What a CEO Needs to Know About Sales Compensation

What a CEO Needs to Know About Sales Compensation Connecting the Corner Office to the Front Line February 2013 www.salesglobe.com 770 337 9897

A Bit of Background Mark Donnolo Managing Partner- SalesGlobe and the SalesGlobe Forum 20+ Years Sales and Marketing Effectiveness Closet Art School MBA Upcoming Book: What Your CEO Needs to Know About Sales Compensation Doug Holland Director, HR & Compensation, ManpowerGroup North America Leads design of base and variable pay programs Oversees HR functions for HQ and ManpowerGroup Solutions Advisory and Consulting Services -Sales Process Innovation -Sales Strategy -Sales Training and Coaching -Incentive Compensation www.salesglobe.com The Worldwide Leader in Innovative Workforce Solutions - Recruitment and Assessment -Training and Development -Career Management -Outsourcing -Workforce Consulting Page 2 www.manpowergroup.com

Sales Effectiveness Expertise... Our Sole Focus SalesGlobe s sole focus is working with our clients to get real improvements in business results through revenue growth and productivity improvement. We develop practical solutions around strategy, offer and value proposition, organization effectiveness, sales process, sales team development, and incentives. Page 3 New book, published year-end 2013 by Amacom.

Why the Book? What do a beer truck driver, a sales rep, a pack of dogs, and 50 C-Levels have in common? They understand the power of incentives. Page 4

Getting Strategic Not a Text Book A Need for C-Level Insight Connecting C-Level to Front Line Incentives Makes Sales More Effective C-Level Views and Advice Stories from the Front Essential Models and Tools for a C-Level The Right Questions to Ask Page 5

C-Level Insights From Leading Companies Accenture Agilent Anheuser-Busch AT&T Bellcore BellSouth BellSouth Advertising and Publishing Blue Cross Blue Shield of Texas Broadcom Browning-Ferris Industries Cablevision Caja España Central Garden & Pet Choicepoint CIGNA CoalTek Compass Group ConEdison Solutions Con-way Corestaff Crawford & Company Danka Enrev Equifax FleetCor Fujitsu Network Communications GBC GE Capital G&K Services Health Management Systems Honeywell IBM ICF International Idearc Ingersoll-Rand Intermedia International Paper Iron Mountain Johnson & Johnson KPMG Kronos LexisNexis Lotus M.A. Hanna Marriott Merial Mohawk Motorola National Westminster NationsBank/Bank of America Nationwide Insurance Nortel Novartis Novell Office Depot Orange Premiere Global Services Printpack PwC Qwest Rainbow Media Robert Half Sage Software SBC Sea-Land Signature Consultants Sodexo Southern Company Southern LINC Spherion Springs Industries Sprint Snelling Staffing Industry Analysts Staples Symbol Technologies Technisource The Weather Channel Times Mirror UPS UPS Capital Verisign Verizon Page 6

Topics Some Top Challenges A Common Dilemma 10 Critical Factors to Consider How You Can Take Action Page 7

Some Top Challenges Page 8

Some Top Issues You hit your quota and get rewarded with a bigger quota next year. It s not related to opportunity. Our highest earners aren t necessarily our highest performers. We can t attract and retain the right talent. The plan doesn t support solution selling. It drives an aggressive sales process and we need to be more consultative. Our reps aren t hitting their objectives in this economic environment. We need to keep them focused. Setting Effective Quotas Differentiating Top Performers Supporting the Sales Strategy and Sales Roles Driving Solution Selling Keeping the Organization Engaged 52% 42% Our plan promotes behaviors that are different than our strategy. 39% 36% 29% Plan Complexity I m not clear on exactly how I m paid. I just hope the check is right. 45% Page 9

The Common Dilemma of Edward Two SVPs in a covert coffee shop off-site in Dallas 10 months after the fact A new strategy: partnering for software and services to complement their hardware How should the incentive plan work? A task force, surveys, analysis, and alternative designs Edward, the CEO, heard updates throughout the process, deferred to the executive steering committee Page 10

The Common Dilemma of Edward A simple plan Got steering committee approvals Final CEO presentation o New questions about product mix, how the plan pays o Have I seen this before? o Wants to revisit the plan with a list of new questions A high level of engagement, too late, from a high-iq CEO Page 11 A bridge plan Introduction delayed until Q2, loss of credibility and focus What was missing in the direction, the process, the engagement?

