the planning way - best practices in effective variable compensation budgeting & forecasting
DESCRIPTION
Video/Presentation: http://www.proformative.com/events/planning-way-best-practices-effective-variable-compensation-budgeting-forecasting The concept behind variable compensation isn’t difficult — people are motivated by rewards, and organizations use monetary and other incentives (gift cards, trips, etc.) to shape behavior that improve business performance. Yet variable compensation can be an expensive proposition, in lost dollars, risk and performance potential, if managed incorrectly. Manual spreadsheet-based sales compensation management limit visibility into variable compensation expenses, sales and rep performance, as well as the ability to make necessary plan changes that could drive improved business results. In this session, Nina Ostrom, head of Americas field finance and operations with Progress Software will explore how a systemic and operational approach provides the necessary insight for effective budgeting and improved forecast predictability. Speaker: Nina Ostrom, Head of Americas Field Finance & Operations, Progress Software Presentation delivered at CFO Dimensions 2013 - http://www.cfodimensions.com Track: Operational Effectiveness | Session: 1TRANSCRIPT
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The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting“The Right Tool for the Job”
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TRUSTED Business Partner with Global Commissions Experience
Nina Ostrom, Americas Field Finance & Operations, PROGRESS SOFTWARE
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Finance’s Worst Nightmare…
Revenue Commissions Profit0
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100
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34
1223
Budget Forecast Actual
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Sales Management’s Sleepless Nights
Frustrated Sales Rep!!! Shadow Accounting
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SLEEP THERAPY 101Implement the RIGHT tool, PLUS
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Holistic Approach
Improve Incentive Compensation Plan Design
Select the ‘right’ Incentive Compensation Tool
Design and System Integration are key to a successful implementation
Reporting and Ad-Hoc Modeling are the ‘secret sauce’
Implement a Governance Framework
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Improve Incentive Plan Design
Align Plan Design with Company Goals
Drive sales to meet and exceed their quota
Make administration simple and easy to understand
Ensure plan components FOCUS on Strategic Objectives
ALIGN quotas and target incentives to meet COS% goals
Ensure top performers (top 10%) EARN competitive market rates
Streamlined, transparent process with Sales Mgmt involvement
Timely and accurate payments
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Select the ‘Right’ Incentive Compensation Tool
Why not Excel?
Flexible Design
Audit Trail for System Changes
Data Transformation Capability
Integration w/ Existing Applications
Robust Reporting
Easy to Administer
Cost Effective Solution
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Solving the Problem Yields ROI
Invest in the ‘right’ tool
Resource appropriately
Improves sales productivity
Improves predictability
Investment
Returns
Implement Tool $50K
Annual Fee $75K
Staffing <$75K>
Sales/Profit $300K
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Implementation – Design Approach
REPORTING, REPORTING, REPORTINGSales Performance – trends, quota attainment
Compensation Plan Effectiveness
Commission Cost Drivers – Rate Tiers (cost of accelerators)
Design for the lowest level of information needed – consolidation is easy
Create custom fields to ensure all management reporting requirements are met
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Implementation – System Integration
INTEGRATE, INTEGRATE, INTEGRATE with existing applications
Data Integrity – ‘System of Record’Bookings, Account Assignment, Finance/HR info
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The ‘Secret Sauce’
Reporting
Year Region Revenue Quota Attain % Tier 1 Tier 2 Tier 3Total
CommissionsTarget
Incentive% of TI
Comm Rate
US 45,000,000 50,000,000 90% 875,000 1,082,500 217,500 2,175,000 2,500,000 87% 5%
EUROPE 32,000,000 40,000,000 80% 700,000 780,000 1,480,000 2,000,000 74% 5%
ASIA 38,000,000 40,000,000 95% 700,000 1,076,500 323,500 2,100,000 2,000,000 105% 6%
YEAR-2012 TOTAL 115,000,000 130,000,000 88% 2,275,000 2,939,000 541,000 5,755,000 6,500,000 89% 5%
YEAR-2012
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The ‘Secret Sauce’
Ad-Hoc Modeling
70% 80% 90% 100% 110% 120% 150%0
10
20
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50
Scenario 1 Scenario 2 Scenario 3
% of Payees Quota Attainment
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Governance Framework
Closed Loop Process
Data Integrity – ‘System of Record’ checks & balances
Audit trail for all systemic changes
Detail reports supporting performance, associated commissions expense, and payroll
Line Management & Finance partnership – complete transparency, review and exception approvals
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Budget & Forecasting
XACTLY Incent is the ‘System of Record’
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Planning Assumptions
As the ‘System of Record’ it provides real-time sales management visibility – vital info, plan and quota assignment
Name: Region Mgr Currency: USD Annual Base: 75,000Manager: GEO Director Title: Sales Director Annual Variable: 75,000
in 000s QTR-1-2013 QTR-2-2013 QTR-3-2013 QTR-4-2013 YEAR-2013
Component Split - MBO 10% 10% 10% 10% 10%
Component Split - GEO Revenue 50% 50% 50% 50% 50%
Component Split - GEO Margin 40% 40% 40% 40% 40%
GEO Revenue 18,750 15,750 16,500 24,000 75,000
GEO Margin 1,875 1,575 1,650 2,400 7,500
Plan Summary: YEAR-2013
Plan Quotas
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Planning Assumptions
Prior year’s performance becomes instrumental in budget/forecast modeling
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Budget Fundamentals
ALIGN quotas and target incentives to meet Bookings/Revenue and COS% goals
Model compensation plan payout schedule
Confirm sales roster
Quota assignment – Sum of reps’ quotas > manager’s quota > Region Bookings/Revenue Target
YOY growth and Sales Productivity targets
Review reps’ quotas as % of fixed and variable compensation to ensure COS% goals are met
Ensure quarterly trend based on commissions payout model
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Forecasting
Forecast variability due to quota attainment distribution curve and individual rep achievement
17%
20% 20%
23%
10%
5% 5%
0%
5%
10%
15%
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25%
70% 80% 90% 95% 100% 110% 120% 130% 150% 200%
Quota Attainment Distribution
Quota Attainment
% Payees Rep 1 Rep 2
Var Comp $ 60 $ 60
YTD Sales $ 400 $ 1,000
Quota $ 1,000 $ 1,000
Attain % 40.0% 100.0%
Commission $ 16.8 $ 60.0
New Deal $ 100 $ 100
Attain % 50% 110%
Commission $ 4.2 $ 12.0
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Improve Actual/Forecast Variance %
Predict QTR/FY Quota Attainment by repEstimate bookings based on a weighted factor of rep’s opportunity pipeline in salesforce.com to meet overall regions’ booking forecast
Quota Coverage re: Rep Attrition/New Hires
Input estimated future quarter bookings by rep into Xactly Sandbox environment
System calculates YTD quota attainment by rep/manager and associated commissions expense
Review estimated quota attainment with Sales Management
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To Sleep Well…
Be INVOLVED during Compensation Plan Design
INVEST in an Incentive Compensation Tool
Define REPORTING requirements during System Implementation
ALIGN Quotas and Target Incentives to meet Sales/Revenue and COS% goals
LEVERAGE ‘System of Record’ to provide modeling capabilities for Budgeting and Forecasting
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This is what SUCCESS looks likeFor Sales Management, Sales Reps, and yes EVEN for Finance Executives!
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Thank You!
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