How to Become a Global Leader in Sales Incentives

Transcription

1 Global Trends in Sales Compensation Sales compensation seminar W W W. W A T S O N W Y A T T. C O M May 31, 2006 Shanghai Jon Randall Director, Human Capital Group Singapore [email protected]

2 SH AmCham Sales Incentive Seminar Agenda 15:00 Reception 15:30 Global Sales Incentive Trends (Jon Randall Watson Wyatt Singapore) 16:10 5 Hot Sales Incentive Topics in China (Kevin Li Watson Wyatt Greater China) 16:50 Industry Experience Sharing (Marlene Ye Boehringer Ingelheim) 17:10 Panel Discussion 17:30 Session Ends

3 There are an estimated 100 million full-time sales people in the world? Companies spend $1 Trillion to $2 Trillion per year in compensation cost in the U.S. alone? 83% of companies revise their sales incentive programs once a year or more? 99% of the Global 2000 have sales forces; 9 out of 10 have non-domestic sales people? 3

4 Why Such Frequent Change? Sales compensation plans expire each year and are reviewed for changes Frequency of Plan Evaluations (Percentage of Companies Evaluating Plans) Every Year 73% Twice or More Per Year 10% Every Two Years 8% Three or More Years 9% 4 0% 20% 40% 60% 80% Source: Watson Wyatt Data Services

5 Sales Forces Evolve Phase 1 START UP Phase 2 HIGH GROWTH Phase 3 SLOW GROWTH Phase 4 OPTIMIZATION Any Business More Business Certain Business Limited product offering Expanded product offering Multiple product lines Sell to survive Lower costs Hold share Find new customers Scaleable growth Find new and grow existing customers Introduce new products Find, win and keep customers Sustain profit margins Cover all customers Targeted Business Customer Segments Inadequate market presence Poor traction of new products Inadequate rainmakers Pricing pressures Sales productivity Job contamination Multiple strategies Vary by customer segment High cost of sales SBU structure 5

6 Job Roles Change Market Specialists Unique Sales Force Prospects Finders Market Makers Buyers Customers Keepers Growers Product Specialists 6 Existing/Core New/Different Products

7 In the beginning... Coverage Models Evolve Too Segments Sales Process Small Mid Lead Qualify Propose Close Fulfill Manage Geographic Geographic Territory Territory Sales Sales Reps Reps Large 7

8 Iterations Begin to Accumulate Then customer tiers or segments are defined Segments Sales Process Small Mid Lead Qualify Propose Close Fulfill Manage Telesales Telesales Large Geographic Geographic Territory Territory Reps Reps Enterprise Named Named Account Account Sales Sales Reps Reps Account Account Coordinators Coordinators 8

9 Segments Small Mid And the Sales Process Becomes Disaggregated until iterations become complex and costly Sales Process Lead Qualify Propose Close Fulfill Manage echannel echannel Telesales Telesales Reps Reps Proj Proj Mgrs Mgrs Agents/Distributors Agents/Distributors Cust Cust Care Care Large Enterprise Telemarketing Telemarketing Reps Reps Named Named Account Account Sales Sales Reps Reps Account Account Coordinators Coordinators 9 Vertical 1 Vertical 2 Vertical Vertical 1 1 Specific Specific Reps Reps Vertical Vertical 2 2 Specific Specific Partners Partners

10 Sales Incentives Are The End Of A Process Not The Beginning Define Sales Strategy Define Performance Strategy Develop Rewards Strategy Leading diversified global firms have been methodical in their approach to achieve alignment of sales incentive plans Conduct Competitive Assessment Design Plan 10 Avoid Designing Incentive Pay in a Vacuum Implementation Planning

11 An Emerging Practice A Common Design Process Transparent Culturally neutral Facilitates mobility Easy to communicate BUT HQ-centric Not market responsive Inefficient use of compensation funds Some programs may be ineffective Full Global Consistency 11 Sweet Spot lies in the balance between the two extremes Market responsive Efficient use of funds More effective program application BUT Less transparent More challenging for communication and mobility More labor intensive design/administration Local Market Design

12 An Emerging Practice A Common Design Process Global Sales Force Rewards Practices Company Profile 12 Sales Incentive Design Component Sales incentive eligibility Performance measures Pay Mix Pay Levels Sales Goals Incentive Formulas Plan Policies Plan Administration Source: 2005 Watson Wyatt Sales Force Pay and Performance Study High- Performing 51% 51% 57% 47% 54% 57% 68% 61% Low- Performing 33% 38% 40% 60% 57% 57% 75% 63%

13 Sales Force Activities Do Impact Company Success Firm Performance Low High Performing Performing Individual Performance High Performing Low Performing Selling: 64% Non-Selling: 36% Selling: 62% Non-Selling: 38% Selling: 70% Non-Selling: 30% Selling: 68% Non-Selling: 32% 13 Source: 2006 Global Sales Effectiveness Quotient Survey

