MERCER WEBCAST
SALES COMPENSATION OPTIMIZATION
Manage Risk to Maximize Effectiveness
JULY 24, 2013
Shawn Rossi, Mercer
Principal, Sales Performance Practice Leader
Erik Charles, Xactly
Director, Product Marketing
Today’s Speakers
Shawn Rossi
Principal, Sales Performance Practice Leader
Mercer
Focused on sales force productivity
optimization for 18+ years
Widely published and frequent speaker
• Works published in WorldatWork, SHRM
and other publications
• Spoken for WorldatWork, SPM Solution
Provider User Conferences and the
Sales Management Association
Former sales operations strategy executive for
a leading consulting company
Former marketing executive for an eMarketing
company specializing in the IT Solution space
Began sales effectiveness career at Andersen
Consulting – focused on CRM and customer
care within the telecommunications industry
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Erik W. Charles
Principal Incentives Strategist
Xactly Corporation
Focused on sales force effectiveness leveraged
through application of technology for 20+ years
Writer and speaker:
• Blog on Sales Force Effectiveness
@Xactlycorp
• Speaker for World at Work, AA-ISP, Sales
Management Association
• Articles in Selling Power, World at Work
Former consultant in sales force effectiveness
and compensation
Experience as a sales rep, sales manager, and
sales operations head
Angel investor in business technology
Twitter: @ErikChaz
LinkedIn: www.LinkedIn.com/in/erikcharles
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Mercer – Who We Are
Mercer helps clients optimize their workforce performance and maximize the
effectiveness of their benefit and incentive programs
• We are a global consulting leader in talent, health, retirement, and investments.
• $3.9 billion in revenue
• 65-year history.
• Four business segments
• Offices in more than 40 countries
• 19,000+ colleagues
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Xactly– Who We Are
With Xactly, companies unleash the motivational power
of their incentive compensation. We help companies
of any size Incent Right
LEADER IN SAAS INCENTIVE
COMPENSATION MANAGEMENT
FASTEST GROWING PROVIDER
– OVER 100,000 SALES REPS INCENTED
FOCUSED EXCLUSIVELY ON
INCENTIVES AND COMPENSATION
MANAGING >$6 BILLION IN
COMPENSATION ANUALLY
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What Is At Risk Again?
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Managing Risk: When & What
When
What
Motivation
Cost
Legal
Exposure
Sales Compensation
Effectiveness
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Managing Risk: How
Separating the Good
Leaders
Aligned,
Simple
Plans
Fair, Attainable
Goals
Effective
Program
Clear,
Timely
Plan & Goal
Communication
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Effective,
Efficient
Comp Admin
Laggards
Area
Rated Area Effective
or Very Effective
Design
75%
60%
Quotas
73%
39%
Communication
73%
61%
Administration
70%
57%
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PLAN DESIGN
Focus on Critical Plan Design Components
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
Step 0: Compensation Philosophy
Step 1: Determine Eligibility
Step 2: Set Total Target Cash Levels
Step 3: Choose Mix of Base and Incentive
Step 4: Determine Measures & Weights
Step 5: Design Plan Mechanics
Motivation &
cost driving plan
components
Step 6: Set Performance Objectives
Step 7: Select Leverage Ratios
Step 8: Set Payout Timing
Step 9: Develop Administrative Guidelines
Step 10: Validate Comp Philosophy
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Incentive Pay Leverage: A Double-Edged Sword
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
Uncapped
$200K
Uncapped
Uncapped
100
Upside
Amount Earned
Design Takeaways:
60
Mix drastically changes
upside opportunity
20
$100K
Get the total target cash
right (TTC) given the
ideal talent pool
10
30
50
Mix
90
70
50
Leverage is an
extremely powerful
behavior drives as it is
the combination of mix
and upside
Leverage can help maximize motivation, but it also introduces the potential for
increased risk.
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What Can We Measure?
Cost
Criteria for maximizing motivation and minimizing risk
Motiv
ate
Legal
Sales Comp
Effectiveness
• Ability to consistently and
materially influence
Key best practice is to
have no more than three
performance measures
and to make certain
performance measures
are aligned with the role
and its key
responsibilities.
Within
span of
control
• Within “line-of-sight” and
key result for the role
Effective
Performance
Measures
• Supports sales strategy
and business objectives
• Consistent with role’s
design and key
responsibilities
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Aligned
Comp
ready
• Data can be accurately
tracked
• Data is from a trusted
source and available for
timely payments
Measures MUST Be Attainable!
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How Many Measures Can We Use?
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July 24, 2013
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If I Can’t See It Or Touch It, Don’t Measure Me On It
Timely line of sight is critical to successful measurement
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Measurement Timing Will Also Drive WHEN You Book Deals
• You will see spikes in revenue for whatever
the measurement period is.
• Combine monthly and quarterly goals with
the annual numbers to help smooth the
revenue cycle.
