

Size: px

Start display at page:

Download "Is the Commissioned Sales Force Right for Today s Semiconductor Industry?"

Patience Howard
7 years ago
Views:

1 system design & management! Is the Commissioned Sales Force Right for Today s Semiconductor Industry? Using System Dynamics to Analyze Sales Incentives During Economic Changes

2 Driving Complex Selling

3 Sales Leads to Leads to Commissions s

4 Sales Leads to Leads to Commissions s $200B spent on commissions in US. In 1982, was 20%. Now 40% of pay.

5 Sales Leads to Leads to Commissions s Commissions Increase Incentive to Sell Sales Increase Commission Repeat!

6 Sales Leads to Leads to Commissions s Don t Commissions Work?

7 Sales Commissions s

8 Sales Commissions Leads to Time on Getting Paid Hoarding Information Performance Management Support Complicated Pay Plans Discouraging Teamwork Working Harder Disconnected Management

9 Is there a better way? 9

10 system design & management! Background Cubicle Field

11 Career Chip Designer Semiconductor Applications Field Applications 11

12 system design & management! State of Practice Sales Compensation in the Semiconductor Industry

13 Customers Design-In Process Define Product Select Electronics Design Build Market and Sell 13

14 Semiconductor Sales Process Win Design Get Revenue years Define Product Select Electronics Design Build Market and Sell 14

15 Semiconductor Commission Plans! Targets for commission pay is around 30% of base pay.! Cap on maximum commission.! Commissions are split for team wins.! Commissions on either revenue or design win. Define Product Select Electronics Design Build Market and Sell 15

16 system design & management! Microchip Technology Non-commissioned sales

17 Microchip History and Performance 0.8 Gross Margin Microchip Technology Inc. Texas Instruments Inc Cypress Semiconductor Inc. Atmel Corp

18 Changing to Non-Commissioned We took a systems approach. -Steve Sanghi, Microchip CEO 18

19 Sales Commissions Leads to Time on Getting Paid Hoarding Information Performance Management Support Complicated Pay Plans Discouraging Teamwork Working Harder Disconnected Management

20 system design & management! In the Literature

21 Compensation 21

22 Drive by Daniel Pink Task: Attach the candle to the wall. 22

23 Drive by Daniel Pink 23

24 It s not all about the money. 24

25 system design & management! The System Under Review Defining the System Boundaries

26 System Boundaries )'*#+&,'-(*./0 Sales Force 12/2(3 45/26'(!"#$%&'( 4$7-2826'( Customers!"#$%&'( 9'8%&%'&:';<#6%'/ Price 26

27 system design & management! Modeling the System A System Dynamics Model of Compensation in Semiconductor Sales

28 28

29 29

30 30

31 31

32 32

33 Non-Commissioned Commissioned 33

34 34

35 Results General Non-commissioned:! Retention is higher (2x)! Salesperson quality is higher! Profit margin is higher Commissioned:! Prices must be lower to compete 35

36 Results Downturn 36

37 Results Downturn 37

38 system design & management! Conclusions Using System Dynamics to Analyze Sales Incentives During Economic Changes

39 Conclusions for Semiconductor Industry! Take a systems approach.! Incentive plans matter.! Non-commissioned plans allow for! higher margins,! better employee retention,! greater robustness to economic changes.! It might be time to let go of some of the control that management feels they have with carrot and stick incentive plans. 39

40 Re du ce s Sales Commissions Leads to Time on Getting Paid + Complicated Pay Plans THANK YOU Hoarding Information + Discouraging Teamwork hmarvin@sdm.mit.edu Working Harder Performance Management Support - Disconnected Management

41 Some Assumptions! Price Weight, Delays! Revenue per Salesperson, Hiring Practices! Target Profit Margins:! Commissioned: 37%! Non-commissioned: 57%! System Boundary 41

42 Unlimited Economy 42

43 Results Long-term 43

44 Results Long-term Salesperson Turnover: 2x in commission model. 44

Retail vs. Wholesale

Retail vs. Wholesale By Dan Jensen, Compensation Plan Specialist In the world of direct selling, there is frequent debate over the pros and cons of working with your sales force on a retail basis or a