Sales Compensation Discussion October 7, 2015 Eric J. Maurer Vice President emaurer@alexandergroup.com 312.469.5341 Atlanta Chicago San Francisco Scottsdale Stamford
Agenda 1 Sales Trends in Manufacturing 2 Sales Organization Success 3 Key Sales Compensation Principles 1
Section 1: Sales Trends In Manufacturing
AGI 2015 Manufacturing Sales Strategy Survey AGI s 2015 Manufacturing Sales Strategy Survey includes 40 participating sales organizations. Findings include key industry sales model trends and a confidential benchmarking of each participant s key sales metrics against a relevant sub-group of our sample. Survey Objectives Clarify & Quantify Current Sales Models Understand Change Drivers Identify Opportunities - Sales Roles & Process - Productivity - Sales Costs - Territories - Rules of engagement - Quotas - Comp Product Complexity Solution Selling Growth Pressures Channel Shifts Globalization - Sales Strategy - New Sales Roles - Activity Reallocation - Change Levers
2015 Survey Participants
Manufacturing Industry Competitive Imperative Emerging Environment Moving From: Legacy sales organizations built around relationship development and product knowledge Smarter, more demanding customers Increased competition Technological innovation To: More consultative, solution and collaborative selling skills and models
Key Trends: Revenue Growth and Sales Strategy Manufacturing companies are Increasing focus on portfolio selling To sell a broader set of products and services that increase revenue per customer and maintain account control 82% 95% Deploying more complex sales models To more effectively sell technology-intensive products and services 87% 100% Evaluating new ways to incorporate inside sales In order to lower costs and free up field resources for more valuable selling activities 50% 62% Increasing deployment of push-pull channel models To stimulate end-user demand while continuing to build strong channel partner relationships 53%* 60%* *Numbers based on all participants, but only 74% have material channel presence today = % of participants facing this need today = % of participants that see this need growing
Key Trends: Sales Structure, Roles and Process Manufacturing companies are Increasing use of specialist roles To integrate new skills and focused sellers to help sell expanding product portfolios 57% 92% Developing global processes and sales structures To increase scale and cross-border coordination, and to meet the needs of global customers 49% 86% Building stronger sales ops functions To have a dedicated center of excellence in reporting territory, comp, quota setting, etc to help manage sales model complexity 45% 100% Investing in sales playbooks To drive consistent execution and coaching of more complex sales functions 20% 55% Utilizing the internet for new business selling To reduce channel expenses and meet customer expectations for self-service 19% 61% = % of participants facing this need today = % of participants that see this need growing
Key Trends: Sales Execution, Compensation and Quotas Manufacturing companies are Increasing pay for performance To generate more sales urgency and increase the difference between high and low performer pay 65% 78% Spending more on sales enablement Due to the need for more sales ops, sales support, selling skills, coaching and other non-compensation investments Investing in consistent sales metrics To help plan, execute and monitor sales execution across the company in a more competitive environment 64% 100% 53% 90% Recruiting new kinds of sales talent To be able to execute today s more complex and collaborative sales models 70% 80% = % of participants facing this need today = % of participants that see this need growing
Section 2: Sales Organization Success
Sales Excellence Three Competencies: Destination Execution Transformation Align Sales Force with Business Objectives Operate Sales Force Functions Effectively Adopt New Practices, Discontinue Ineffective Practices 10
REVENUE GROWTH MODEL TM STRATEGY REVENUE LEADERSHIP STRUCTURE MANAGEMENT REVENUE SEGMENTS VALUE PROPOSITIONS REVENUE MOTIONS CHANNEL COVERAGE ORGANIZATION & JOB DESIGN SIZING & DEPLOYMENT TALENT, SKILLS & SUPERVISION PRODUCTIVITY, QUOTAS & METRICS PERFORMANCE MANAGEMENT & REWARDS 1 2 3 4 5 6 7 8 9 REVENUE ENABLEMENT: OPERATIONS, PROCESSES & TECHNOLOGIES 11
Sales Compensation Factors Sales Compensation Influencing Factors Sales Channels Growth Phases Job Design Sales Motions 12
Coverage: Sellers Manufacturer Sell to partners Sell to partners Direct Indirect Indirect Sell to end-users Sell to end-users Sell to end-users Create End-User Demand Buyers: Commercial, Government, Consumer 13
