MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013

Transcription

1 MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer Principal, Sales Performance Practice Leader Erik Charles, Xactly Director, Product Marketing

2 Today s Speakers Shawn Rossi Principal, Sales Performance Practice Leader Mercer Focused on sales force productivity optimization for 18+ years Widely published and frequent speaker Works published in WorldatWork, SHRM and other publications Spoken for WorldatWork, SPM Solution Provider User Conferences and the Sales Management Association Former sales operations strategy executive for a leading consulting company Former marketing executive for an emarketing company specializing in the IT Solution space Began sales effectiveness career at Andersen Consulting focused on CRM and customer care within the telecommunications industry Erik W. Charles Principal Incentives Strategist Xactly Corporation Focused on sales force effectiveness leveraged through application of technology for 20+ years Writer and speaker: Blog on Sales Force Speaker for World at Work, AA-ISP, Sales Management Association Articles in Selling Power, World at Work Former consultant in sales force effectiveness and compensation Experience as a sales rep, sales manager, and sales operations head Angel investor in business technology LinkedIn: MERCER WEBCAST 1

3 Mercer Who We Are Mercer helps clients optimize their workforce performance and maximize the effectiveness of their benefit and incentive programs We are a global consulting leader in talent, health, retirement, and investments. $3.9 billion in revenue 65-year history. Four business segments Offices in more than 40 countries 19,000+ colleagues MERCER WEBCAST 2

4 Xactly Who We Are With Xactly, companies unleash the motivational power of their incentive compensation. We help companies of any size Incent Right LEADER IN SAAS INCENTIVE COMPENSATION MANAGEMENT FASTEST GROWING PROVIDER OVER 100,000 SALES REPS INCENTED FOCUSED EXCLUSIVELY ON INCENTIVES AND COMPENSATION MANAGING >$6 BILLION IN COMPENSATION ANUALLY MERCER WEBCAST 3

5 What Is At Risk Again? MERCER WEBCAST 4

6 Managing Risk: When & What When What Cost Motivation Legal Exposure Sales Compensation Effectiveness MERCER WEBCAST 5

7 Managing Risk: How Separating the Good Aligned, Simple Plans Clear, Timely Plan & Goal Communication Effective Program Fair, Attainable Goals Effective, Efficient Comp Admin Area Leaders Laggards Rated Area Effective or Very Effective Design 75% 60% Quotas 73% 39% Communication 73% 61% Administration 70% 57% MERCER WEBCAST 6

8 PLAN DESIGN

9 Focus on Critical Plan Design Components Cost Motiv ate Legal Sales Comp Effectiveness Step 0: Compensation Philosophy Step 1: Determine Eligibility Step 2: Set Total Target Cash Levels Step 3: Choose Mix of Base and Incentive Step 4: Determine Measures & Weights Step 5: Design Plan Mechanics Step 6: Set Performance Objectives Motivation & cost driving plan components Step 7: Select Leverage Ratios Step 8: Set Payout Timing Step 9: Develop Administrative Guidelines Step 10: Validate Comp Philosophy MERCER WEBCAST 8

10 Incentive Pay Leverage: A Double-Edged Sword Cost Legal Motiv ate Sales Comp Effectiveness Uncapped $200K Uncapped Design Takeaways: Amount Earned $100K Uncapped Mix Upside Get the total target cash right (TTC) given the ideal talent pool Mix drastically changes upside opportunity Leverage is an extremely powerful behavior drives as it is the combination of mix and upside Leverage can help maximize motivation, but it also introduces the potential for increased risk. MERCER WEBCAST 9

11 What Can We Measure? Criteria for maximizing motivation and minimizing risk Cost Legal Motiv ate Sales Comp Effectiveness Key best practice is to have no more than three performance measures and to make certain performance measures are aligned with the role and its key responsibilities. Within span of control Ability to consistently and materially influence Within line-of-sight and key result for the role Supports sales strategy and business objectives Consistent with role s design and key responsibilities Aligned Effective Performance Measures Comp ready Data can be accurately tracked Data is from a trusted source and available for timely payments MERCER WEBCAST

12 Measures MUST Be Attainable! MERCER WEBCAST 11

13 How Many Measures Can We Use? MERCER WEBCAST July 24,

14 If I Can t See It Or Touch It, Don t Measure Me On It Timely line of sight is critical to successful measurement MERCER WEBCAST 13

15 Measurement Timing Will Also Drive WHEN You Book Deals You will see spikes in revenue for whatever the measurement period is. Combine monthly and quarterly goals with the annual numbers to help smooth the revenue cycle. 25% 20% 15% 10% 5% 0% MERCER WEBCAST 14

16 Measurement Timing Will Also Drive How MUCH You Book Quarterly Quota Targets Annual Quota Targets 67% 60% >80% of quota >80% of quota MERCER WEBCAST 15

