Sales Compensation and Incentives

Sales Compensation and Incentives

Question: What are the goals of a compensation plan?

Goals of Compensation Motivate AE s to exceed revenue targets Motivate sales of multiple products Drive sales behavior Reward the right results Retain talent Attract talent Grow profits

How many have altered your compensation plan in the last 3 years? 2 years? 1 year? Why change? What s worked? What hasn t

Does this sound familiar? I sell advertising for a local newspaper. In our pay plan, we compete with our revenue numbers from the previous year, and approximately 6% is added to the previous year's revenue number. That becomes your goal for that particular month. We get a salary plus commission and have a stair step commission that starts at 80% of our goal. The problem is, there is no motivation between the sales people due to the fact that we are competing with numbers from the year before. When we have talked to management about it, they say that if we changed the pay plan, we would have to lower salaries. In most months our company keeps approximately 92% to 96% of the total revenue I bring in.

What s really going on? I sell advertising for a local newspaper. In our pay plan, we compete with our revenue numbers from the previous year, and approximately 6% is added to the previous year's revenue number. That becomes your goal for that particular month. We get a salary plus commission and have a stair step commission that starts at 80% of our goal. The problem is, there is no motivation between the sales people due to the fact that we are competing with numbers from the year before. When we have talked to management about it, they say that if we changed the pay plan, we would have to lower salaries. In most months our company keeps approximately 92% to 96% of the total revenue I bring in. SOURCE: Blog Post http://www.davekahle.com/qa/advertise.htm

Today s discussion: Motivating your sales force through a process that includes compensation plans and the role compensation plans play through the business planning process.

Motivation & Compensation Motivation: The reasons one has for acting a certain way. What does motivation look like?

Motivation & Compensation Commission Pay: A sales commission is a sum of money paid to an employee upon completion of a task, usually selling a certain amount of goods or services. Employers use sales commissions as incentives to increase worker productivity.

Which one are you? Motivation High Motivation & Low Compensation Low Motivation & Low Compensation Compensation High Motivation & High Compensation Low Motivation & High Compensation

How can a process be motivational? Involve the sales team in your strategic planning process Educate your team about your business and about how goal setting works Develop a quarterly sales planning process Create a transparent goal setting culture Team goal setting Individual planning tied to goals THEY set Tracking Performance Using Commission Calculators

Create a transparent culture and open your books. Know and teach the rules: every employee should be given the measures of business success and taught to understand them Follow the Action & Keep Score: Every employee should be expected and enabled to use their knowledge to improve performance Provide a Stake in the Outcome: Every employee should have a direct stake in the company's success- and in the risk of failure

Create a transparent culture and open your books. Employees at all levels are very knowledgeable about how their job fits into the financial plan for the company True success of open- book management is when companies allow numbers to come bottom- up In order to motivate employees to strive for change, open- book management focuses on a "Critical Number A Scoreboard is open for all to see and meetings take place to discuss how individuals can influence the performance against the Critical Number

Performance Expectations Key Performance Indicators that are a condition of employment Achieve goal X # of times during the year Achieve quarterly goal X # of times each year Achieve your digital goal X # of times each year Complete a quarterly sales plan each quarter Others you use?

Everyone has a part The Company: To communicate clearly, openly and consistently the company s vision and the strategic plan in place to achieve the vision The Sales Manage/Leader: To coach and lead the sales team including effective 1:1 meetings, field coaching time, motivation, accountability, recognition and rewards The Sales Executive: To achieve performance objectives and grow revenue as communicated in the Performance Expectations

Strategic Planning Incorporate the team early and communicate often Communicate why you are doing what you are doing Prepare the team for goals so they are educated about your business and what their role means to the organization Share the plan quarterly You want your sales team to know what is important, why and what they can do to contribute to it (make goal)

Transparent Goal How it works: Setting 1. Management reviews the strategic plan that includes trends and market potential 2. Team goals/financials are distributed 120 days before the quarter 3. The team has 30 days to set their own goals and review: * Account by account projections * Account potential * Major wins and losses * New opportunities * Any other company directives 4. They total their goals together to balance the goal 90 days prior to the quarter

Writing a quarterly plan How it works: Each team member SETS their goals 90 days out Sales Executives make their projections Executive s develop gap plans based on the variance Establish pipeline expectations Individuals present plans to their manager All plans roll up into one comprehensive plan that accounts for your team s gap Each Sales Executive presents his or her plan to their tam. All Goals add up to the team goals and gap plans add up to the total needed. Managers review quarterly plans in weekly 1:1 s Sales leaders recap prior quarter results and future revenue targets to executives, sales employees and non sales employees on a quarterly basis in Town Hall meetings.

