You can’t just look at sales compensation, you have to see how it connects and dovetails and links to strategy, says DiMisa. If you are rewarding reps for actions that are not aligned with the strategy, you’re not going to get the response you need from the sales force.
Building a Strategy-Based Plan
DiMisa who is Senior Vice President, Sales Force Effectiveness at Sibson Consulting, outlined an 8-step plan for building a strategy-based sales incentive plan during a recent webinar sponsored by BLR and HR Hero.
Step 1. Determine Job Roles
- Detail critical success factors and priorities for each sales job
- Identify relationships between marketing, sales, and service
Step 2. Target Pay Levels
- Determine market pay levels
- Define pay strategy
- Develop target compensation levels for each job
Step 3. Determine Mix & Upside
- Establish salary and incentive mix based on job roles, sales cycle, and sales process factors.
- Set upside potential for top performers.
Step 4. Select Measures and Weights
- Select key performance measures
- Determine relative weights
- Link to incentive compensation
Step 5. Set Mechanics & Links and other Details of the Plan
- Determine payout formulas and mechanics
- Clearly communicate objectives
- Insure proper line-of-sight
Step 6. Set Quotas & Allocation
- Set quotas for each performance measure
- Allocate to organization and jobs based on market-potential and performance-based factors
Step 7. Implement & Administer Plan
- Develop communications materials, plan documents, and plan policies
- Introduce to the organization
- Implement administration processes
Step 8. Evaluate & Do Next-Cycle Planning
- Conduct 30-, 60-, 90-day audits
- Evaluate compensation metrics dashboard
- Determine performance-based or strategy-based changes for coming year
One caveat, says DiMisa. At times, compensation becomes very emotional. Everyone has an opinion about everyone else’s comp. Everyone is an expert. To minimize this, apply as much science as you can.
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What are the Typical Compensation Design Issues?
What sort of challenges do people typically struggle with during compensation design? DiMisa outlines several that he sees frequently in his practice:
- Rewarding Performance—Differentiating peak performers from the average.
- Creating Clarity—Simplifying the plans to improve line-of-sight. (Don’t make plans too complex, DiMisa says.)
- Contests/SPFFs—Striking the balance between the pay program and supplemental incentives.
- Managing Costs—Controling cost of sales under various performance scenarios. Managing the costs of overlay jobs.
- Alignment—Ensuring that compensation plan meets business objectives.
- Quotas, Commissions—Implementing a market-based approach to setting and allocating quotas.
- Measuring Profit—How to insure that the company is making money when reps make money. Controlling deals and cost.
- Systems and Admin—Tracking and managing how a plan is working.
Shift of Focus to Building Revenue
Changes in the economy have impacted companies’ compensation and growth strategies, says DiMisa. The old strategy was all about cost-cutting. Today, 85% of responding organizations to a recent Sibson survey still view cost cutting as a means of increasing margins, but, they also indicate that increasing margins is important.
For the new strategy, as seen by DiMisa, the only way to get ahead now is through building revenue. His next chart shows what a recent Sibson survey revealed about what companies are planning to do to maximize revenue growth.
|
Strategy for Growth |
% of Companies Planning on Using The Strategy |
|
Increase Productivity |
79% will attempt to increase productivity through training, select hiring, and centralizing roles and operations |
|
Expand Product Offerings |
63% will develop new products and work on expanding their businesses |
|
Re-Design Our Sales Organization or Sales Roles |
58% will revaluate to be sure that they are focused and concentrated in the right areas. More emphasis will be placed on hunters, more emphasis on farmers, more emphasis on presales and post-sales |
|
Re-Define or re-Target Our markets |
43% will work on better segmentation of accounts and markets |
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One way companies define their strategies is “APR allocation,” says DiMisa.
- Acquisition—finding new customers,
- Penetration—selling more product or new product to existing customers
- Retention—retaining the customers you have)
For example, an APR allocation of resources might be like this:
- 75% of effort is spent on Retaining the base book of business
- 20% of effort is devoted to Penetration more to existing customers
- 5% of effort is for Acquiring new customers
Each area should have a different compensation plan, DiMisa explains.
In tomorrow’s Advisor, his 7 factors for market pricing sales comp, plus an introduction to the premier compensation web site, Compensation.BLR.com.