Are Sales Managers Being Left Out of the Sales Compensation Loop?

Sales compensation plans undergo frequent change these days; 76% of respondents in a recent study say their plan is revised either every or every other year, with 65% indicating that a plan revision occurred in 2008.  And yet many organizations appear to be leaving first line sales managers out of the loop at launch time.

New research from WorldatWork and the National Association of Sales Professionals, featuring over 400 participating HR, compensation and sales professionals, indicates that nearly 40% of the responding organization do not appear to have a clear strategy or approach for preparing first-line sales managers to manage the launch of a new or revised sales compensation plan.  In fact, 14% of the respondents say that they bypass sales managers and go directly to sales employees when communication new pay plans.

To me this is symptomatic of a bigger issue surrounding sales compensation and sales management.  Because of the heavily leveraged (read low or no base, high incentive or commission) pay plans for most sales people, there appears to be an underlying assumption that the pay package will, and in fact should, manage the sales people for us.  This can be (and often is) an issue with any incentive plan, but it makes a more acute appearance in the realm of sales incentives.

I see it frequently when I participate in sales compensation design team discussions, where we are constantly battling the urge to have the plan address each-and-every-possible-desired-behavior-or-outcome, until the plan threatens to collapse under its own weight.  As if the sales managers themselves have no role or authority to deal with performance questions or challenges.

And maybe they don't.  But that - our apparent failure to capitalize on the role of sales managers in driving sales performance - seems like a pretty big oversight to me.

Readers, are you seeing this trend in the organizations where you work and/or consult?  What are your thoughts?

Sales Roles & Incentives: Administrative Vs. Selling Activities

Continuing our now daily coverage of sales compensation happenings (you can't stop the beat )...

I spoke to a group of CEOs and General Managers earlier this week on the topic of sales compensation.  One of the topics we discussed at length was defining the role of the salesperson.  As customers demand ever more of their vendors (from inventory management to distribution solutions), these leaders were finding that the roles of their sales staff are becoming ever broader as they try to oversee and manage this larger set of deliverables.  The initial question that came up was:  How do you adjust the sales compensation plan over time to respond to this shift/growth in responsibility?

But the bigger/better question is:  Do you simply stand by and allow your sales positions (hunters, in particular) to get broader in reaction to customer demands - or do you regularly examine the sales role(s) to see which new demands should be addressed by those in a traditional "sales representative" position, and which demands should shift to other, perhaps new, positions in order to allow the sales staff to stay focused on sales activities?

And here comes Watson Wyatt with a new study and some interesting findings that are very relevant to this dilemma.

According to Watson Wyatt's newly released 2008 Report on Sales Effectiveness and Compensation, companies are leaving millions of dollars in revenue on the table as a result of not organizing, deploying and compensating their sales forces effectively.  Specifically, the study focuses on how the structure of NBDs (New Business Developers) versus AMs (Account Managers) can enhance sales performance and company growth.  The study also addresses different approaches for high growth versus low growth periods (see related posts here and here).  Findings include:

• Shifting two hours a week from administrative to selling activities could lead to as much as $225 million in additional sales for a company with 1,800 NBDs.
• Companies can derive even greater value from their sales forces by carefully allocating activities between NBDs and AMs. Reallocating time and resources can create more than $600 million in additional sales for a $20 billion company.
• For NBDs, sales is a “contact sport” that rewards high touch and persistence. Top-performing NBDs prefer to communicate with clients and prospects in person (other NBDs rely more on the phone) and are more likely to cultivate a prospect over an extended period of time.
• Administration creates more than $300,000 in lost expected sales per NBD per year. Pushing nonselling administrative activities downstream from NBDs to AMs, and then from AMs to an administrative sales support role, can increase productivity.
• Top-performing salespeople report annual incomes that are 24 percent (NBDs) and 23 percent (AMs) higher than those of other salespeople in the same roles. Sales-related variable pay for top performers represents 90 percent (for NBDs) and 75 percent (for AMs) of this difference.
• Optimal productivity for sales roles varies considerably based on the company’s level of growth.
  • During periods of high growth: NBDs should focus on prospecting, qualifying leads, entertaining customers and closing deals. AMs should conduct business planning with customers, focus on needs identification and solution development, handle sales administration and concentrate on professional development.
  • During periods of lower growth: NBDs should focus on identifying opportunities to expand existing customer relationships, conduct needs identification and solution development, continue to entertain customers and close deals. At this level of growth, successful AMs become more prominent in the business development process, prospect more among existing customers, qualify leads, develop proposals and help close deals.

