The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting
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The document discusses best practices in variable compensation budgeting and forecasting, emphasizing the importance of selecting the right incentive compensation tool and system integration for improved sales productivity. It highlights a governance framework for maintaining data integrity and transparency, as well as the significance of aligning compensation plans with company goals. Additionally, it stresses the need for effective reporting and ad-hoc modeling to accurately predict sales performance and ensure timely payments.
The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting
- 1. 1© 2013 The Planning Way - Best Practices in Effective Variable Compensation Budgeting & Forecasting “The Right Tool for the Job”
- 2. 2© 2013 TRUSTED Business Partner with Global Commissions Experience Nina Ostrom, Americas Field Finance & Operations, PROGRESS SOFTWARE
- 3. 3© 2013 Finance‟s Worst Nightmare…
- 4. 4© 2013 Sales Management‟s Sleepless Nights Frustrated Sales Rep!!! Shadow Accounting
- 5. 5© 2013 SLEEP THERAPY 101 Implement the RIGHT tool, PLUS
- 6. 6© 2013 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
- 7. 7© 2013 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
- 8. 8© 2013 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
- 9. 9© 2013 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
- 10. 10© 2013 Implementation – Design Approach REPORTING, REPORTING, REPORTING Sales 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
- 11. 11© 2013 Implementation – System Integration INTEGRATE, INTEGRATE, INTEGRATE with existing applications Data Integrity – „System of Record’ Bookings, Account Assignment, Finance/HR info
- 12. 12© 2013 The „Secret Sauce‟ Reporting Year Region Revenue Quota Attain % Tier 1 Tier 2 Tier 3 Total Commissions Target 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
- 13. 13© 2013 The „Secret Sauce‟ Ad-Hoc Modeling 0 10 20 30 40 50 70% 80% 90% 100% 110% 120% 150% Scenario 1 Scenario 2 Scenario 3 % of Payees Quota Attainment
- 14. 14© 2013 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
- 15. 15© 2013 Budget & Forecasting XACTLY Incent is the „System of Record‟
- 16. 16© 2013 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: 75,000 Manager: 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
- 17. 17© 2013 Planning Assumptions Prior year‟s performance becomes instrumental in budget/forecast modeling
- 18. 18© 2013 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
- 19. 19© 2013 Forecasting Forecast variability due to quota attainment distribution curve and individual rep achievement 17% 20% 20% 23% 10% 5% 5% 0% 5% 10% 15% 20% 25% 70% 80% 90% 95% 100% 110% 120% 130% 150% 200% Quota Attainment Distribution QuotaAttainment %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
- 20. 20© 2013 Improve Actual/Forecast Variance % Predict QTR/FY Quota Attainment by rep Estimate 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
- 21. 21© 2013 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
- 22. 22© 2013 This is what SUCCESS looks like For Sales Management, Sales Reps, and yes EVEN for Finance Executives!
- 24. 24© 2013 Thank You Sponsors! PLATINUM GOLD SILVER DIAMOND