17 Hidden Risk & Motivation: Crediting Rules Cost Legal Motiv ate Sales Comp Effectiveness $10M Deal Frontline Roll-up Global Account Manager Local Account Manger Overlay Channel Sales Engineer Product Specialist Services Sales Executive Partner Account Manager Channel Manager First level sales manger Second level sales manager Design Considerations Does everyone get credit? How much credit does each role receive? Does the type of product/solution change how much credit is given? Does the type of customer (i.e. strategic, new, etc.) alter the amount of credit given? MERCER WEBCAST 16

18 The Challenge with Crediting Rules Credit Creep 1 Deal 30 COMMISSIONS MERCER WEBCAST 17

19 ROLL-OUT & SET-UP

20 Key Areas for Compensation Governance Cost Legal Motiv ate Decision Rights and Accountabilities Roles Responsibilities Approval/review processes Plan Design Guidelines Eligibility, pay levels, pay mix, performance measures, crediting rules, and mechanics and more Policy Terms and Conditions Procedures for plan acceptance, quota, adjustments, terminations, etc. Legal aspects related to compensation, benefits, and employee relations Plan Oversight provides a check and balance as well as issue resolution body to govern plan management throughout the year Sales Comp Effectiveness MERCER WEBCAST 19

21 Assess Individual Level Impact Cost Legal Motiv ate Sales Comp Effectiveness Top Performer Average Performer Bottom Performer Attainment 113% 90% 62% Production $583,546 $2,758,017 $614,036 Current TCC $69,022 $272,998 $73,737 Target TCC - New Plan Actual TCC - New Plan $66,515 $256,944 $85,335 $73,394 $235,709 $68,268 Attainment Level Average Attainment Avg Current Target TCC Avg Current Actual TCC Avg Future Target TCC Avg Future Actual TCC > +15% Change in TCC +15% to 0% Change in TCC 0% to -15% Change in TCC > -15% Change in TCC 105%+ 111% $72,876 $74,976 $77,675 $85, % 98% $112,471 $113,795 $114,124 $112, % 83% $75,809 $72,486 $76,967 $63, % 59% $56,850 $51,183 $58,639 $47, MERCER WEBCAST

22 Fair Target Setting Is Key To Motivate The Field and Align With Company Success Cost Legal Motiv ate Sales Comp Effectiveness Target level equates to 100% of plan 30-40% of Sellers 60-70% of Sellers Number of Salespeople Bottom10% of Sellers Top10% of Sellers Threshold 100% Quota Performance Excellence Performance level requiring minimal effort set based on historical performance or fixed costs MERCER WEBCAST Excellence level allows 10% of sellers to earn upside, it is usually set using historical data 21

23 Once Assigned, What Quota Attainment Can We Predict? Distribution of Annual Quota Attainment % 100% MERCER WEBCAST 22

24 Every Industry is Different Communications Software & Technology Business Services Manufacturing & Distribution Life Sciences Media & Entertainment On-target Incentive Earnings >120% % < 80% 48% 30% 22% 41% 33% 26% 39% 35% 26% 39% 25% 36% 36% 28% 36% 26% 45% 29% MERCER WEBCAST 23

25 Put Your Best Foot Forward Cost Legal Motiv ate Sales Comp Effectiveness Plan Roll-out Energize and Align Layout a strategy and formal roll-out plan Leverage multiple communication vehicles; documents, meetings, rallies, etc. Sales executives are active, visible champions First level managers are the key verbal communication point and face of the plans Track plan acceptance Communications Motivation Results MERCER WEBCAST 24

26 ON-GOING

27 Who Wants to Restate Earnings? MERCER WEBCAST 26

28 Compensation Plan Effectiveness Metrics Cost Legal Motiv ate US AS AZ CA EM JP LA Overall Analysis Key Data Cuts Objective CCOS / ICOS Geography Position Business Unit Performance Distribution Geography 35% 30% 25% 20% 15% 10% 5% 0% 0% 0% 0% < 18.5k Total Salary ($000) $87,327 $9,761 $8,891 $7,896 $65,810 $8,133 $2,614 $190, k - 37k 37k k Total Incentive ($000) $48,923 $5,628 $4,297 $4,016 $19,295 $4,170 $1,641 $87,969 4% 55.5k - 74k 22% 74k k Percent of Target Earned Total Comp ($000) $136,249 $15,389 $13,188 $11,911 $85,105 $12,303 $4,254 $278,399 31% 92.5k - 111k NISD $ Total Revenue ($000) $11,041,077 $1,590,112 $1,420,618 $1,367,883 $10,802,870 $2,150,538 $29,130,910 18% 111k k $757,812 14% 129.5k - 148k icos 9% 148k k 0.44% 0.35% 0.30% 0.29% 0.18% 0.19% 0.22% 0.30% 2% 166.5k - 185k CCOS 1.23% 0.97% 0.93% 0.87% 0.79% 0.57% 0.56% 0.96% 1% 185k> Position Business Unit Comparatively how expensive is each incumbent/team/geo to the company? How much does it vary? How effectively does that compensation expense drive results? Sales Comp Effectiveness How effective is current quota setting? Does it support the achievement philosophy? (Stretch goals vs. Culture of Achievers) How effective are quotas at targeting real opportunity? 350% 300% 250% 200% 150% 100% Pay Differentiation Geography 50% 0% 10th 20th 30th 40th 50th 60th 70th 80th 90th Position Business Unit What is the degree of differentiation between a median, low, and high performer How does that differentiation drive performance? New Customer Renew + GITA Total Incentive MERCER WEBCAST 27

