hsmai cso roundtable: sales incentive...

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HSMAI CSO Roundtable

Sales Incentive Compensation

Prepared for HSMAI November 29, 2016

This document is solely for the use of client personnel. No part of it may be circulated,

quoted or reproduced for distribution outside of the client organization without prior

written approval of ZS Associates.

− 2 − © 2016 ZS Associates | CONFIDENTIAL HSMAI CSO Roundtable - Sales Motivation v1.0

Agenda

Common issues in Account Manager motivation and incentives

A framework for incentive design

Wrap-up and a request


Why are incentives important?

Companies spend a massive amount on variable sales force compensation

– Estimated $200B in the US (equivalent to all advertising spend)

There are many, many perspectives on how to motivate…

– “Call it what you will, incentives are what get people to work harder” - Nikita

Khrushchev

– “Goals may cause systematic problems for organizations due to narrowed focus,

unethical behavior, increased risk taking, decreased cooperation, and decreased

intrinsic motivation. Use care when applying goals in your organization.”- Daniel

Pink, author of “Drive”

Done well, sales incentives can help with:

– Attraction and retention

– Motivation

– Right activities and behaviors


Sales is one of the most complex functions in business

Achieve revenue plan

Profitable growth

Market share growth

…

High customer

satisfaction and

advocacy

Right activities

Right effort allocation

- Customers

- Products

- Activities

Non-selling time kept to minimum

COMPANY

RESULTS

CUSTOMER

RESULTS ACTIVITY SALESPEOPLE

Enabled

Engaged & motivated

… Knowledgeable

- Products

- Markets

- Selling skills

Financial reporting systems

FOUNDATIONAL

SELLING STRATEGY &

STRUCTURE

Causality

Diagnosis


Engaged and motivated salespeople outperform their peers

98%

100%

104%

97%

100%

103%

95%

100%

105%

Disengaged Passive Engaged

An

nu

al

Go

al A

ttain

men

t

Salesperson Engagement Score

Client A

Client B

Case Examples

“Sales engagement score” based on likelihood to: 1- Stay with company; 2- Recommend company/role to others; 3- Go above and beyond

Goal attainment normalized to 100%


Incentives and goals are a critical driver of sales AM

employee satisfaction

4.6

4.5

4.3

4.3

4.3

4.2

4.2

4.2

4.1

4.1

4.0

4.0

3.8

3.3

3.3

3.3

3.3

3.0

3.0

3.0

3.9

3.1

3.0

2.9

Overall Company Leadership

Strategic Accounts Leadership

Quality Managers

Effective Communication

Work/Life Balance

Career Opportunity

Competitive Pay

Effective Quotas

Company Leadership in the…

Valued Development

Differential Earning

Recognition

Importance

Effectiveness

How important is this aspect to you?

How effective is your company at this?

1 = not at all important/effective, 5 = very important/effective

All AMs

Importance (n= 87)

Effectiveness (n= 97)

Incentive-related driver

Source: 2013 Strategic Account Management Compensation Survey (SAMA & ZS Associates)


What factors make incentive plan design for hotel

sales roles especially difficult?

Complex accounts

Often operating in a team selling environment

Results often realized over a multi-year time horizon

Often difficult to directly measure impact on financial results

Multiple objectives, often highly specific to individual accounts

Data quality and availability

Others?


0.3

0.4

0.5

0.6

5% 15% 25% 35% 45%

Opportunity for Improvement

Differential earning, recognition & goals are key

opportunity areas for hotels

* “Low firm effectiveness” denotes responses “Not at all effective” or “Slightly effective” (1/2 on 5-point scale)

Q37. Pretend that you are giving a recommendation to a friend of a colleague who is managing a hotel similar to your own, how likely are you to recommend that your

company’s incentive plan be used at their property? Assume there are no competitive considerations.

Q39. Revenue manager satisfaction: How effective do you believe your company is at doing this?

Derived Drivers of Satisfaction vs. Improvement Opportunities

De

rive

d Im

po

rta

nc

e

Co

rre

lation

of F

irm

Eff

ective

ne

ss

to P

lan S

atisfa

ction

% of Respondents Rating Low Firm Effectiveness*

Differential Earning

Competitive Pay

Effective Goals

Recognition

Programs

Effective

Communications

Areas of significant

drivers of incentive plan

satisfaction as well as

areas that can be most

improved compared to

firms’ current level of

effectiveness

# of respondents (n=322)

Highly important to

satisfaction

High opportunity for

improvement

Less important to

satisfaction

Low opportunity for

improvement

Higher importance to

satisfaction, firms currently

not as effective

Higher importance to


somewhat effective

Lower importance to


not as effective

Lower importance to


somewhat effective


Pay Level Pay Mix Plan Period Additional

Elements

Plan Design

Metrics Plan Type Payout Curve

$200K

$50K

How much

should AMs be

paid?

What should be

the salary to

incentive mix?

What should be

the measuring

metric for each

of the identified

components?

