For Optimal Sales Force Performance, Pay Is Not Enough

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1 For Optimal Sales Force Performance, Pay Is Not Enough Three must-have elements for optimal sales performance How to develop sustainable engagement of sales professionals How sales managers make a significant impact on sales performance

2 Organizations are becoming keenly aware that maximizing sales force performance requires more than just pay. Compensation Sales talent management Performance management Managerial effectiveness Coaching and career development EVP Company performance Organizations are becoming keenly aware that maximizing sales force performance requires more than just pay to drive financial results. In most companies, driving sales effectiveness has meant pulling the compensation lever. Sales management constantly tinkers with already-sophisticated pay programs (e.g., performance metrics, quotas and sales compensation formulas), looking for a combination that will drive higher performance. But while compensation is a powerful tool, a talent management platform from which to leverage it strengthens your pay program. Such a platform rests on three pillars: a well-designed performance management program, effective sales force managers, and frontline coaching and career development programs. Establishing this leveraging platform and creating a compelling employee value proposition (EVP) are the most powerful ways to differentiate your organization from its competitors (see Towers Watson s Global Talent Management and Rewards Study). Without these critical foundational elements, attraction, retention and engagement of top sales talent become even more challenging and put even more pressure on sales force compensation programs. Employee Value Proposition The term employee value proposition, or EVP, refers to the collective array of programs that an organization offers in exchange for employment. It is also referred to as the employment deal. The EVP defines the give and the get between company and worker, encompassing every aspect of the employment experience from the organization s mission and values; to jobs, culture and colleagues; to the full portfolio of rewards programs. 2 towerswatson.com

3 Build Sustainable Engagement From a Stable Footing High-performing sales employees are almost twice as likely to be highly engaged as lower-performing sales employees (44% versus 24%). They are less than half as likely to be disengaged (Figure 1) and more likely to report that their organization has a compelling EVP. Contrary to conventional wisdom, other factors besides pay are just as or even more important to maintaining a highly engaged sales force. Organizations that have developed differentiated offerings for key employee segments, such as the sales force, have seen better engagement and performance results. In fact, they are: Twice as likely to be performing significantly better financially than their peers 10% to 15% less likely to report having difficulty attracting employees with critical skills 20% to 30% less likely to report having difficulty retaining employees with critical skills How We Define Sustainable Employee Engagement When an organization creates the internal conditions that enable people to do their jobs effectively, drive high levels of employee engagement and energize the workforce, the combination produces a significant performance lift. We call this sustainable engagement. Think of it as engagement to the power of three. The synergy of engagement, enablement and energy propels an organization to greater heights than any single factor could. Our research shows that companies that achieve this synergy are the top financial performers. Figure 1. Better-performing sales professionals are more engaged 0% 10% 20% 30% 40% 50% Highly engaged High on engagement, energy and enablement Detached Low on engagement, high on energy and enablement Unsupported High on engagement, low on energy or enablement Disengaged Low on engagement, energy and enablement Above-average sales performance Below-average sales performance 3 towerswatson.com

4 What Drives Engagement for Sales Professionals? Our research shows that, for the sales force, the top drivers of sustainable engagement are: Leadership Supervision Stress, work/life balance and workload Goals and objectives Figure 2. Sales professionals look to their managers for coaching, consistency and communication 0% 20% 40% 60% 80% 100% Goals and objectives Clearly communicates goals and assignments* Helps set appropriate performance goals* Productivity Coaches me to improve my performance Removes obstacles to better performance Performance management Fair performance evaluation Gives fair performance rating* Compensation isn t even in the top five, placing eighth out of 12 engagement drivers. What s more, leadership of top-performing sales forces employ the entire spectrum of talent management programs to drive sustainable engagement. Leadership. Sales professionals generally look to their supervisors to clearly communicate their goals and assignments, coach them to improve their performance and act in ways consistent with what they say. They want company leadership to deal effectively with business growth issues such as developing future leaders, modeling the organization s core values and showing sincere interest in employee well-being. Supervision. Sales employees expect their supervisors to serve as liaisons to senior management. With effective leadership and supervision, they are more likely to trust the information they receive and be more confident in the job they are doing. Makes fair pay decisions* Result Effective pay Clear link between job performance and pay High-performing employees rewarded for their performance Highly engaged Disengaged *Identified as key driver of sales employees perception of manager performance Regionally, our research shows that North American sales professionals expect their managers to help them set appropriate performance goals. In Latin America, manager effectiveness is judged by whether the supervisor recognizes his or her own strengths and weaknesses. And in the Asia Pacific region, sales forces recognize an effective manager as one who is fair in performance ratings and pay decisions towerswatson.com