29 Compensation Plan Effectiveness Metrics continued Cost Legal Motiv ate Analysis Key Data Cuts Objective Credited Revenue Ratio Geography Region Americas Asia Pacific EMEA Federal World Wide All Position Pay For Performance Geography 250, , , ,000 50,000 AveragePay Number of Associates ,508 R 2 = % 20% 40% 60% 80% 100% Position Pay Composition Geography $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Credited Actual Revenue 2 TCC Paid ($MM) Revenue 1 ($MM) ($MM) $224,589 $37,356 $147,103 $56,836 $15,653 $481,536 $5,247 $7,483 $19,815 $8,861 $12,362 $23,620 $12,444 $15,968 $27,731 $22,999 $26,738 $36,800 $12,573 $15,612 $26,970 $25,674 $25,828 $25,839 $25,969 $25,827 Lowest Quartile $125,975,090 $12,210,125 $112,551,841 $24,019,577 $47,685,449 $322,442,081 $2,208 $394 $1,329 N/A N/A $3,931 Actual CCOS 10172% 9481% 11069% N/A N/A 12250% 3rd Quartile 2nd Quartile Top Quartile Credited to Actual Revenue Ratio 57,054 30,990 84,689 N/A N/A 82,025 All Reps Position Business Unit How big of a variance exists between actual and credited revenue? How does the ratio compare to industry standards? How do the use of overlays and variances in crediting practices affect the ratio? How big a variance is there in how plans pay for like levels of performance? How effectively do the plans reward performance? How well are key objectives correlated to pay? How much more of a top performers compensation is made up by incentive vs. bottom performer? How strongly does the pay components drive performance? Do the plans incent for the right focus? MERCER WEBCAST 28 Sales Comp Effectiveness

30 Keep Talking to Provide Motivational Thrust Cost Legal Motiv ate In-Period Performance to Date (PTD) Reports Self-service, easily accessible reports for the field Updated frequently; daily for high transaction businesses, weekly at a minimum Simple, easy to digest reports that provide line of sight into: Performance against plan measures, including access to the transactions/credits Position and stack ranking against peers Forecast pay based upon deals in the pipeline, especially to show how thresholds and accelerators can be achieved Communications Motivation Results MERCER WEBCAST 29 Sales Comp Effectiveness

31 So Who s On First? MERCER WEBCAST 30

32 Are You Sure? MERCER WEBCAST 31

33 WARNING SIGNS MERCER WEBCAST

34 Warning Signs Do You Have Any of These? Forecast inaccuracy Elevated turnover levels & disputes Unhealthy level of channel conflict Rising cost of sale Quota attainment & company results not aligned MERCER WEBCAST 33

35 How Do Your Managers Handle Turnover? IF THE MANAGER IS: HITTING QUOTA MISSING QUOTA ON THE MARGIN POOR REP TURNOVER IS: 22.2% 18.6% 5.6% MERCER WEBCAST 34

36 Can You Predict The Loss Of Top Performers? MERCER WEBCAST 35

37 What Is It All Costing You? Remember ROI? MERCER WEBCAST 36

38 Final Checklist What are you trying to ACHIEVE this period? WHO is going to do it for you? How much TOTAL are you willing to pay? What are you going to MEASURE? WHEN we will you write the check? How will you KNOW if you have succeeded? How will you know if you made a MISTAKE? When you make an ADJUSTMENT? MERCER WEBCAST 37

39 Remember This Is ALL Connected MERCER WEBCAST 38

40 Questions Shawn Rossi Principal, Sales Performance Practice Leader Mercer QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen. Erik W. Charles Principal Incentives Strategist Xactly Corporation [email protected] FEEDBACK Please take the time to fill out the feedback form at the end of this webcast so we can continue to improve. The feedback form will pop-up in a new window when the session ends. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS View past recordings and sign up for upcoming webcasts MERCER WEBCAST 39

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