To summarize - astute companies will be reviewing/refining all aspects of how they go to market on a regular basis and particularly in the face of a potential economic slowdown, and not just the tweaking of their sales compensation plans.

If Salespeople ARE Different, What Does It Take to Steal One?

As part of the recent wall-to-wall coverage of sales compensation (sometimes you just have to go where the universe is sending you...), I direct you to The HR Capitalist where Kris Dunn (riffing off my recent post on how salespeople differ from other employees) asks the question "What Percentage Increase Does it Take to Steal a Sales Rep from your Competition?"

To get the discussion rolling, and acknowledging the newly confirmed fact that salespeople are - indeed - more motivated by money than the rest of us, Kris throws out his initial guess of 20%

What say you?  Join the conversation and put your opinion in there.

More on Motivating Sales Employees in Tough Times

In follow-up to my recent post on sales compensation in the face of an economic downturn (and my hints to him regarding the great thoughts he left in my comment thread), Paul Hebert of Incentive Intelligence has posted on Motivation in Tough Times.  The wisdom in his post has application well beyond sales employees, particularly the ideas on communication and recognition (which go a long way in helping maintain a positive and motivational work environment) that he shares from a terrific related post on The Happy Burro Blog.

Paul also shares some suggestions for new sales goals that might be considered for slower times, to be rewarded on a non-cash basis in order to maintain a separation from the ongoing compensation structure, including:

• Meetings with clients to discuss their business to see if there are ways to reduce costs vs. sell more stuff. Give points for each meeting and for documenting new ideas.
• Meetings with clients that are "non-traditional" users - brainstorm about this and set up some targets for "meetings" not sales. This will be more of a learning exercise not a sales call. The goal is to get the sales person outside their normal comfort zone and see if there is a market where they never thought there was one. Award for the meeting and for sharing the information.
• Administrative activities - updating databases, expense reports, etc. Anything that sales people don't typically do - get them to do it now. Spending time on these activities won't impact sales too much if the market is down for a bit .

I like and will leave you with a quote shared by Joe Raasch (aka The Happy Burro) on the post that Paul links to, which suggests a wonderful framework from which to approach the challenges that may be coming our way.

Better to light a candle than curse the darkness

Confirmation that Salespeople ARE Different

It probably comes as no surprise for most of us to learn that sales employees are more motivated by money than non-sales employees.  We count on it, in fact, and the design of most sales compensation plans is proof of this.

Beyond confirming this fact, however, Sibson Consulting's most recent Rewards of WorkSM (ROW) Study shows us evidence of other more nuanced ways that salespeople appear to differ from their fellow workers.

The ROW Study found that sales employees, compared to non-sales employees, are:

• More engaged (57% versus 51%)
• More committed to their company (68% versus 62%)

And, of course,

• More motivated by compensation (82% versus 62%)

Moreover, they have:

• A greater sense of affiliation with their organization (67% versus 60%)
• Higher career satisfaction (57% versus 52%), and
• More trust in management

I find these additional differences interesting and wonder what lessons they offer us about motivation, engagement and retention.

Is a salesperson's very immediate connection to both the company's service/product and the customer a factor in the higher levels of engagement, commitment, affiliation and satisfaction that this group reports?

What about the direct feedback, recognition and reinforcement (both positive and negative) that results from the highly leveraged (higher proportion of variable versus fixed pay) and results-oriented compensation package - does this account for higher levels of engagement, commitment, affiliation and satisfaction?  What about higher levels of trust?