25%
20%
15%
10%
5%
0%
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3
4
5
6
7
8
9
10
11
12
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Measurement Timing Will Also Drive How MUCH You Book
Quarterly
Annual
Quota Targets
Quota Targets
67%
60%
>80%
of quota
>80%
of quota
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Hidden Risk & Motivation: Crediting Rules
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
Frontline
• Global Account
Manager
• Local Account
Manger
Overlay
• Sales Engineer
• Product Specialist
• Services Sales
Executive
$10M
Deal
Channel
Roll-up
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• Partner Account
Manager
• Channel Manager
Design Considerations
Does everyone get
credit?
How much credit does
each role receive?
Does the type of
product/solution change
how much credit is
given?
Does the type of
customer (i.e. strategic,
new, etc.) alter the
amount of credit given?
• First level sales
manger
• Second level
sales manager
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The Challenge with Crediting Rules – Credit Creep…
1
Deal
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30 COMMISSIONS
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ROLL-OUT & SET-UP
Key Areas for Compensation Governance
Motiv
ate
Cost
Legal
• Decision Rights and Accountabilities
– Roles
– Responsibilities
– Approval/review processes
Sales Comp
Effectiveness
• Plan Design Guidelines
– Eligibility, pay levels, pay mix, performance measures, crediting rules,
and mechanics and more
• Policy Terms and Conditions
– Procedures for plan acceptance, quota, adjustments, terminations, etc.
– Legal aspects related to compensation, benefits, and employee
relations
• Plan Oversight provides a check and balance as well as issue resolution
body to govern plan management throughout the year
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Assess Individual Level Impact
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
Top Performer
Average Performer
Bottom Performer
Attainment
113%
90%
62%
Production
$583,546
$2,758,017
$614,036
Current TCC
$69,022
$272,998
$73,737
$66,515
$256,944
$85,335
$73,394
$235,709
$68,268
Target TCC New Plan
Actual TCC New Plan
Attainment
Level
Average
Attainment
105%+
111%
$72,876
$74,976
$77,675
$85,177
8
6
2
0
90 - 105%
98%
$112,471
$113,795
$114,124
$112,868
2
13
22
0
70 - 90%
83%
$75,809
$72,486
$76,967
$63,531
0
3
6
4
0 - 70%
59%
$56,850
$51,183
$58,639
$47,531
0
0
4
1
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Avg Current Avg Current
Target TCC Actual TCC
Avg Future
Target TCC
Avg Future
> +15%
+15% to 0%
0% to -15%
> -15% Change
Actual TCC Change in TCC Change in TCC Change in TCC
in TCC
Fair Target Setting Is Key To Motivate The Field and Align With
Company Success
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
Target level equates to
100% of plan
60-70%
of Sellers
30-40%
of Sellers
Number of
Salespeople
Bottom10%
of Sellers
Top10%
of Sellers
Threshold
100%
Excellence
Quota Performance
Performance level requiring
minimal effort – set based on
historical performance or fixed
costs
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Excellence level allows 10% of
sellers to earn upside, it is usually
set using historical data
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Once Assigned, What Quota Attainment Can We Predict?
Distribution of Annual Quota Attainment %
100%
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Every Industry is Different
On-target Incentive Earnings
Communications
Software &
Technology
>120%
80 – 120%
< 80%
48%
30%
22%
41%
33%
26%
Business
Services
39%
35%
26%
Manufacturing
& Distribution
39%
Life
Sciences
Media &
Entertainment
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36%
26%
25%
36%
28%
36%
45%
29%
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Put Your Best Foot Forward…
Motiv
ate
Cost
Legal
Sales Comp
Effectiveness
Plan Roll-out—Energize and Align
• Layout a strategy and formal roll-out plan
• Leverage multiple communication vehicles;
documents, meetings, rallies, etc.
• Sales executives are active, visible champions
• First level managers are the key verbal
communication point and “face” of the plans
• Track plan acceptance
Communications
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Motivation
Results
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ON-GOING
Who Wants to Restate Earnings?
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Compensation Plan Effectiveness Metrics
Motiv
ate
Cost
Legal
Sales Comp
Effectiveness
Analysis
Key Data Cuts
CCOS / ICOS
•
Geography
•
Position
•
Objective
•
Comparatively how expensive is each
incumbent/team/Geo to the company?
How much does it vary?
Business
Unit
•
How effectively does that compensation
expense drive results?
Geography
•
How effective is current quota setting?
Does it support the achievement
philosophy? (Stretch goals vs. Culture of
Achievers)
Percent of Target Earned
Total Salary
($000)
Total
Incentive
($000)
Total Comp
($000)
Total Revenue
($000)
iCOS
CCOS
US
$87,327
$48,923
$136,249
$11,041,077
0.44%
1.23%
AS
$9,761
$5,628
$15,389
$1,590,112
0.35%
0.97%
AZ
$8,891
$4,297
$13,188
$1,420,618
0.30%
0.93%
CA
$7,896
$4,016
$11,911
$1,367,883
0.29%
0.87%
EM
$65,810
$19,295
$85,105
$10,802,870
0.18%
0.79%
JP
$8,133
$4,170
$12,303
$2,150,538
0.19%
0.57%
LA
$2,614
$1,641
$4,254
$757,812
0.22%
0.56%
$190,430
$87,969
$278,399
$29,130,910
0.30%
0.96%
Overall
Performance Distribution •
35%
31%
30%
25%
Position
•
Business
Unit
•
How effective are quotas at targeting real
opportunity?