What s an effective 1:1 meeting? They should be weekly Sales Executives talk more than sales managers Start the meeting with the sales person reviewing their quarterly sales plans Identify what s working and what isn t This is an opportunity for recognition as well as feedback Role play challenging situations Set up time in the field to reinforce behaviors End by reviewing progress towards performance expectations and a commission projection.

Good Compensation Connect the Process Compensation plans should be strategic Weighted based on a compensation level when achieving goal 8 of 12 months (or what is consistent with performance expectations) Commission only paid on goal performance Payouts tiered based on total revenue responsibility Transparent commission structure across all levels Establish Minimum Revenue Performance in key areas like digital or non daily products Accelerate with growth products Accelerate with higher performance Graduate to higher payout levels with performance

Types of Compensation Plans Straight Commission Bonus at Goal Bonus at Goal + New Business Bonus at Goal + Spiffs Variable Payouts based on Products Quarterly Bonus at Goal Quarterly True- up

What s an example? TERRITORY SIZE Target Comp Salary Weight Commission Weight Salary Comp Monthly $240,000.00 $60,000 60% 40% $36,000 $24,000 $2,000.00 $400,000.00 $65,000 60% 40% $39,000 $26,000 $2,166.67 $650,000.00 $68,000 60% 40% $40,800 $27,200 $2,266.67 $800,000.00 $72,000 60% 40% $43,200 $28,800 $2,400.00 $1,200,000.00 $75,000 60% 40% $45,000 $30,000 $2,500.00 Payout 90% 100% 110% 125% 150% $240,000.00 $1,200 $2,000 $2,500 $3,000 $4,000 $400,000.00 $1,300 $2,167 $2,708 $3,250 $4,333 $650,000.00 $1,360 $2,267 $2,833 $3,400 $4,533 $800,000.00 $1,440 $2,400 $3,000 $3,600 $4,800 $1,200,000.00 $1,500 $2,500 $3,125 $3,750 $5,000 Annual Commission 90% 100% 110% 125% 150% $240,000.00 $14,400 $24,000 $30,000 $36,000 $48,000 $400,000.00 $15,600 $26,000 $32,500 $39,000 $52,000 $650,000.00 $16,320 $27,200 $34,000 $40,800 $54,400 $800,000.00 $17,280 $28,800 $36,000 $43,200 $57,600 $1,200,000.00 $18,000 $30,000 $37,500 $45,000 $60,000 Total Pay Potential 90% 100% 110% 125% 150% $240,000.00 $50,400 $60,000 $66,000 $72,000 $84,000 $400,000.00 $51,600 $65,000 $71,500 $78,000 $91,000 $650,000.00 $52,320 $68,000 $74,800 $81,600 $95,200 $800,000.00 $53,280 $72,000 $79,200 $86,400 $100,800 $1,200,000.00 $54,000 $75,000 $82,500 $90,000 $105,000

Compensation Plan Nightmares Thinking there s perfect plan Changing plans frequently Spiffs for Special Sections or special products Sandbagging for next year Paying high commission on low profit products Missing commission budget (up or down) How to do you handle guarantees? Are your policies clear? Are your commission plans shared with everyone? If not, why?

Does a process help? I sell advertising for a local newspaper. In our pay plan, we compete with our revenue numbers from the previous year, and approximately 6% is added to the previous year's revenue number. That becomes your goal for that particular month. We get a salary plus commission and have a stair step commission that starts at 80% of our goal. The problem is, there is no motivation between the sales people due to the fact that we are competing with numbers from the year before. When we have talked to management about it, they say that if we changed the pay plan, we would have to lower salaries. In most months our company keeps approximately 92% to 96% of the total revenue I bring in.