14 Sales Force Activities Do Impact Company Success Percent of Selling Time Prospecting Lead Qualification Needs Assessment Product Demonstration Proposal Development Closing Account Maintenance Customer Entertainment Firm Performance Low Performing 11% 6% 13% 11% 6% 17% 27% 10% High Performing 12% 6% 15% 13% 7% 18% 23% 6% +8% -8% Source: 2006 Global Sales Effectiveness Quotient Survey 14

15 Sales Force Activities Do Impact Company Success Percent of Non-Selling Time Routine Business Planning Travel Professional Development Own Professional Development - Others Non-Sales Administration Sales Administration Firm Performance Low High Performing Performing 14% 10% 17% 6% 19% 34% 16% 12% 17% 8% 19% 27% +6% -7% Source: 2006 Global Sales Effectiveness Quotient Survey 15

16 Quota Achievement Rates Quota Achievement Rates All Regions The Concept of Target Performance Varies By Region Median 91% Number of Representatives Average 94.8% 0 16 Less Than 75.0% 75.0% to 77.4% 77.5% to 79.9% 80.0% to 82.4% 82.5% to 84.9% 85.0% to 87.4% 87.5% to 89.9% 90.0% to 92.4% 92.5% to 94.9% 95.0% to 97.4% 97.5% to 99.9% Quota Achievement Range 100.0% to 102.4% 102.5% to 104.9% 105.0% to 107.4% 107.5% to 109.9% Greater Than 110.0%

17 2006 Sales Incentive Compensation Survey - Singapore Survey Highlights W W W. W A T S O N W Y A T T. C O M

18 Profile of Participants A total of 50 companies from a diverse spectrum of industries participated in the survey. Industry Healthcare/ Pharmaceutical & Medical Products 6% Financial Service/Banking/ Insurance 6% Other Industries 18% Services 6% Utilities/ Energy/ Petrochemical 6% Telecommunications 8% High Technology / Information Technology 24% Manufacturing - Electronics /Semiconductor 14% Retailing/ Distribution/ Wholesaling/ Trading 12% 18

19 Profile of Participants Majority of participants are foreign MNCs with the American companies forming the largest group. Nationality of Company Status of Company Singapore 32% North America 40% Regional/ Global Headquarter 62% Local Subsidiary/ Joint Venture 38% Asia Pacific 8% Europe 20% 19

20 Survey Participants American Express International Inc. Aspentech Pte Ltd Assab Steels Singapore Pte Ltd Boston Scientific Asia Pacific Ptd Ltd Brady Corporation Asia Pte Ltd Canon Singapore Pte Ltd Carrier Singapore (Pte) Limited Chong Lee Leong Seng Co. Ptd CISCO Security Pte Ltd City Gas Pte Ltd Clouet Trading Pet Ltd CSC Computer Sciences Pte Ltd Cycle & Carriage Group of Companies Donaldson Filtration (Asia Pacific) Pte Ltd Draeger Safety Asia Pte Ltd Future Electronics Inc. (Distribution) Pte Ltd Hitachi Asia Ltd Infineon Technologies Asia Pacific Pte Ltd Microsoft Singapore Pte Ltd Molex Singapore Pte Ltd Neptune Orient Lines Ltd Network For Electronic Transfers (S) Pte Ltd Nexwave Solution Pte Ltd Nike Singapore Pte Ltd Oakwell Engineering Limited Pepperl+Fuchs Pte Ltd PerkinElmer Singapore Pte Ltd Prudential Assurance Company Singapore Pte Ltd RCI Asia-Pacific Pte Ltd Reed Business Information Asia Renesas Technlogy Singapore Pte Ltd Roche Singapore Pte Ltd RS Components Pte Ltd Samsung Asia Pte Ltd Schmidt Electronics (S.E.A.) pte Ltd Semiconductor Components Industries Singapore Pte Ltd Shell Eastern Petroleum Pte Ltd Singapore Polymer Corp (pte) Ltd Singapore Post Ltd Speedline Technologies Asia Pte Ltd ST Sunpage Pte Ltd Starhub Telechoice International Limited The Northern Trust Company Singapore Branch Thomson Asia Pacific Holdings Pte Ltd Tyco Flow Control Pte Ltd Tyco Healthcare Pte Ltd UPS SCS (S) Pte Ltd Wearnes Technology Pte Ltd Wincor Nixdorf Pte Ltd 20

21 Profile of Sales Force of Participants Close to 70% of companies' sale force strength forms less than 20% of total workforce in Singapore. The sales force are commonly organized by Product Lines. Proportion of Sales Force Over Total Workforce In Company Sales Force Organization Less than 10% 46% 11% - 20% 22% 21% - 30% 14% By Product 34% Combination of 2 or More Factors 28% By Customer 6% > 31% 18% By Territory/ Geography 14% By Industry/ Sector 18% 21

