designing the right compensation plan · 7/1/2010 · sales roles and compensation: ic plan...

Get the most from your sales forceDesigning the right compensation plan

APRIL 2013 MARC WALLACE

2© 2013 Hay Group. All rights reserved

Life Sciences

This pharmaceutical firm paid based on growth over previous

performance

Sales

Commission

Sustained performance is not reflected by

the incentive. Two problems:

1. Sales reps were penalized for good

performance, causing them to check out

after a good year.

2. By not using a quota, the company had

effectively abdicated translating strategy

into the incentive plan.


Commission on subscription

This organization had outsourced business services…

OneTime

Weekly 2 Week Monthly

Commission % 5% 10% 7% 5%

Current distribution of sales

65% 20% 10% 5%

Avg. sale price per unit $400 $200 $220 $240

Reps were telling customers who wanted a contract to

re-up after each service to ensure they would get

multiple commissions on the same business.


Territory Sales Q1 Q2 Q3 Q4 Total

Rep 1 $2,500,000 $2,300,000 $2,600,000 $2,200,000 $9,600,000

Rep 2 $2,400,000 $2,700,000 $2,500,000 $1,900,000 $9,500,000

Rep 3 $1,400,000 $1,680,000 $1,540,000 $1,260,000 $5,880,000

Rep 4 $725,000 $942,500 $761,250 $761,250 $3,190,000

OPEN TERRITORY $700,000 $805,000 $770,000 $665,000 $2,940,000

Rep 6 $650,000 $780,000 $715,000 $585,000 $2,730,000

Rep 7 $640,000 $768,000 $704,000 $576,000 $2,688,000

Rep 8 $550,000 $715,000 $577,500 $577,500 $2,420,000

Rep 9 $430,000 $516,000 $473,000 $387,000 $1,806,000

Rep 10 $325,000 $308,750 $341,250 $357,500 $1,332,500

Field sales reps for equipment

Company strategy was growth, but field reps for this company were paid a

commission. This was manifest when there was a vacancy:

The territory without a rep is the 5th best producing territory in the company.

This indicates that incentive pay to reps may not support top performance.


Manufacturing equipment

Manufacturer works through distributors

Commission – one number

Key behavior – work closely to improve distributor business, facilitate supply

Need to create focus on customer

First attempt – visits to customer sites

Second attempt – customer satisfaction

Third attempt – performance management


Consumer products

FMCG firm

Bonus target based on growth

Multiplier based on mix

Focus on client supply chain, particularly for key accounts

First attempt – build the business case

Second attempt – preferred vendor status

Third attempt – account growth


Sportswear retail

Sportswear retail

Store retail based on exceeding monthly volume

Team based

Wanted to create a clienteling experience

First attempt – repeat business

Second attempt – sales made by reaching out

Third attempt – forget it


The Tools

To build the best plans, consider:

Role value matrix: the nature of the role

The measures: what reflects performance

The market: how do you competitively pay in the market


Familiar

friend

Field rep

Trusted

advisor

Deal

maker

The sales value matrix

Transactional Consultative

Farmer

Hunter


Sales roles –Example: how sales accountabilities vary


Farmer

Hunter

Familiar

friend

Trusted

advisor

Deal

MakerField Rep

Keep customers

satisfied and supplied

Sell up: push promotions

Observe and report on

condition of product (e.g., stock

on the shelves)

Understand client’s business

Leverage relationships

Scan for new resources,

techniques, breakthroughs

Provide deep insight

Mobilize resources to make sale

and get work done

Influence collaboratively

Identify and qualify prospects

“Hook” the customer

Overcome buyer’s obstacles

Close quickly

Follow the script or method

Organize tasks efficiently

Scan for opportunities

Leverage networks

Orchestrate internal resources

Adaptable and persistent

Perform bold and innovative

actions to influence

Unilever Territory Sales Rep

AirbusGlobal Account Director

Daiichi Mutual Life Sales Rep

Applied MaterialsSenior Product Specialist


Sales volume

Product

placement

Customer

satisfaction

Number of

new sales

Sales volume

Staying within

the rules

Efficiency (e.g.,

calls per hour)

Client satisfaction

(repeat business)

Sales volume

(driven by client

satisfaction)

Profitability

Volume of new

business

Profitability –

Long Term

“Locked-in”

Relationship

Sales roles:defining the metrics of success


Farmer

Hunter

Familiar

friend

Trusted

advisor

Deal

maker

Field rep


Sales roles and competencies:What type of influence skills are required?