How Can We Make the Corner Office to Front Line Connection? Communicating the priorities to which incentives connect. Challenging the common incentive assumptions like Do incentives really motivate? Connecting in the field and riding with the reps. Seeing from the rep and customer perspective. We really try to understand who the customer is and what our value proposition is to that customer. If your compensation plan doesn t align with the strategy and the segments you want to target, then you re going to be working at cross purposes. CEO, F500 People, confuse incentives with alignment, and they jump to incentives as the answer, as opposed to the hard work of alignment. CRO, F500 Let s Get Specific Page 12

1. Connect to the Sales Strategy Page 13

Strategic Context: The Revenue Roadmap Provides information for planning and strategy. Voice of the Customer The Revenue Roadmap Macro Market Environment Insight Competitor Performance Business Performance Sales Strategy Charts an actionable growth plan. Products & Services Segmentation & Targeting Value Proposition Approach to Market Matches roles, resources, and process to customer needs. Sales Channels Customer Coverage Sales Roles & Structure Sales Process Sales Deployment Enablement Aligns execution with the growth strategy. Incentive Compensation & Quotas Recruiting & Retention Training & Development Tools & Technology Page 14

C-Level Goals We want to align our best sales resources with the right buyers further up in the organization. We want to execute our strategy of offering our full portfolio of solutions based on customer needs. We need to break the complacency in our sales culture. C-Level Goals Financial We want to drive twice as much sales productivity three years from now. We need to build the sales organization of our future with one face to the customer. Page 15

2. Get Insight on Your Environment Page 16

Insight Page 17

Knowing How You Grow The organization grows from year-to-year, not in a straight line but by losing and gaining in certain sales strategy components. 6% 29% New Customer Selling 10% Revenue Year 1 100% Revenue Churn 18% Revenue Retention Customer Penetration 14% Revenue Year 2 106% 82% Benchmark Example Page 18

And Aligning it to the Strategy Customer Growth This Year s Revenue Components of Revenue Growth Total Growth 3. Product Penetration Market Growth 5. New Markets 4. New Competitive Wins Product Growth Last Year s Retained Revenue 1. Retention 2. Buyer Penetration Foundation for: -Understanding growth -Planning the strategy -Aligning coverage -Supporting with compensation Page 19

Knowing Your Market- SIA and SalesGlobe Staffing Incentive Comp Survey 2013 Staffing Industry Incentive Comp Survey Now Happening Page 20

3. Using a Proven Process to Align the Team Page 21

The Sales Compensation Diamond Target Pay Evaluation 1 Pay Mix Operations 12 2 Upside Potential Governance 11 C-Level Goals & Sales Roles 3 Performance Threshold 10 Objectives & Quotas Measures & Priorities 4 9 Team Alignment Levels & Timing 5 8 Mechanics 6 Page 22 7

4. Motivate the Breed that You Need Page 23

Motivating the Breed That You Need This Year s Revenue Customer Growth Market Growth Total Growth Components of Revenue Growth Account Acquisition Product Growth Last Year s Retained Revenue Account Management Page 24 Service Delivery

Motivating the Breed That You Need This Year s Revenue Customer Growth Market Growth Total Growth Components of Revenue Growth New Opportunity Pointing Product Growth Last Year s Retained Revenue Specialization- Product or Market Page 25

Motivating the Breed That You Need This Year s Revenue Total Growth Customer Growth Components of Revenue Growth Market Growth Product Growth Last Year s Retained Revenue Multi-Role Hybrid Page 26

Pay Mix and Upside Potential 10%+ 30%+ 50%+ Upside Potential: 200% - 300%+ of Target Incentive TTC (Target Total Compensation) 10% 30% 50% Target Incentive 90% 70% 50% Base Salary Page 27 Service Delivery Account Management Account Acquisition

5. Be a Reverse Robin Hood Page 28

The Reverse Robin Hood Page 29

The Bus Protocol Annuity What is the Typical Type of Sale? Slow Ramp from First Dollar Pay from First Dollar High Threshold Moderate Threshold Event None Full Quota What Portion of Quota Would Recur Without the Rep? Page 30

6. Have the Right Level of C-Level Involvement Page 31

Getting C-Level Involvement Right My role, at the end of the day, is for sales to function as a center of excellence. I sit down with the people and make sure that we re thoughtful about the strategy, the insights we re building off of. Chief Revenue Officer, F200 Page 32

