0 Sales Compensation Practices Survey for the High-Tech Industry May 0 This report is solely for the use of all direct recipients. No part of it may be circulated, quoted or reproduced for distribution to any third party without prior written approval of ZS Associates and WorldatWork.
Introduction Welcome to the 0 edition of Sales Compensation Practices Survey for the High-Tech Industry conducted by ZS Associates and WorldatWork. The questionnaire used for this study was developed based on numerous interviews with high-tech sales compensation leaders. The result was a study focused on the critical issues facing sales compensation professionals today. We hope you find the results of the survey beneficial and useful. If you have suggestions for future surveys, please send an email to chad.albrecht@zsassociates.com or jim.stoeckmann@worldatwork.org. Best Regards, This report is published by the WorldatWork and ZS Associates, Inc. and contains information based on input from companies or individuals engaged in the development or management of sales compensation plans
Research Methodology Invitations to participate in the study were sent out via email to selected high-tech companies in February 0. Participants from 7 U.S.-based high-tech companies completed the online survey from February through March 0. The survey was divided into the following categories of questions: Incentive methods Reporting and timing Sales crediting General sales force measurements Incentive compensation issues Respondents filled out the survey for different types of sales roles. These roles were aggregated in four groupings: Client relationship managers Partner or channel account managers Lead sales role Technical specialists Please notes: n-sizes throughout the survey represent the number of responding companies, unless otherwise stated. Median values are not shown if fewer than five responses were received; other values are not shown if fewer than three responses were received. Caution should be taken whenever values are based on small response.
Participants* Dell Citrix Systems Google, Inc. IBM EMC GoDaddy.com, LLC Motorola Mobility Microsoft Wipro Ltd CGI AMD Sonus Networks Corning BMC Software, Inc. CA Technologies * Responses from two respondents that did not provide their company name are included in the analysis. 4
Contents Section Page Executive Summary 6 Incentive Methods 8 General Sales Force Measurements 7 Incentive Compensation Issues Participant Profile About ZS Associates, Inc. 6 About WorldatWork 7 5
Executive Summary 6
Executive Summary More than out of 4 surveyed companies use some incentive method to encourage higher price points for their products; specific methods vary widely Capping incentive earnings is not common for pure sales/hunter roles, but is more prevalent for other sales roles Incentive Methods The top performing sales representatives typically earn more than x the target incentive for all roles The majority of respondents do not use any type of special incentives to encourage selling early in the performance period General Sales Force Measurements Two-thirds of companies complement the sales incentive plan with a recognition program to recognize and reward top performers; most utilize contests/spiffs to spur short-term focused sales efforts Turnover rate (voluntary and involuntary combined) is less than 0% for most of the companies surveyed, with a mean of 4% Most of the companies standardize compensation plans and roles across multiple countries Most companies do not spend more than 5% of revenues on sales compensation Incentive Accurate quota setting and overly complex plans are the biggest issues identified by surveyed Compensation companies issues 7
Incentive Methods 8
In your last completed fiscal year, what methods did you use to incent representatives to obtain the highest possible price levels? (check all that apply) Vary the payout rate based on product/deal gross margin 5 Pay on gross profit dollars 4 Do not incorporate price into the plan 4 Pay on gross margin percent Pay on net bookings Pay on average selling price (ASP) achievement Other Other responses include: Price Floors Based on revenue number of respondents n=7 The majority of surveyed companies encourage higher prices with their sales incentive plan, though the specific tactic varies widely. 9
For each of the following roles in your most recent fiscal year, did you use caps to limit the amount of incentive pay earned? Client Relationship Manager Lead Sales Role (Hunter/Pure Sales) Technical Specialist (Pre- and Post-Sales) Partner or Channel Account Manager Absolute cap on incentive earnings (n=) 6 4 (n=4) (n=7) 7 (n=) 6 No cap and no decelerator 5 6 Decelerator that slows earning increases beyond a specific performance level Per deal cap applied to each sale separately 0 0 Other Other responses include: Cap and decelerator Discretionary number of respondents number of respondents number of respondents number of respondents Capping incentive earnings is uncommon for the hunter / pure sales role, but is slightly more common for the other sales roles. 0
For each of the following roles, how much incentive pay (as a multiple of the target incentive) did your company plan as payout for its top performing sales representatives (top 0%) in your most recently completed fiscal year? Client relationship manager n=0.6 Lead sales role (hunter/pure sales) n=.6 Technical specialist (pre- and post-sales) n=. Partner or channel account manager n=.5 Mean Multiple of Target Incentive Top performing sales reps typically earn more than X the target incentive.
What incentive methods do you use to encourage reps to sell earlier in the performance period (not wait until the very end of the period)? We do not incent our salespeople to sell earlier in the year/period 9 MBOs Fast Start bonus for sales early in the period SPIFFs early in the period Pay some upside earlier in the period for over performance up to that point number of respondents n=7 More than half of the respondents do not use any type of special incentives to encourage selling early in the performance period.
How do you reward reps for selling multi-year service arrangements? Multi-year deal results in a kicker/accelerator on base earnings 6 Reward reps for the first X years in the contract (e.g., ) 4 Reward reps for all revenues in the contract MBOs Other Other responses include: Use of a signings element when appropriate We do not comp on multi-year deals number of respondents n=7 Companies usually reward for multi-year service arrangements but the method for rewarding varies.