Coverage: Sales Entities Market Business Units Manufacturer Single Product Multi-Business Units Products Core Products Bus Unit A Bus Unit B Bus Unit C Product Sales Force Unified Sales Force Field Unit Sales Force Market Business Units Field A Field B Marketing Direct Sales Indirect Sales Sales Geo Vertical Partner Sales A Sales B Direct/Indirect Sales End- User End- User End- User End- User End- User End- User End- User End- User Buyers 14
Coverage: Sellers Manufacturer Direct Indirect Embedded Solution Value-Added Choice Availability Fulfillment Partner Managers Channel Enablers Channel Sellers Category Managers Account Sellers OEM Alliance Partner Outsource Provider Convertor System Integrator VAR Dealer Configured Broker Dealer Delivery Distributor Mfg. Reps Web Purchase Retail Catalog Inbound Tele Full Solution Sellers Adoption Sellers Choice Sellers Purchase Assistance Buyers: Commercial, Government, Consumer 15
Evolution Of Growth Business Truths about growth phases Growth businesses evolve through phases. Each phase demonstrates predictable patterns. Each phase has a unique strategic focus. Movement to the next phase requires change in strategic focus. Resource optimization and deployment prevents obsolescence. 16
Phases Of Growth: Sales Focus And Priorities I. Start-Up Phases of Growth II. Volume Growth III. Re- Evaluation IV. Optimization Above Market Growth Norm Market Growth Grow Grow Really Fast Grow; Keep Customers Launch New Products Control Pricing Grow Select Markets Reposition Below Market Growth Reduce Costs Re-Think Product & Market Strategy Sales Focus Top-Line Growth Revenue Diversity Price and Productivity Segment Growth Priorities Scaling Onboarding $ Retention New Products Price Mgmt Cost Mgmt Segment Mgmt Specialization 17
Phases Of Growth: Sales Management Focus I. Start-Up Phases of Growth II. Volume Growth III. Re- Evaluation IV. Optimization Execution Scaling Enablement Add Value Rationalization Drive Proficiency Do Current Practices Better Gain Better Focus Stop Low-Value Efforts Increase Size Grow a Great Idea Improve Leverage New/Change Methods Create Value Recharter/Redirect 18
Job Design Types Of Selling Prospects Conversion Selling New Market Selling Buyers Customers Fulfillment Selling Penetration Selling Current Products New/Different 19
Selling Price Curve (SPC) Job Groups GLOBAL ACCOUNTS: CENTRAL BUY GLOBAL ACCOUNTS: CENTRAL DECIDE/ LOCAL BUY LARGE ACCOUNTS: CENTRAL BUY LARGE ACCOUNTS: CENTRAL DECIDE/LOCAL BUY Dollars MID-MARKET ACCOUNTS: CENTRAL BUY TERRITORY ACCOUNTS: CENTRAL BUY RFP OPPORTUNITIES SMALL ACCOUNTS: SELF-SERVE High Disruptive/Advanced: Complex Technology/Product/Service Customer Risk and Uncertainty Low Known Solution: Routine Product/Service 20
Different Sales Motions Deliver Different Value Sales Motions Selling Value-Add Sales Fulfillment Sales Advocacy Sales Innovations Execution Excellence Choice Options Relationship Development Decision Guidance Offering Assurance Purchase Justification Functional Advancement Insight-Led Solutions New Platform Adoption New Paradigm Extensive Custom Solution New Enablement Extent of Value-Added Selling ROI Rationale Risk Mitigation Customers Receive Education/Advice Relationship Choice Awareness Minimal Availability Company Offerings: Products/Services/Solutions 21
Value-Added Selling: Compensation Implications Sales Charter Sales Motion Sales Compensation Possible Measures Possible Mechanics Sales Innovation New Paradigm Custom Solution New Enablement Sales Production Solution Sales Adoption Success Customer Outcomes Moderate Mix Strategic Plan Award Customer Success Incentive Sales Advocacy ROI Rationale Risk Mitigation Education/Advice Sales Production Competitive Wins Product Mix Customer Satisfaction Aggressive Mix Quota Plans Satisfaction Incentives Sales Fulfillment Relationship Choice Awareness Availability Sales Production Cross-Sell Retention Customer Service Modest Mix Frequent ments Sales Commissions RFP Award 22
Section 3: Key Sales Compensation Principles
Section 3: Key Sales Compensation Principles By the conclusion of this section, you will be able to accomplish the following: 1 Describe key sales compensation principles. 2 Identify center practice for each of the design principles. 3 Understand how each principle affects other principles. 4 Assess how your company is applying these sales compensation design principles. 24
REVENUE GROWTH MODEL TM STRATEGY REVENUE LEADERSHIP STRUCTURE MANAGEMENT REVENUE SEGMENTS VALUE PROPOSITIONS REVENUE MOTIONS CHANNEL COVERAGE ORGANIZATION & JOB DESIGN SIZING & DEPLOYMENT TALENT, SKILLS & SUPERVISION PRODUCTIVITY, QUOTAS & METRICS PERFORMANCE MANAGEMENT & REWARDS 1 2 3 4 5 6 7 8 9 REVENUE ENABLEMENT: OPERATIONS, PROCESSES & TECHNOLOGIES 25