•
Geography
•
•
Position
What is the degree of differentiation
between a median, low, and high performer
•
Business
Unit
•
How does that differentiation drive
performance?
18%
14%
15%
9%
10%
4%
1 85k>
1%
166.5k - 185k
148k - 166 .5k
129.5k - 148k
37 k - 55 .5k
111k - 129 .5k
< 18 .5k
2%
74 k - 92 .5k
0%
92.5k - 111k
0%
55 .5 k - 74k
0%
18 .5 k - 37k
5%
0%
•
22%
20%
NISD $
Pay Differentiation
350%
300%
250%
200%
150%
100%
50%
0%
10th
20th
30th
40th
New Customer
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50th
60th
Renew + GITA
70th
80th
90th
Total Incentive
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Cost
Compensation Plan Effectiveness Metrics continued
Motiv
ate
Legal
Sales Comp
Effectiveness
Analysis
Key Data Cuts
Credited Revenue Ratio
Number of
Associates1
Region
Credited Actual Revenue2
($MM)
TCCPaid ($MM) Revenue1 ($MM)
Actual CCOS
Credited to
Actual Revenue
Ratio
Americas
976
$224,589
$125,975,090
$2,208
10172%
57,054
Asia Pacific
343
$37,356
$12,210,125
$394
9481%
30,990
84,689
EMEA
885
$147,103
$112,551,841
$1,329
11069%
Federal
239
$56,836
$24,019,577
N/A
N/A
N/A
World Wide
65
$15,653
$47,685,449
N/A
N/A
N/A
All
2,508
$481,536
$322,442,081
$3,931
12250%
82,025
Pay For Performance
250,000
200,000
R
2
•
Geography
•
Position
•
Geography
•
Position
= 0.5353
150,000
Objective
•
How big of a variance exists between
actual and credited revenue?
•
How does the ratio compare to industry
standards?
•
How do the use of overlays and variances
in crediting practices affect the ratio?
•
How big a variance is there in how plans
pay for like levels of performance?
•
How effectively do the plans reward
performance?
•
How well are key objectives correlated to
pay?
•
How much more of a top performers
compensation is made up by incentive vs.
bottom performer?
•
How strongly does the pay components
drive performance?
•
Do the plans incent for the right focus?
100,000
50,000
0
0%
20%
40%
60%
80%
100%
Pay Composition
•
Geography
•
Position
•
Business
Unit
$120,000
$22,999
$100,000
AveragePay
$80,000
$12,444
$8,861
$60,000
$40,000
$26,738
$15,968
$5,247
$7,483
$12,362
$19,815
$23,620
$27,731
$25,674
$25,828
$25,839
$12,573
$15,612
$36,800
$26,970
$20,000
$25,969
$25,827
$0
Lowest
Quartile
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3rd Quartile 2nd Quartile Top Quartile
All Reps
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Keep Talking to Provide Motivational Thrust
Cost
Motiv
ate
Legal
Sales Comp
Effectiveness
In-Period Performance to Date (PTD)
Reports
• Self-service, easily accessible reports for the field
• Updated frequently; daily for high transaction
businesses, weekly at a minimum
• Simple, easy to digest reports that provide line of
sight into:
– Performance against plan measures, including
access to the transactions/credits
– Position and stack ranking against peers
– Forecast pay based upon deals in the pipeline,
especially to show how thresholds and
accelerators can be achieved
Communications
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Motivation
Results
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So Who’s On First?
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Are You Sure?
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WARNING SIGNS
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Warning Signs – Do You Have Any of These?
Elevated
turnover levels
& disputes
Unhealthy level
of channel
conflict
Rising cost of
sale
Forecast
inaccuracy
Quota
attainment
& company
results not
aligned
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How Do Your Managers Handle Turnover?
IF THE
MANAGER IS:
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POOR REP
TURNOVER IS:
HITTING QUOTA
22.2%
MISSING QUOTA
18.6%
ON THE MARGIN
5.6%
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Can You Predict The Loss Of Top Performers?
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What Is It All Costing You? Remember ROI?
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Final Checklist
What are you trying to ACHIEVE this period?
WHO is going to do it for you?
How much TOTAL are you willing to pay?
What are you going to MEASURE?
WHEN we will you write the check?
How will you KNOW if you have succeeded?
How will you know if you made a MISTAKE?
When you make an ADJUSTMENT?
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Remember – This Is ALL Connected
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Questions
Shawn Rossi
Principal, Sales Performance Practice Leader
Mercer
[email protected]
Erik W. Charles
Principal Incentives Strategist
Xactly Corporation
[email protected]
QUESTIONS
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