5 Companies are beginning to realize that career development opportunities are a key driver of attraction and retention for sales professionals and must be included in the EVP. Stress, work/life balance and workload. The lives of sales professionals are often highly stressful, even out of balance. Managers can play a key performance management role by: Emphasizing activities that increase productivity Clearly communicating goals, objectives and assignments Explicitly defining roles Coaching sales team members Based on their experience and savvy, great managers assist sales professionals in improving their performance. Along with flexible work arrangements, reasonable workload and productivity-enhancing tools, effective coaching and career development can reduce stress and improve work/life balance for sales professionals. Goals and objectives. Our research shows that employees who are highly engaged are twice as likely to view their managers as helpful in setting appropriate performance goals. They are also more than twice as likely to report that their organization rewards high performers and clearly links pay to performance. In successful organizations, this leverage adds strength to business productivity and financial performance. Performance management. Highly engaged salespeople are more likely to report that their company provides regular coaching, mentoring and feedback. Among other attributes, sales employees judge their managers on their ability to navigate and address day-to-day business challenges, and to coach and develop employees. They want managers who can help them improve, who clearly communicate expectations and assignments, and who show integrity. And they want professional development to be continuous. About four in 10 survey respondents said they would have to leave their organization in order to advance to a higher job level. Moreover, only slightly more than half said they had access to the training needed to be successful in their current role. Even fewer think their training is effective. Sentiments such as these curtail productivity and undermine retention. Companies are beginning to realize that career development opportunities are a key driver of attraction and retention for sales professionals and must be included in the EVP. Talent Management Leverage: Effective Communication and Sophisticated Measurement Top-performing organizations are more likely to report that sales employees understand their compensation programs, managers deliver them effectively, and the programs are linked to clearly stated and achievable goals. These organizations also make regular use of sophisticated measurement tools that capture information on employee attitudes. To make sure they are supporting their objectives in practice, not just in theory, they collect feedback from the sales force, conduct external benchmarking and perform sophisticated analytics. A strong emphasis on measurement helps high-performing companies better monitor the effectiveness of their compensation programs. The Longer Lever: Pay for Performance Sales leadership often treats pay as a substitute for engagement or work satisfaction, rather than as a source of increased engagement. As a result, many organizations do not make bonus opportunities large enough as a proportion of total pay to drive engagement effectively. Only about one-third of sales force employees say their bonus opportunity is more than 15% of their salary. But for those sales employees who have a larger bonus opportunity (i.e., greater than 15%), pay for performance ranks as the number four engagement driver. So the right bonus opportunity for the right employee can have a strong positive effect on sustainable engagement. (See towerswatson.com/en/insights/ic-types/ Ad-hoc-Point-of-View/Perspectives/2013/ Perspectives-Pay-for-Performance-How-to-Drive- Sustainable-Employee-Engagement.) 5 towerswatson.com

6 Drive Optimal Sales Performance From the Strongest Platform A high-performing sales force doesn t appear by accident. Organizations need the knowledge, tools and wherewithal to make it happen. To assure an engaged, enabled and energized sales force, it s necessary to expand your sights and take an integrated view of your programs to create a compelling EVP. Our Global Talent Management and Rewards Study revealed compelling data supporting the importance of crafting and customizing deals for critical employee segments such as the sales force. Three-quarters of responding organizations that segment and differentiate their deal for employees report their managers execute sales compensation programs well. Eight out of 10 of these organizations say their sales compensation programs support their attraction and retention goals. Well-designed programs for the sales force e.g., performance management, manager development and employee career development address the key drivers of sustainable engagement. Optimal leverage can be achieved with a well-developed sales talent management foundation that works with a well-designed compensation program to help your organization attract and retain top talent, and drive behaviors that lead to better performance. Improving noncompensation areas requires the same technically rigorous approach that organizations use to develop sales compensation plans. Tools such as conjoint analysis, employee surveys, focus groups and internal feedback can provide the same kind of intelligence, by employee segment, for internal decision making that sales and marketing departments use to learn about customer needs. Optimal leverage can be achieved with a welldeveloped sales talent management foundation that works with a well-designed compensation program to help your organization attract and retain top talent, and drive behaviors that lead to better performance. Finally, combining information on employee needs and preferences with market benchmarks can help your organization better leverage spending. By taking a talent management approach, you ll gain an advantage in attracting and retaining talented sales employees and driving sustainable employee engagement for better financial performance. About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management. Copyright 2013 Towers Watson. All rights reserved. TW-NA towerswatson.com