Or is it simply in the nature of those people who are attracted to direct sales opportunities - along with the nature of this work and the methods by which it is usually rewarded - to be more engaged, committed, affiliated and satisfied?

Worth pondering.

Sales Compensation & Economic Projections: Hope for the Best but Prepare for the Worst

Colletti-Fiss, which regularly posts sales compensation "shorts" on their web site, has recently published a great short titled "2008 Sales Compensation: What to do if the Economy Takes a Turn for the Worst".  In it they share a few key suggestions on the types of adjustments to sales compensation plans that should be considered if the economy takes a nosedive in 2008.

1. Validate plan objectives.  Of course, this is something that should be done regularly (I would argue annually) for any incentive plan, good times or bad.  But in tough times it is particularly critical to validate that the design of a sales compensation plan is aligned closely with the requirements for business performance.
2. Create an incentive for a fast start.  Colletti-Fiss recommends including and communicating a provision for a fast start incentive - such as a Q1 achievement bonus - as a protective measure in the face of a slowing economy.
3. Keep sales reps in the game and in the money.  One of the toughest calls associated with incentive plan management is knowing when it is appropriate and necessary to re-set thresholds and goals.  Do it too often and inappropriately, and you risk setting an expectation that you will "bail out" your sales representatives whenever targets are missed (a mighty slippery slope).  Conversely, no company will benefit if its sales representatives lose heart in the face of goals that have become unachievable.  Tough times can call for corrective action in order to keep these important players focused and motivated.  In situations where re-setting thresholds, goals or incentive rates seems unwise, Colletti-Fiss recommend introducing SPIFFs as an alternative way to jump-start sales.

Responding to the Impact of Mergers and Consolidations on Sales Compensation

What happens when two of your largest customers decide to merge and, as a result of anticipated efficiencies (good for them!), they announce their intent to reduce purchases of your company's products/services by nearly 40%?

Bad for you.  Particularly bad for the sales staff who have been covering both accounts, and whose chance of earning a sales incentive award has just been decimated, if not eliminated, by the event.  How to react?

While the latest wave of mergers and industry consolidations may produce economic benefits for the firms involved (and, hopefully, their customers), they are also having a significant impact on the sales forces covering affected firms - and their earnings.  In their most recent issue of Sales Compensation Shorts, consulting firm Colletti & Fiss discusses how best to address the impact of mergers on the compensation of sales staff.  They recommend the following action steps to sustain sales force motivation and performance when the customer base is hit by merger events like the one described above: 

• First, regardless of what is decided about revised or new sales targets, the current plan should be "closed-out" and payments made under it through that [affected] period, e.g., through the first half of the year.
• Next, sales should be reforecasted and a new, reaching yet realistic quota should be assigned.  Also, consideration should be given to the performance range - threshold and excellence point - so that they too are reasonably realistic under the new quotas.
• Finally, because sales lost through this merger will have to be made up by other Strategic Account Managers or sales reps, overachievement incentive opportunity should be validated as financially attractive and re-communicated as such at the time quotas are reset.

Frankly, I think this is an action plan worth considering at any time when sales opportunities are significantly impacted by an event outside the control of the sales force - which could include some regulatory changes of critical scope, natural catastrophes (e.g. Hurricane Katrina), etc.  Certainly, it takes a judgment call in order to determine which outside events are worth responding to in this way and which are not;  we cannot adjust sales quotas in response to every blip on a company's radar screen , but we must be mindful of the fact that nobody wins when compensation plans are no longer realistic or achievable.

Balancing Results & Process in Sales Rewards

Check out the great post and lively comments on the delicate balance between rewarding results and process in sales incentives at the HR Capitalist - and jump into the discussion!

Sales Compensation - Too Soon for 2008? Compensation Force Interview with David Cichelli

David Cichelli of the Alexander Group is a – perhaps even the – leading expert on sales compensation. His book Compensating The Sales Force is my go-to resource whenever sales compensation questions come up, and he is a much sought after speaker and instructor on the topic of sales rewards. In my interview with David, he explains why companies need to conduct a comprehensive annual review of their sales compensation plans, and why it’s not too soon to start planning yours.