In addition to the sales incentive plan, what other types of reward vehicles has your company used in your most recent fiscal year for sales representatives? (check all that apply) Recognition plan (annual plan to recognize top performers, President s Club, etc.) Contests/SPIFFs Spot awards (management discretionary awards) Long-term incentives (includes stock options and stock grants) 8 Profit-sharing/gain-sharing/company-wide plans Other Other responses include: Limited Incremental Incentives None of the above number of respondents n=7 Companies tend to complement the sales incentive plan with additional incentives to reward and recognize top performers (recognition program) and to reward shortterm initiatives (contests/spiffs). 4
percent of earnings (mean) What percent of earnings are received at each of these points in the order process? (responses must sum to 00%) 0% 5% 0% % 5% % 9% 5% % 0% 5% 0% When an order is booked When an order in invoiced When an order is shipped When an order is paid When revenue is recognized Note: respondents excluded from analysis. n=5 On average, earnings are split evenly across various stages in the order process. 5
How do you split sales credit when multiple reps work on a single sale? We do not split sales credit 8 By percent sold in different geography Fixed split percentage based on rep involvement Manager s discretion Based on rep product responsibility number of respondents n=7 Half of the companies do not split sales credit and instead either double quota/double credit or have a sales process which gives one individual sole accountability for a sale. 6
General Sales Force Measurements 7
number of respondents What was the total turnover rate (voluntary and involuntary combined) for sales roles at your company during the most recently completed fiscal year? Turnover Rate Distribution turnover rate percent Mean 4% 9 8 7 6 8 7 n=7 75 th percentile 8% 5 4 Median % 5 th percentile 7% 0 0-0% -0% 0-0% -40% 40+ Turnover rate (percent) Turnover rate (voluntary and involuntary combined) is less than 0% for most participants, with a mean of 4%. 8
Which of the following do you standardize across multiple countries? (check all that apply) Compensation plans 4 Roles Pay mix 8 Leverage targets (the ratio of the top performers incentive pay to average incentive pay) 8 Inconsistent. Several countries have standard features and some countries do not have shared or standard features We do not manage sales compensation across multiple countries number of respondents n=7 Most of the companies standardize compensation plans and roles across multiple countries. 9
number of companies What was the total sales compensation cost of sales (base salary + sales incentives) as a percentage of revenue for your most recently-ended fiscal or calendar year? Companies tracking sales force compensation cost of sales (CCOS) Total sales compensation cost of sales (base salary + sales incentives) as a percentage of revenue for most recently-ended fiscal or calendar year n=4 5% 75 th Percentile 4.8% 4% Mean =.9% % Median.0% n= % No Yes % 0% 5 th Percentile.% Note: two outliers were removed from the analysis. n=7 n=* Most companies do not spend more than 5% of associated revenue on sales compensation. 0
Incentive Compensation Issues
Which of the following are the five most difficult sales compensation problems for your company at the moment? (check all that apply) Quota setting fairness Sales forecast accuracy 0 Incentive plan complexity and/or field comprehension of the plan Data availability to accurately assess performance 8 8 Effective communication of the incentive compensation plan 6 Incentive compensation payouts not aligned to corporate performance Efficient incentive compensation administration 5 5 Adequate upside opportunity to motivate and retain top performers 4 Incentive plan not motivational enough, or motivating incorrectly Competitiveness of total pay levels with the market Compensation adjustments to reflect localized differences number of respondents n=7 Accurate quota setting and improving plan simplicity are the biggest issues identified.
Respondent Profile
At the end of your most recently completed fiscal year, how many sales people (FTEs) were in each of the following roles? Roles Total across all companies surveyed Number of companies with the role Average number of sales people Client Relationship Manager 0,005,59 Lead Sales Role (Hunter/Pure Sales) 9,0 4 659 Technical Specialist (Pre- and Post-Sales),65 7,9 Partner or Channel Account Manager 6,644 5 n=7 4
Which of the following best describes your company s industry segment? Service provider 4 Software enterprise 4 Telecommunications manufacturer Computer hardware manufacturer Internet information provider Semiconductor manufacturer number of respondents Note: information was not received from one respondent 5 n=6
About ZS Associates ZS Associates is a global management consulting firm specializing in sales and marketing strategy, operations and execution. Founded in 98, ZS has grown into a firm of more than,000 professionals delivering expertise across much of the sales and marketing spectrum. Our core practice areas include go-to-market and sales organization strategy and extend to the deep tactical levels required to effectively implement those strategies. The breadth and depth of ZS offerings combine to enable a unique client partnership both in the development of effective strategies and in their execution. We have pioneered an approach to sales and marketing consulting that is fact-based, analytically rigorous, and drawn from our many innovative methodologies, processes and decision support tools. Our client base is comprised of a diverse mix of companies, ranging from global market leaders to entrepreneurial start-ups, across more than 65 countries. The customized solutions we deliver for our clients extend from issue-specific at one end of the spectrum to large-scale, multinational business transformations at the other. In all cases, we combine our strategy, operations and execution expertise to ensure that the solutions we develop will work, and to help our clients successfully implement them at the tactical level. For more information on ZS Associates, please visit our website www.zsassociates.com. 6
About WorldatWork WorldatWork (www.worldatwork.org) is a not-for-profit organization providing education, conferences and research focused on global human resources issues including compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 955, WorldatWork has nearly 0,000 members in more than 00 countries. Its affiliate organization, WorldatWork Society of Certified Professionals, is the certifying body for the prestigious Certified Compensation Professional (CCP ), Certified Benefits Professional (CBP), Global Remuneration Professional (GRP ), Work-Life Certified Professional (WLCP ), Certified Sales Compensation Professional (CSCP ), and Certified Executive Compensation Professional (CECP ). WorldatWork has offices in Scottsdale, Arizona, and Washington, D.C. 7