Getting C-Level Involvement Right As a CEO I want to understand the targets that align with our priorities. How can we align the financial, key performance indicators, and motivators with those levels of value? The way I ve always thought about it is: where is a dollar a dollar, and where is a dollar not a dollar? I think about sales compensation from a perspective of what s strategically important to the business, and how we can motivate people to that end. CEO, F1000 Page 33

Getting C-Level Involvement Right If the CEO is getting involved in the details at the wrong level, it can lessen our effectiveness. The effect of making tweaks on the plan and adjusting the payout curves can be intellectually intoxicating. Millions of dollars can shift from one end of the plan to the other. It can draw an executive in too much at the wrong level of detail, rather than staying strategic. VP Sales Operations, F50 Page 34

Getting C-Level Involvement Right Our CEO got involved this year at the end of the process. We were pretty much done with the plans, and then all of a sudden he wanted to take a look at them. We had to change the plans, and it took us another month and a half to get them approved, which made it interesting. Director of Compensation, F500 Page 35

Getting C-Level Involvement Right Does the sales compensation plan support our strategic initiatives for the year? How would that have affected our top 20 percent of performers? What is the behavior you want to drive next year? What are the risks of this strategy, and what are the potential long term benefits? President, F500 Page 36

Getting C-Level Involvement Right We lived on the road for 7 straight weeks, and we would go to a city and have a big meeting but then we d hit three more locations that were within a jet ride to that office and it was pretty much the same message. And it was global Asia Pacific and Europe. We touched 67% of the employees. President, F50 Page 37

Effective C-Level Involvement Involvement at the right level is important. Leading change personally demonstrates commitment. Avoid CEOs in the details It can wreak havoc. Getting input early and periodically. Fewer options. Less is more. Leadership to me falls into three brackets. One is you need to deliver your results clearly. Two is you need to remove obstacles to getting to those results. The third is you have to grow your talent. A really good comp program aligns the activities you want to drive and measure with how you reward people, and makes sure that a few things are happening. President, F1000 The CEO will go to the front line of the sales people in this business and he ll ask them, How s the compensation plan working? He s checking to see if his front line sales team understands the why of compensation vs. just the what. President, F 500 Page 38

7. Ask Insightful Questions Page 39

Top Questions C-Levels Ask Are we driving the right behaviors? 65% What are the financial returns and risks? 53% Does it align with the strategy? 40% How will it affect recruiting, retention of top people? 34% Is it easily understood? 20% Page 40

C-Level Question Dimensions Dimension Representation Motivation Results Dependency Risk Simplicity Change Question o How is each of the five C-Level Goal areas represented by the plan or by how we manage? o What behaviors will this motivate that support or conflict with our C-Level Goals? o What are the numerical, measurable results we expect in each of the C-Level Goal areas? o What other factors, beyond the compensation plan, are we counting on for these results? o What are the risks of the program not working or the dependencies not happening as planned? o How can we simplify the approach and make the message clearer? o How will we successfully implement this change and what is the C-level role in that change? Page 41

8. Get Creative in a Functional Way Page 42

Functional Creativity and Artistic Creativity Artistic creativity which is focused on expression, is usually mis-targeted and produces little more than initial excitement. Functional creativity, however, is oriented toward solving an issue or meeting an objective. Artistic Creativity Functional Creativity Targeted toward expression Minimal or no constraints Targeted toward an issue or objective Numerous constraints Page 43

Adding the Creative Quotient L R Page 44

The Creative Quotient- Innovating Your Solutions The Creative Quotient SM Application Conditions Leveraging a creative process and principles, designed for sales, can increase the effectiveness and impact of the team. Creative Quotient Principles Known Approaches Discovery Page 45

9. Align Your Goals and Quotas Page 46

A Quota Quandary Over 30% aren t ready in month one. Over 50% of companies adjust quotas. Most don t reflect actual market or account opportunity. Page 47

Most Common Quota Methodologies Historic View Assumes All Opportunities and Resources are Equal Assumes History Predicts the Future Correlates Predictors of Potential Considers Pipeline and Market Variations Uses a Living Account Planning Process to Set Goals and Coach to the Plan Flat Quotas Historic Quotas Market Opportunity Driven Account Opportunity Driven Account Planning Opportunity-View Page 48