Q: Some sales executives are constantly tinkering with the sales compensation plan; others feel few changes are best. What’s the right answer?

A: Good question...well, neither is really correct. Sales departments are all about alignment, alignment between customers and product divisions. Both of these variables—for most companies—are in transition. A sales department is constantly fighting to maintain this alignment and thus avoid slipping into obsolence—the opposing force to alignment. The sales compensation program helps enforce this alignment. Thus, once a year, a sales department needs to check its “rigging” to ensure the sales compensation program is retaining the sales force and motivating the right types of sales behavior.

Q: I have heard you say that “tweaks” are bad, but “minor changes” are acceptable. What’s the difference?

A: Well, a “tweak” is best described as a “non-contextual” change made outside a comprehensive design process. It’s these “tweaks” that can cause unanticipated glitches in the compensation plan. Minor changes are acceptable as long as all elements of the sales compensation program are reviewed by a cross functional team of sales, marketing and finance management.

Q: Who owns the design of the sales compensation plan?

A: In our annual survey of sales compensation trends, the results remain pretty consistent year after year. For 45% of the companies, sales management “owns” sales compensation redesign. 25% use a cross functional team. And, 24% assign the re-design task to HR. The remaining 5% is divided between finance and marketing. My preference: I like the idea of a cross-functional design team. That seems to work best.

Q: What’s the biggest mistake companies make with their sales compensation plans?

A: Sales compensation offers many trap doors to fall through, but the most common and negative mistake is using too many performance measures. The rule of “no more than 3” is the best advice. And, these 3 or fewer measures should be related to sales results of the seller. The following measures should be avoided: corporate or division measures, compliance measures and activity measures.

Q: If a company’s fiscal year begins January 1 2008, when should they start their re-design process?

A: Begin your re-design effort at the start of September. Give yourself a month to assess the current plan. A month to do the design work and the rest of the year to document, update your automation support and communicate the program to the field.

Q: How can my readers get up to speed on this topic?

A: Let me recommend a one-day course offered by WorldatWork (www.worldatwork.org) called “Sales Compensation Design.” It is offered three times in the fall at this locations: Princeton NJ on Sept 25th, San Jose CA on October 3rd, and Chicago IL on October 8th. I am the instructor for these classes. Bring the whole design team. It’s worth it!

David Cichelli is Sr. Vice President of The Alexander Group.  He can be reached at dcichelli@alexandergroupinc.com. You can download highlights of his above-mentioned “trends” survey at his web site Compensating The Sales Force.

Thanks, David, for sharing your sales compensation knowledge and expertise with all of us!

Rewards Can Be One Facet of Improving Sales & Marketing Teamwork

Brian Carroll, author of the B2B Lead Generation Blog, has a recent post on the need to improve teamwork between sales and marketing.  He discusses the use of frequent and more effective meetings -- he calls them "huddles" -- as one powerful way to foster communication and collaboration.  He also lists 35 other possibilities for increasing the cooperating between these groups.

I'd like to add one of my own:  Creating shared goals and rewards.

Too often, job goals and incentive plans -- particularly for sales positions -- focus exclusively on individual accomplishments.  Case in point would be the classic sales commission plan which rewards sales revenues or volume generated by the individual salesperson.  Whiles these plans can have some obvious benefits, they also tend to work at cross purposes with any efforts to foster collaboration, even just among the sales staff.

If improving sales and marketing teamwork is an important objective for your organization, consider establishing at least one shared goal for these groups; something that the sales and marketing staff must work together to achieve.  Then tie a piece of everyone's compensation to this accomplishment.

Reward design alone will not create collaboration without the benefit of other efforts and activities; however, they have the ability to throw a serious wrench into these initiatives if they are putting out conflicting messages.  Even those of us with the best of intentions find it difficult to ignore the messages that are directly wired to our paychecks.