22 Plan Participation Extent of Sales Incentives Adopted for Various Levels of Sales Jobs Most companies adopts some forms of sales incentive plans (commission or sales bonus) for their line sales jobs. The use of sales incentive diminishes for Sales Directors and sales support functions. Sales Rep/ Engineer/ Executive 92% Sales Manager 80% Sales Supervisor 58% Sales Director 40% Sales Support 26% 22

23 Sales Incentive Payout Target v.s. Actual Companies have paid out higher quantum of Sales Incentives than targeted last year. This could imply that sales forces are generally achieving better performance than expected. Average Sales Incentive Payout (In Months of Base Salary) This Year - Target 3.80 Last Year - Actual 4.65 Last Year - Target

24 Sales Incentive Payout Target v.s. Actual Industry Comparison In Months of Base Salary High Tech/ IT Mfg - Electronics/ Semi-conductor Other Industries Last Year - Target Last Year - Actual Comparison of Last Year's Actual vs. Target Payout Higher Lower Higher This Year - Target

25 Pay Philosophy Base Salary & Total Cash Singapore vs. Europe Base Salary Total Cash Singapore Europe Singapore Europe Above Market 36% 22% 54% 47% At Market 56% 53% 42% 32% Below Market 8% 25% 4% 22% Source: WW European Sales Incentive Survey,

26 Pay Philosophy Base Salary & Total Cash Industry Comparison Base Salary Total Cash Other Industries High Tech/ IT Mfg - Electronics / Semiconductor Other Industries High Tech/ IT Mfg - Electronics / Semiconductor Above Market 32% 50% 29% 45% 58% 86% At Market 58% 42% 71% 52% 33% 14% Below Market 10% 8% 0% 3% 8% 0% 26

27 Pay Philosophy Base Salary & Total Cash Local v.s Foreign MNCs Base Salary Total Cash Local Companies Foreign Companies Local Companies Foreign Companies Above Market 19% 44% 37% 62% At Market 75% 47% 63% 32% Below Market 6% 9% 0% 6% 27

28 Pay Mix Industry Comparison Direct/ Field Sales Management Level Sales Jobs Manufacturing - Electronics/Semiconductor 73% 5% 10% 12% High Tech./ Info. Tech. 67% 2% 12% 19% All Other Industries 67% 5% 9% 19% Base Salary Fixed Bonus Co. Variable Bonus Sales Incentives Non-Management Level Sales Jobs Manufacturing - Electronics/Semiconductor 69% 5% 9% 16% High Tech./ Info. Tech. 67% 3% 5% 26% All Other Industries 63% 4% 8% 25% 28 Base Salary Fixed Bonus Co. Variable Bonus Sales Incentives

29 Median Range of Sales Incentive Payout All Companies In Months of Base Salary Minimum Target Maximum Upside Opportunity (Over Target Payout) Sales Management X Direct/Field Sales X Channel Sales X Account Management X 29

30 Median Range of Sales Incentive Payout Companies That Do Not Pay Company Variable Bonus To Sales Staff In Months of Base Salary Minimum Target Maximum Upside Opportunity (Over Target Payout) Sales Management X Direct/Field Sales X Channel Sales X Account Management X 30

31 Number of Performance Measures (% of Cos out of 47 Cos) 3 Measures or less 73% 4 Measures 19% 5 Measures 6% 6 or more Measures 2% Majority of companies keep their sales incentive plans simple and focused 3 measures or less. Few companies go beyond 4 measures. 31

32 Ratio of Total Annual Sales Expense to Revenue Less Than 5% 28% Between 5% - 10% 25% Between 10.1% - 20% 31% More Than 20% 17% 32

33 Frequency of Payout Account Management Channel Sales Direct/ Field Sales Sales Management 7% 12% 18% 18% 16% 18% 18% 21% 29% 32% 32% 33% 31% 34% 38% 43% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Companies tend to pay their sales staff more frequently rather than defer payment until the end of the year Finding supports the notion that the more immediate the payment following performance, the greater the impact on motivation. Direct/ Field Sales staff are paid most frequently (34% of cos. paid monthly incentives) than others. Sales Managers are commonly paid on a quarterly or annual basis. Annually Semi-annually Quarterly Monthly 33

34 Point At Which Sales Incentive Is Earned Upon Receipt of Order 20% When Invoiced 47% Upon Delivery 8% At Payment By Customer 33% 34

35 Effecting Payment How Payment Is Effected (% of Cos Out of 40 Cos) Withhold partial 17% Pay At The End of Half Year/ Quarter/ Month 62% Pay All At The End of Year 21% 35

36 Prevalence of Sales Recognition Programs Yes - Informal Program In Place 20% Yes - Formal Program In Place 38% No 42% 36