10. Plan an Effective Change Page 49

Motivators of Change Now Timeframe 3. Near-Term Gain Motivational Strength 4. Burning Platform Future 1. Aspiration 2. Risk Reduction Gain Benefit Opportunity Avoid Pain Page 50

How You Can Take Action Page 51

Take Action 1. Participate in the SIA SalesGlobe Survey 2. Get Your Sales Comp Report Card WhatYourCEONeedsToKnow.com 3. Get the Book Here, Amazon.com, BarnesandNoble.com 4. Use the Sales Comp Toolkit SalesGlobe.com Page 52

Thank You SIA SalesGlobe Survey Questions and Counsel: Mark Donnolo- MDonnolo@SalesGlobe.com Page 53 www.salesglobe.com

What Your CEO Needs to Know About Sales Compensation- Connecting the Corner Office to the Front Line 54 It s the single biggest expense for most organizations with the motivational power to move financial mountains, but many executives squander the opportunity sales compensation presents. What Your CEO Needs to Know about Sales Compensation is the first book to address sales compensation challenges from a C-suite perspective. It focuses on the top challenges in companies today, offers logical leadership approaches, tools, and models for dealing with each of these issues, and shares stories from top sales executives in leading companies. The C-level perspective of this book will generate interest for readers up and down the corporate ladder, from the sales organization to human resources who want to know what the CEO should know, to the C-suite themselves. The book will help business leaders at all levels to develop sales compensation programs that are aligned with the business objectives for the entire company. Key challenges addressed in the book: The right (and wrong) ways for C-level executives to become involved in the sales compensation process. Essential questions for C-level executives to ask the sales compensation design team. An understanding of how sales compensation supports the overall business strategy. Ways to determine if problems are really sales compensation challenges or larger sales strategy issues. How to clearly define and differentiate sales roles to capture revenue growth, and how to compensate each role. How to attract and retain top performers through compensation, and how to prevent overpaying the underperformers. Measuring performance at the correct levels for each role. Motivating strategic account sales. Setting equitable and profitable sales goals. Understanding and motivating sales management. Communicating and implementing the sales compensation plan, and directing change management. The book includes: Perspective from Mark Donnolo, who has spent 25 years designing sales effectiveness and sales compensation plans for Fortune 1,000 companies. Logical, proven approaches for solving top sales compensation challenges. Tools and models for connecting the strategy of the business to the front line sales compensation plan. Stories, examples, and ideas from C-level executives in Fortune 1,000 companies on how they ve made sales compensation work effectively for their businesses. Pre-order the book now on Amazon.com and BarnesandNoble.com. Get a 25% discount and send your order confirmation to Books@SalesGlobe.com for your first two chapters and report card now.

Background SalesGlobe is a leading provider of sales strategy consulting, sales operations services, and leadership coaching to help business to business sales organizations increase their performance. SalesGlobe works with organizations dealing with challenging growth issues to develop actionable solutions and real revenue results. Services include: Enterprise and Sales Strategy Alignment. Working with CSOs to connect to the corporate strategy, implement best practices, and gain significant revenue growth. Sales Transformation and Productivity Improvement. Making major changes and implementing proven levers to increase growth and profitability. Competitive Intelligence and Benchmarking. Capturing hard-to-find competitor and market information on practices and issues that provide intelligence that goes beyond just the numbers. Sales Compensation and Incentive Design. Developing methods to motivate and drive performance with your sellers. Sales Organization and Sales Process Design. Creating the most effective roles and sales process for your strategy. Sales Coverage Strategy and Channel Management. Aligning the right channel mix and programs for your partners. Sales Team Development and Coaching. Building sales and solution capabilities from your front line through sales management. Sales Operations Improvement and Management. Optimizing and operating the critical support roles for your organization. Sales Process Innovation. Building creative solution selling capabilities in your sales teams to close those hard-to-win deals that are critical to your forecast and results. SalesGlobe sponsors the SalesGlobe Forum, a leadership community, research, and advisory organization of senior sales executives. Our Board of Advisors includes executives from top companies and business schools. To get more information on solutions for your organization and to understand how you can make your strategy and organization more effective, visit SalesGlobe.com. Consulting Coaching Content Creativity Page 55

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How Does Your Organization Rate? Your Strategic Sales Compensation Report Card Get Your Sales Comp Report Card www.whatyourceoneedstoknow.com Page 57