Types Of Variable Compensation Plans Target Rate Target Risk No Risk Unit Rate 3x Uncapped 2x Capped Add-On Gainsharing Target Total Cash Compensation Base Salary Base Salary Base Salary Base Salary Types of Variable Compensation Plans 26
Sales Compensation Plan Design Principles Charter Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent With Corporate Strategies, Goals and Principles Guiding Parameters 1 2 3 Strategy & Job Alignment Sales Force Motivation for Performance Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives Execution 1 2 3 4 Assessment and Design Implementation and Communication Governance and Administration Investment ROI 27
Guiding Parameters: Strategy & Job Alignment Guiding Parameters 1 2 3 Strategy & Job Alignment Sales Force Motivation for Performance 1 Strategy & Job Alignment Sales objective Prospects Conversion Selling Grow Base New Market Selling Develop New Markets Customer coverage strategy Buyers Job definition Sales contact/process Customers Fulfillment Selling Protect Base Penetration Selling Cross-Sell Current New/Different Products 28
Job Design What Is The Focus Of Each Selling Role? Market Specialists Unique Sales Force Prospects Conversion Selling New Market Selling Buyers Customers Fulfillment Selling Penetration Selling Product Specialists Current Products New/Different 29
Sales Strategy Drives Job Specialization Primary Focus General Sales Representative New Business Developer Account Manager Sales Representative Product Sales Specialist Typical Responsibilities Sells to all segments Maintains current business Expands base of business Expands base of business Establishes and maintains relationships with key decision-makers Business-to-business selling, using all appropriate resources Maintains current business Services current accounts effectively Expands business with current accounts opportunistically Sells to and services moderately-sized current and new accounts Prospects within specified geography Sells specific product to current and new accounts Industry/Market or Channel Specialist Acts as segment resource on an as-needed basis 30
Guiding Parameters: Sales Force Motivation Guiding Parameters 1 2 3 Strategy & Job Alignment Sales Force Motivation for Performance 2 Sales Force Motivation Source Need Influence Vector Motivation Response Target total compensation objective Economic Positive Negative Seek Economic Gain Avoid Economic Loss Market competitive upside pay External Social Positive Seek Acclaim/Belonging Each plan is simple to understand Negative Positive Avoid Embarrassment/Rejection Seek Self-Image Confirmation Sales force can tie results to payouts Internal Self-Definition Negative Avoid Self-Image Detractors 31
Guiding Parameters: For Performance Guiding Parameters 1 2 3 Strategy & Job Alignment Sales Force Motivation for Performance 3 for Performance High $ High $ Establish Performance Relationship: e.g., highest 90 th performers earn 3x lowest 10 th performers Target Total Compensation High $ Set quotas and performance expectations according to objectives Test actual performance discrimination against target pay for performance objectives Low $ Narrow Low $ Discrimination Low $ Wide 32
Sales Compensation Plan Design Principles Charter Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent With Corporate Strategies, Goals and Principles Guiding Parameters 1 2 3 Strategy & Job Alignment Sales Force Motivation for Performance Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives Execution 1 2 3 4 Assessment and Design Implementation and Communication Governance and Administration Investment ROI 33
Plan Elements: Eligibility Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 1 Eligibility Eligibility Criteria: 1. Significant customer and/or partner contact and relationship 2. Persuade the customer to act in a positive financial benefit to the company 3. High level of sales process involvement/ownership 4. Clear and quantifiable sales objectives Contact Style Role Job Type Eligibility External Internal Initiate Respond Facilitate Persuade Prospect Persuade Other Sellers Persuade Buyer Fulfill Customer Promote Administer Execute Direct Sales: Sales Focus Only Indirect Sales: Channel Sales Efforts Reactive Selling: Sell on Inbound Call or Service Issue Customer Service: Service Only Support: Influence Efforts to Achieve Sales Objective Support: Administer/ Implement Sales Programs Support: Transaction Processing 3x Uncapped 3x Uncapped 3x Uncapped 2x Capped 2x Capped Add-On Team Add-On Group Titles 34
