A Skeptics Guide to Incentives

Transcription

1 A Skeptics Guide to Incentives How to ask the right questions and use incentives strategically February 27, 2008 Ronald Schell Marshall Heyworth QTI Consulting

2 First, Do No Harm Examples The Big Picture Roles Agenda Key Questions & Mechanics Takeaways

3 The more we get employees to think about how much money they're going to make, the more they come to work in the morning focused on compensation and the more likely they are to see their work itself as a tedious prerequisite to getting that reward. Rewards tend to turn play into work and work into drudgery. --Alfie Kohn, Author, Punished by Rewards

4 Pathologies General Incentives Entitlement mentality Sandbagging g Contrived metrics Unintended consequences Free riders Peanut butter payouts Mixed cultural messages Overpaying

5 Pathologies Sales Compensation Blowouts Yo-yo performance Confusion Crowding Crediting fights Landlording Disguised base

6 Disguised Base Illustration Total Cash Range { Total Cash 75-85k Total Cash k Incentive 0-40k Disguised Base { Incentive 35-45k Base Base 60k 40k

7 Example Current Situation Average revenue per client (GM): $35k New clients/year: 50 Sales Product GM % Revenue A 50% 5M B 30% 10M C 15% 15M

8 Example Current Sales Plan 2% of revenue 50% base/50% incentive 40k base 40k incentive target Top performers 85k Low performers 75k

9 Example New Sales Plan 20% of GM $ over 80% of quota First year for new clients pays 2x 75% base/25% incentive 60k base 20k incentive target Top Performers 100k Low Performers 60k

10 Example Results? Product GM % Revenue A 50% +3% B 30% +5% C 15% +0%

11 Patagonia culture rewards the ensemble player while barely tolerating those who need the limelight. --Yvon Chouinard, Founder and CEO Patagonia

12 Culture Competition Community Innovation Consistency

13 Alignment Product Brand Culture Incentives

14 Key Questions General Incentives Why pay incentives? Profit sharing or incentives? Team or individual? id How much noise is in the metrics? Base/incentive mix?

15 Value Proposition Operational Product Customer Excellence Leadership Intimacy Transactional Consultative Varies Low Cost High Cost Customer Short Cycle Long Cycle Preference

16 Sales Roles Hunters Farmers Gatherers Tool Makers Persuasion Incentive/ Base Leverage Chiefs

17 Sales Responsibilities Prospecting Closing Implementation support Product support Account management Ongoing service Sales support New client acquisition Large accounts

18 Sales Management Priorities Understand customer buying preferences Segment the market Align sales efforts with brand strategy Develop key prospect capture strategy Find and develop top talent Facilitate customer feedback Choose the right narratives/frames Manage sales tracking and CRM systems Implement sound compensation strategy

19 Key Questions Sales Compensation How does the sales force add value for clients? What are your bellwether sales? What does good performance look like? Who are your best prospects? Is the sales force right-sized? What is the performance period? What is your cost of sales?

20 Payout Curves Straight High-Low Quota Low-High Two-Break Quota Quota

21 Sales Force Check-up Distribution of performance Close ratios Customer contact ratios Territories vs. market opportunities Channel conflicts Role conflicts

22 Sales Incentive Check-up Cost of sales Distribution of incentives Quota attainment Median incentive vs. target Documentation Sales force perceptions

23 When Incentives Work Sales employees Individual performance culture Large individual performance differences Meaningful metrics Peer metrics possible Ongoing commitment to design, tracking, and communication Willingness to pay different levels of incentives

24 When Incentives Don t Work Community/acceptance culture All jobs in the organization Individual id behaviors more important than (measurable) results Lack of ongoing commitment

25 Key Takeaways Cultural fit and narrative of the plan p Ongoing focus on execution essential Peer metrics Calculate cost-of-sales Be wary of plans that pay incentives to all Pay for profit, not revenue Match incentive and performance period Pay top performers well (and vice versa) Pay more for new customers

26 Questions

27 Ronald Schell Ron Schell has been in the compensation and benefits field for over twenty years. He is the consulting practice leader for QTI s variable pay activities. Ron s experience includes six years with Hewitt Associates, an international compensation and benefits consulting firm based din Chicago, and fourteen years with Ai Axion Compensation, his own firm. He also served as Director of Compensation and Benefits for Janus Capital Management. Ron specializes in sales and incentive compensation. He has designed plans for a diverse array of organizations including national and international companies in the financial services, consumer products, manufacturing, engineering, and healthcare industries. He has also assisted many clients with total rewards strategy development and the full range of base compensation plans. Ron s educational background includes a law degree from Cornell University and a BA in economics from the University of Wisconsin Madison. QTI Consulting, Inc. 702 East Washington Ave Madison, WI marshallh@qstaf.com (608)

28 Marshall Heyworth Marshall Heyworth is the Chief Operating Officer of QTI Consulting, Inc. He has twenty years of human resources experience in consulting, li internal lhuman resources management and education. Marshall s areas of concentration include base and incentive compensation, performance management, and staffing solutions. His previous experience includes working for an international consulting firm and HR leadership roles with a multi billion dollar defense contractor and in the financial services sector. Marshall received a Master s degree in Industrial and Labor Relations from Warwick University in England and has completed additional doctoral level work at the University of Wisconsin Madison. He also teaches performance management for Executive Education, University of Wisconsin School of Business. QTI Consulting, Inc. 702 East Washington Ave Madison, WI marshallh@qstaf.com (608)