Building An Effective Sales Compensation Framework
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This document provides an overview of building an effective sales compensation framework. It discusses why companies use sales incentive plans and reviews key considerations for plan design like pay mix, eligibility, and alignment with sales strategy. The presentation emphasizes the importance of evaluating plans regularly using metrics like incentive costs and market competitiveness. It also stresses communicating plans clearly to ensure the desired sales behaviors are motivated.
Building An Effective Sales Compensation Framework
- 1. Building An Effective Sales Compensation FramewokCIPD – London May 7 th, 2010Paola Gheis1
- 2. CIPD Sales Compensation May 7, 2010 Paola Gheis2ContentThe Sales Management SystemWhy using Sales Incentive Plans (SIP)SIP Eligibility and roles’ review within the sales strategySales Comp Design FundamentalsSome SIP design fundamental and criteria for choosing themHow to Ensure SIP Alignment to Sales Strategy Over TimeSIP stakeholdersSIP learning processSIP EvaluationHow to build the tool kit for a SIP review with sales leadersSIP assessment: some critical questionsThe Communication ProcessSome critical aspectsA recommended modelBibliography
- 3. The Sales Management SystemWhy using Sales Incentive Plans (SIP)SIP Eligibility and roles’ review within the sales strategyCIPD Sales Compensation May 7 Paola Gheis3
- 4. CIPD Sales Compensation May 7, 2010 Paola Gheis4The Sales Management SystemSales Management System TMCustomer AccountabilitySales Coverage StrategySales Effectiveness12346758Segment Definition & TargetingSales StrategyChannel DesignOrganizationResource DeploymentPerformance Metrics & ToolsGoals & CompensationPeople Management Programs& Job Design& SelectionE N A B L I N G T E C H N O L O G I E S Account assignment
- 6. How many?
- 9. Revenue and Profit goals
- 11. Global, regional
- 12. High touch, low touch
- 13. Product specialist, generalist, tele-sales
- 15. Indirect, direct, retail, etc.
- 16. Revenue
- 17. Volume
- 18. Product mix
- 19. Etc.
- 21. Pay mix, upside, MBO
- 24. Payout calculationCIPD Sales Compensation May 7, 2010 Paola Gheis5Why Companies Use Sales Incentive Plans and What are the Objectives?Sales people drive the company’s top line (and often impact the bottom line)Drivesales growth & profitabilityAlign rewards tightly to sales results for individuals and sales teamsCreate performance differentiation and sustain a performance cultureDrive individual accountability (while balancing team effectiveness as necessary)Drive motivation by offering (attractive) above target incentivesFocus employees’ behavior to sales priorities with key metricsProvide flexibility to align sales behavior with market dynamicsCreate a win-win situation for the company and employees
- 25. CIPD Sales Compensation May 7, 2010 Paola Gheis6Eligibility to Sales Incentive PlanThe Sales Incentive Plan are designed specifically for sales employees who are directly involved in selling and persuading a defined customer to buyCIPD Sales Compensation May 7, 2010 Paola Gheis7Sales Roles – Sales Strategy MatrixConversion focusConversion Selling “Grow Base”New Market Selling“Develop Markets”ProspectsBuyersMaintenance Selling“Protect Base”Leverage Selling“Penetrate Accounts”CustomersRetention focusCurrentNewPenetration focusProductsThis is a useful tool to help clarify the primary differentiation (R,P,C) between sales roles
- 26. Sales Comp Design FundamentalsSome SIP design fundamental and criteria for choosing themCIPD Sales Compensation May 7 Paola Gheis8
- 27. CIPD Sales Compensation May 7, 2010 Paola Gheis9Sales Compensation DesignDesign FundamentalsUpside PayIncentive ProgramTarget IncentiveUpsideTarget IncentivePay MixTotal Target CashBase
- 28. CIPD Sales Compensation May 7, 2010 Paola Gheis10Pay Mix and Upside Extent of Upside PotentialTarget805020Upside Earnings100%Target1010Target Compensation2540Base9075600%LowHigh
- 29. CIPD Sales Compensation May 7, 2010 Paola Gheis11Sales Incentive Plan Pay Mix and Upside CriteriaLess Aggressive Pay Mix/Upside More AggressiveAdded Value Sales Focus PriceMany Co. Employees Customer Contact Sales Person OnlyMany Reasons Buy Decision Seller DrivenWeak Line of sight Strong Non-Predictable resultsForecast Ability Predictable ResultsEmerging Market MatureCountry/Region Level of measure IndividualCompanies may determine a streamlined choice of plan variations for:Choice of simplicity of plan administration and communication, easiness to manage compensation in case of mobility across roles, affordability, etc.