– $ Sales

– Unit Sales

– Share

– Contribution

– # of

Customers

– # of calls

What plan type

to choose from?

– Commission

– Goal Based

– Forced

Ranking

– Matrix

– MBOs

What will the

payout curve

look like?

– Threshold

– Slopes

– Accelerators

– Kickers

– Etc.

How long is the

plan period?

What is the

payout

frequency?

– Monthly

– Quarterly

– Semi-annually

– Annually

– Eligibility

– Contests

– Awards

$200K

$100K

100%

Salary

100%

Incentive

Compensation Guiding Principles

Aligned with Corporate Strategic Goals; Motivational; Simple; Fair; Fiscally Responsible

A framework for incentive compensation design


Does it drive the

desired behavior?

Is it motivational?

Is it fair and paying

for performance?

Is it financially

responsible?

Can it be

implemented?

• Supports the sales and marketing objectives

• Focuses on the “right” customers and activities

• Focuses on the “right” products to sell with the proper emphasis

• Is simple to understand and communicate

• Substantial effort leads to significant reward

• Keeps people engaged

• Overall payout is competitive in the marketplace

• Territories with different characteristics have similar earning potential

• The plan does not penalize sales force for forecasting uncertainties

• At multiple corporate performance levels, the total compensation payout is within acceptable range of budget

• The total compensation payout varies appropriately according to company success

• The current infrastructure and resources can support the resulting plan administration

• The data available can be confidently utilized to measure performance

Plans should be evaluated against company and

role-specific guiding principles


Factors within our control directly lead to sales

results

Salespeople

Sales &

marketing

activity

Customer

Results

Company

Results

• Enabled

• Engaged & motivated

• Knowledgeable

• Sales process

execution

• Business planning

• Opportunity pipeline

• Activity level / quality

CAUSALITY

• Customer

satisfaction

• Customer retention

• New customer

acquisition

• Partnerships

• Business integration

• Revenue

• Profit

• Market share

• Goal-attainment

• New business

Work right to left, evaluating metrics for:

• Does it drive the desired behaviors?

• Is it motivational?

• Will it be fair and pay for performance?

• Is it within the AMs control?

• Can it be implemented?

Incentive metric selection


Success Measures and Plan Types

PARTNER

CREATE

VALUE

SOLVE

PROMOTE

PUSH

SA

LE

S P

RO

CE

SS

MBOs

CUSTOMER MEASURES

GOALS

SALES

SHORT-TERM

HIGH BASE + BONUS/MBO

BASE + QUOTA BONUS

BASE + COMMISSION

COMMISSION

Success Measures

MULTI-YEAR

ANNUAL

MONTHLY / QUARTERLY

Compensation Plan Time Period


Some considerations going into 2017

Right metrics: strategic, measurable, controllable

Appropriate upside (and downside) earning opportunity

Fair, motivating targets

Timely, frequent communications (plan, progress, payouts, what-

if?,…)

Right pay levels, benchmarked to role and location


Tony Yeung Principal – Sales Strategy

Tony Yeung is a Principal with ZS Associates’ Go-to-market

Strategy & Transformation Practice.

Since joining ZS in 2004, Tony has led client engagements

in sales & marketing strategy and execution across a

number of industries including medical devices, consumer

healthcare, travel & transportation, industrial products, and

high tech. Tony supports clients on sales transformation

initiatives and his areas of expertise include sales force

design, sales effectiveness, incentives and sales

operations. He has worked directly with a variety of sales

channels including key accounts teams, field sales, inside

sales, distributors, and other channel partners. Tony has

worked in the London & Toronto offices of ZS, engaging

with clients across Europe & North America. He is a

frequent writer and speaker on sales effectiveness issues.

Tony holds a MBA from INSEAD & a BASc in electrical

engineering & physics from Queen's University in Canada.

Prior to joining ZS, he worked at a major high-tech

company, where he was engaged in sales of hardware &

enterprise software used in manufacturing, industrial

automation & research applications.

+1.416.777.5146

[email protected]

Glenn Hollister Principal - Travel & Hospitality Practice Lead

Glenn Hollister is a Principal with ZS in the Chicago office

and leads the ZS Travel & Hospitality Practice. His client

work has focused on large scale sales force

transformations, value-based selling, sales effectiveness,

and building, supporting and operating sales operations

teams.

Since joining ZS in 2003, Glenn has worked continuously in

the airline industry. His experience includes airline sales

and marketing issues covering individual travelers,

corporations, travel management companies (travel agents)

and frequent flyer programs. Glenn has assisted his airline

clients in areas ranging from go-to-market strategy, to sales

effectiveness, incentive compensation, and ongoing sales

and marketing operations. In the operational areas, he has

helped with processes including incentives administration,

business intelligence, executive analytics, and quota

setting.

Glenn has an MBA from Northwestern University's Kellogg

School of Management, a Master of Engineering

Management from Northwestern University, and a BS in

Electrical Engineering from the United States Military

Academy at West Point.

+1.312.233.4816

[email protected]

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