Farmer

Hunter

Familiar

friend

Trusted

advisor

Deal

maker

Field rep

Good communication

skills, friendly and

outgoing

Complex influence

strategies, across client

and over time, involving

others, collaborative,

winning trust

Articulate, follows script,

adapts if needed, strong

closing techniques

Sensitive to customer

buying “signals” (e.g.

prestige)


Sales roles and compensation:IC plan


Farmer

Hunter

Familiar

friend

Trusted

advisor

Deal

maker

Cold-call

closer

Single measure

Simple, goal-

based plan

Multiple

measures

Complex goal-

based plan

Single measure

Commission

plan

Multiple

measures

Commissions +

objectives

E.g. Volume, Quota Focus

E.g. Strong Volume/Unit Focus

E.g. Profit, Strategic Initiatives

E.g. Contract Size, Profit, Strategic Initiatives


Choosing measures

When determining appropriate measures, most organizations

consider both classifications of measures together.

End

measure

Intermediate

measure

Primary Secondary

Examples:

Bookings

Realized margin

Examples:

Corporate net

income

Region EBIT

AR/DSO

Examples:

Strategic sales

Incentive factors

Examples:

Numbers of

sales calls

Proposals

generated

Merchandising

Increasing

leverage

Increasing role differentiation


Measures reflecting the customer

Nature of the measure will impact how it is incorporated:

End result Activity

Growth Key account

growth

Repeat

business

Key account

plan

Market

share

Customer

satisfaction

Appropriate for incentive plan Appropriate for perf. mgt.


New focus on the customer

Sales organizations are focusing on the quality of customer experience

Lower CoGS from repeat sales

Better retention of customers supports growth

Supports implementation of strategy

More organizations appear to be incorporating customer measures in

incentive design

Measure 2011 Weight 2010 Weight

Customer focus/satisfaction 13% 4%

Territory management 30% 0%

Account management 25% 7%


Apple pie

It is important to consider why inclusion in the incentive plan on the table:

What is the rationale?

Strategic

Reinforce a message

Growth

Change management

Does it matter, or does production automatically include customer satisfaction?

Growth

Retention

Is it an end result measure? Or measure of an activity?


Measurement challenges

In our experience, we see several challenges implementing customer

measures:

Obtaining data:

Opinion

Secondary sources

Actual link to performance

Risk of increased cost of sales

Equity

Credibility


Incorporating customer measures

Primary measures have

greater weighting

Primary and secondary

measures are completely

independent

Primary measure achievement

is modified by achievement on

a secondary measure

The primary measure drives

performance. The secondary

measure may adjust the

performance level. By itself,

the secondary measure has no

impact – performance on the

primary measure occur first

A preliminary threshold of

achievement on a secondary

measure must occur

Once the threshold has been

achieved, it falls away and the

plan is driven by the primary

measure

Additive Modifier Trigger

1 2Pay

out+ = 1

2

2

2

1


Be careful with market data

It is important to look at the distribution of data

ATC P10 ATC P25 ATC P50 ATC P75 ATC P90

company data $20,182 $32,557 $50,036 $80,645 $113,536

Field Sales Rep family $50,800 $62,700 $76,900 $90,800 $103,900

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000


The incentive plan is not the only tool

Reflect all the vehicles of sales rep interaction:

Incentive plan

Merit cycle

Performance management

Contest/club eligibility

Career development

Culture


Design tips

Our research and experience shows that:

Things to avoid Things to focus on

Assuming sales people are coin-operated

Paying account managers like sales people

Adding secondary measures

Designing for the exceptions

Caveat: Size channels and territories, not

roles

Being the dumbest person in the room

Using end result measures – even if sales people

do not have complete control over them

Ensuring incentive is a strategy vehicle

Not a pay delivery vehicle

Modeling the impact

designing the right compensation plan · 7/1/2010 · sales roles and compensation: ic plan...

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