Plan Elements: Levels Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 2 Levels Differentiate top & bottom performance for results (impact on the business), not effort Absolute pay correlates to absolute results 75th 50th 25th Tiffany Shop Sell or Die Market Tracker Nice Place to Work Bottom Feeder Compensation program meets fiscal requirements Low Performers Median Performers High Performers 35
Plan Elements: Mix Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 3 Mix mix reflects the job s degree of individual influence within the deal and considers market benchmarks Jobs with the most influence on the purchasing decision have more aggressive pay mix 100 10 30 90 70 50 50 Job A Job B Job C Low Degree of Influence Mix High 36
Plan Elements: Leverage Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 4 Leverage 200 Leverage (upside opportunity) reflects the job s degree of individual influence on attaining quota and considers market benchmarks Jobs with the most influence on the purchasing decision have a higher upside earning 100 160 120 30 10 10 30 10 30 90 70 50 50 50 50 Job A Job B Job C Upside Mix Leverage 3x Low Degree of Influence High 37
Plan Elements: Measures Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 5 Measures No more than three measures Criteria include: Alignment to strategy and job Influence their measures (Line of Sight) Ability to set quotas/goals Ability to track Objective metrics Weights reflect the job s focus and have impact Just Say No To: More than three measures Corporate galactic measures Activity measures Wishful thinking measures Weighting less than 15% Compliance measures Can not measure measures Measures aligned vertically and across teams 38
Whom To Reward Different Populations Require Different Plans: Individual Team Group Individual Contributors Measured and rewarded at the individual level Example: Account Manager, Territory Rep Collaborative Work Team Measured and rewarded on team efforts Example: Strategic Account Team Common Workforce Measured and rewarded at system-wide level Example: Frontline Customer Care Team 39
Plan Elements: Mechanics & Curve Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 6 Mechanics & Curve % of Target Incentive Appropriate mechanics: 600% Curve Set thresholds at point of recurring business Use quotas to accommodate varied territory Use excellence to set accelerator rates Decelerate rate after excellence to avoid over payment Use modifiers, value adjustments and matrices to balance measures 500% 400% Excellence Decelerator 300% 200% No Threshold Target Threshold Cap Upside 100% 0% 0% 25% 50% 75% 100% 125% 150% 175% Attainment of Goal 40
Plan Elements: Performance & out Periods Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 7 Performance & out Periods Performance periods should: Match sales cycle length Set realistic goals Minimize pushing/pulling orders Discrete Periods Progress on Annual Plan Separate, standalone payments for each period Progress payments on an annual goal ment should: Occur close to sales event Ensure proper cash flow Be consequential Cumulative Performance-to- Date Divided performance period paid on a cumulative performance-to-date basis 41
Plan Elements: Quotas/Targets Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 8 Quotas/Targets Quotas are fair, realistic, stretch goals based on sales potential 2/3 of incumbents achieve goal 30-40% of Sellers Quota Distribution 60-70% of Sellers Consistent quota methodology for similar roles and segments well documented and communicated Bottom 10% of Sellers Top 10% of Sellers Process includes both topdown and bottom-up Threshold 100% Excellence 42
Plan Elements: Crediting & Policies Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 9 Crediting & Policies Sales crediting rules: Credit for sales involvement for persuasion Administer efficiently Avoid budget inflation Vertical Crediting Region District Policies for: Employee changes Quota changes Windfall deals/mega deals Sales crediting SR #1 SR #2 Specialist Horizontal Crediting 43
Plan Elements: Special Incentives Plan Elements 1 2 3 4 5 6 7 8 9 10 Eligibility Levels Mix Leverage Measures Mechanics & Curve Perf & out Periods Quotas/ Targets Crediting & Policies Special Incentives 10 Special Incentives Use standard governance process Incentives will: Not compete with annual SIP Not exceed 5% of population s TTC Be limited to no more than 5 incentives a year Last no longer than 1-3 months Excellence Target Recognition Contests/Spiffs Over Target Incentive Target Incentive Salary Benefits Sales Expenses 44
Key Advice Every sales job requires its own sales compensation plan Each plan should be reviewed once a year Just say no to tweaking Tweaking 45