- 30. How to Ensure SIP Alignment to Sales Strategy Over TimeSIP stakeholdersSIP learning processCIPD Sales Compensation May 7 Paola Gheis12
- 31. 13Compensation Plans are Dynamic ProgramsBecause the drivers (market forces, company strategy, etc.) are constantly shifting, job definitions evolve. As job definitions change, the compensation plan must also change to support the new selling roles.Objectives and StrategiesCompensation ImplicationsJob DefinitionChange DriversCustomer ResponsibilityMarket ForcesMeasuresMarketing PrioritiesWeightsSales StrategyCompetitionLeverageProduct/Service MixNew ProductsFundingProduct ResponsibilityProcess ResponsibilityCustomer Coverage RequirementsMeasurement and TrackingTechnological ChangeCIPD Sales Compensation May 7, 2010 Paola Gheis
- 32. CIPD Sales Compensation May 7, 2010 Paola Gheis14SIP StakeholdersDrive sales performanceProvide plan feedbackManage processes to translate sales outcomes into incentive payoutDrive sales priorities, coach sales, ensure SIP understanding within teamProvide leadership on sales strategy, approve performance metrics and SIP designConsult on SIP affordabilityDrive target setting processDrive pay competitiveness and consistency with company pay philosophy
- 33. CIPD Sales Compensation May 7, 2010 Paola Gheis15Sales Incentive Plan Learning ProcessProcess Start
- 34. SIP EvaluationHow to build the tool kit for a SIP review with sales leadersSIP assessment: some critical questionsCIPD Sales Compensation May 7 Paola Gheis16
- 35. CIPD Sales Compensation May 7, 2010 Paola Gheis17Building a Tool Kit to Evaluate & Review SIP with Sales LeadersKey questionData Source
- 36. Is SIP Driving the Desired Behavior?Periodic interviews and surveys in the field needed to support the assessment:Define relevant population segment depending on organization size and model:GMsDistrict Mgr (first line sales mgrs)Field Sales EmployeesEtc.Design questions for managers around sales priorities and assess SIP is not driving disruptive behaviors:Is the sales force spending time on pushing product X (performance data analysis also provides insights to this question)Is SIP ensuring the necessary collaboration among your sales repsEtc.Ask Sales Employees if:They understand the planIs SIP supporting the objective of the job and if not whyEtc.CIPD Sales Compensation May 7, 2010 Paola Gheis18
- 37. Are We Getting What We Are Paying For?Acquire intelligence on plan costing and its relation to the revenue achievedTarget Incentive Paid % vs. Total Net Revenue Achieved This basic metric should be broken down by the relevant organization segmentsGlobal, regional, country, district, etc.Correlate % of incentive paid for each plan metric to the results achieved for that particular metric goal. Example:A few questions to interpret the data in the example table:What is each product maturity and strategic relevance?
- 38. Is the field force trained to sell product Z?
- 39. Is 10% weight relevant enough to focus sales to Product Z or are sales employees shopping the plan?
- 40. How is the quota set for Product YCIPD Sales Compensation May 7, 2010 Paola Gheis19
- 41. Is SIP Attractive (or too attractive) Relative to Competition?Salary surveys provide compensation data on base, target and actual cashHelpful to set compensation levels by role and to design certain element of the plan mechanics (e.g. pay mix)Sales practices surveys is another source to enhance intelligence on plan designNetworking with comp colleagues and setting up benchmarking clubs with a rigorous method of exchanging qualitative information is a very good source to gain market insights on incentive design practicesAll of the above help to assess how to position your plan design payout potential relative to the market of referenceCIPD Sales Compensation May 7, 2010 Paola Gheis20
- 42. The Communication ProcessSome critical aspectsA recommended modelCIPD Sales Compensation May 7 Paola Gheis21
- 43. CIPD Sales Compensation May 7, 2010 Paola Gheis22Critical Elements of Communication
- 44. CIPD Sales Compensation May 7, 2010 Paola Gheis23A Recommended Communication Process
- 45. BibliographyA few good books to get started on Sales Comp24CIPD Sales Compensation May 7, 2010 Paola Gheis
- 46. A Few Good Books to Get Started on Sales CompThe Channel Advantage. Going to market with multiple sales channels to reach more customers, sell more products, make more profit. Laurance G. Friedman, Timothy R. Furey. Butterworth Heinemann. 2001Compensation the Sales Force. David J. Cichelli. Mc Graw Hill. 2004The Complete Guide to Sales Force Incentive Compensation. How to Design and Implement Plans That Work. Andris A. Zoltners, Prabhakant Sinha, and Sally E. Lorimer. AMACOM. 2006Compensating New Sales Roles. How to Design Rewards That Work in Today’s Selling Environment. Jerome A. Colletti, Mary S. Fiss. AMACOM. 2001
- 47. Paola Gheis’ Bio and Contact DetailsCIPD Sales Compensation May 7, 2010 Paola Gheis26
- 48. Paola Gheis is a seasoned HR professional with 15+ years of experience acquired in blue chip companies such as Nokia, Agilent Technologies and Hewlett-Packard.Paola has a large experience in developing and implementing strategic performance-base HR programs and sales compensation programs and a solid experience in change management, business consulting and talent management. Her professional activity has been deployed in multi-cultural environments with geographical responsibilities ranging from local roles for the Iberian market to European and Global responsibilities covering EMEA, Asia Pacific and Americas. Paola got educated in Italy and the United States with a B.S. in Economics and an M.S. in Industrial Relations. She lived in seven countries, speaks five languages and traveled in any continent to work on her projects.Paola currently lives in Barcelona, Spain, and can be reached at:Email: paolagheis@gmail.comCell.: +34 648 01 3914Linkedin profile: http://es.linkedin.com/in/paolagheisCIPD Sales Compensation May 7 Paola Gheis27