Archive for the ‘Plan Communication’ Category

Q4 Crunch Time – How to Create Winning Sales Compensation Plans

Wednesday, September 7th, 2016

By Clinton Gott, Co-Founding Principal

Fourth quarter and the clock’s ticking. The pressure’s on to create and roll out better sales comp plans in early January. It may not be an easy, but the right game plan will ensure a winning outcome. Focus on the following activities and questions, and you’ll earn MVP honors in the effort to drive better sales performance!

Define and Confirm Your Sales Strategy for the New Year

Is your organization introducing new products? Are you targeting particular sectors or account tiers for growth? Do you have a targeted emphasis on penetration, acquisition, or retention? You are likely targeting a range of sales strategies and preparing for an effective plan design effort means understanding what the organization is trying to achieve.

Define and Confirm Your Sales Roles and Responsibilities

To have effective sales compensation plans, you have to have effective sales job definition. If targeting a new product, can your core sales team sell it or will you need product or technical specialists to support the effort? If looking for growth in new accounts, do you have a defined hunter role or will your salespeople need to both hunt and farm? Overall, do you know how each role is supporting your sales strategy, and then how your current incumbents and potential hires slot to those roles? Organizations often want to jump to the details of their sales compensation designs without fully understanding what the sales roles will be asked to do.

Assess the Performance of Your Current Plans

Effective sales compensation plan assessments should include both qualitative input and quantitative analyses. You should seek input from the various leaders in sales, finance, sales operations, and human resources. Systems/IT may have input to share if plan administration, data, and reporting have been hot topics. We also recommend gathering input from the field, either through your sales managers, formal project-based interviews, and/or an online engagement study. Every sales organization has a unique character and various stakeholder personalities involved; understanding how well the plans focus and motivate the salespeople is a critical area for exploration.

As the year winds down, you should also analyze the plan’s performance and test the return on your sales compensation spend. How have people achieved against targets? What does the pay-and-performance relationship look like? Does the plan offer the necessary downside risk and upside opportunity? These analyses and others should combine with the qualitative input to form the story of your sales incentive program’s performance, identify change objectives, and point to areas for potential improvement.

Generate New Plan Ideas and Engage With a Design Team

We recommend pulling together critical and well-informed stakeholders from sales, finance, human resources, and sales operations to define plan needs, consider potential solutions, and eventually make plan recommendations for the new year. This can take the form of a two or three in-depth meetings. For each perceived need, the team should identify solutions from the world of sales compensation best practices and weigh the pros and cons. Ideally, those best practices should come not just from things you’ve done before or how your direct competitors allegedly do things, but you can and should look more broadly to leverage best practices across the many sales organizations and industries that exist.

Consider the options within the context of your unique corporate culture and organizational needs. You should look at the plans specifically for each unique sales role and address appropriate questions. Do you have the right pay levels for the talent needed and does the pay mix create the right risk/reward relationship? Do the plan measures support your sales strategy and can they be effectively measured? Are the plan mechanics simple and motivational? Is there enough upside and acceleration? Are there particular crediting challenges or details to define? How will sales goals be set and communicated? Overall, are your new plans aligned to your compensation philosophies, will the reps understand them, and will they drive each salesperson to achieve optimal performance?

Perform Cost Modeling to Test the Plans

Before taking recommendations all the way to final plans, you should perform scenario-based cost modeling. How will the plans perform and payout in a bad year, an average year, and a good year? How do the costs of the new plan compare to the prior plan at the macro-level and at the individual level? Which particular reps will win or lose, and is this displacement acceptable or does it put you at risk? What does the compensation cost of sales (CCOS) look like under different scenarios and do the economics of the new plan designs make sense? If not, you may need some fine-tuning before moving on to truly final plan designs.

Prepare Communication Materials and Define Your Communication Approach

This is a very important final step but one that often gets overlooked or shortchanged. Be sure to leave enough time for it! Create rollout presentations that communicate the what, why, and how of the new plan designs. What are the new plans? Why are we making changes? Be sure to connect the changes back to sales strategies. How did we make the changes? Be sure to share the process and the involvement of (hopefully) well-respected design team members. Make sure the salespeople know they matter and be sure to focus on how they’ll maximize earnings under the new plans.

Sell them on the plans – do not just communicate them. Be sure to have clear plan documents and even plan calculators to aid in understanding. For the rollout approach, wait until the upcoming year starts so you do not distract them at the end of the current year. Once the year begins, we recommend a business leader or sales leader perform the initial rollout presentation either at an in-person sales conference or via a webinar. Then task the sales managers to hold one-on-one sessions with their salespeople to sell the plan, answer questions, and generally do their job as coaches and motivators. Be sure to provide a path back to human resources or sales operations if a salesperson has additional questions and to help support the sales manager efforts.

Get to It!

Believe it or not, most organizations can perform the above steps over a focused 8 to 10 week process. It takes prioritization and the ability to involve the right people. In some cases, outside expertise can help drive the process or provide the sales compensation insights to help an organization navigate the various decision points along the way. The sales compensation program is an important enabler of your organization’s sales performance. Even though the year-end is fast approaching, there is still time to ensure your sales compensation program is well-positioned to drive your sales success in the upcoming year. Use the right game plan and you’ll knock down the winning shot every time!

Defining Your Sales Compensation Annual Roadmap

Sunday, March 1st, 2015

By Clinton Gott (click here to request a white paper version)

As with most years, this year is probably flying by faster than one could possibly imagine. High workloads and competing interests can lead to sales compensation and sales effectiveness solutions failing to get the attention they need and deserve. One critical element to achieving success emerges through following a reasoned and strategic plan for how to tackle this year’s sales coverage and sales compensation needs. Without this plan, the year may whiz by in a blur with little real change and a lot of unfulfilled opportunity. Our clients frequently ask us how they should prioritize some of the most important activities across a new year, so we will use this article to share our observations on best and practical practices that we’ve seen across hundreds of organizations.

First Quarter – Finalize Plans, Communicate, and Start Administration

In many cases, the first quarter includes an urgent need to finalize sales compensation plans and quotas for the new year. Finishing the plan designs and getting formal approval should be job number one if those tasks are lingering from the prior year. With plans completed though, the traditional first quarter focus follows:

  1. Communicate Plan Details Within the First Two Weeks. Such information primarily includes any changes to plan measures and mechanics, if not all plan-related details like the actual quotas. If possible, an in-person kickoff meeting is best. We recommend sharing the “what” (plan details), the “why” (why the plans are changing – the strategic intention), and “how” (what process the company followed to decide on the changes). You can also add another “how” – clearly answering the question: how can salespeople be successful and make good money on the new plan? Telling them directly is a wise strategy.
  2. Communicate Goals by the Start of Month Two. When it comes to goals, we find most companies are not ready to share goals within the first two weeks, which would obviously be ideal in terms of aligning to plan rollout. But under this scenario, we support revealing the plan details at the start of month one, with an expectation that the goals themselves will follow as soon as possible. That approach should work for both commission plans and goal-based plans, although it can cause a snag with Individual Commission Rate (ICR) plans where the commission percentage is calculated based on the goals. Even for those though, the plan framework, e.g., measures, crediting approach, etc., can be shared earlier. We’d rather not hold the plan design details hostage to the final quota decisions, and we also would rather not rush out inaccurate quotas too early just to get them out! So separating the plan details and quota communication events is often an effective solution.
  3. Make Final Updates to Your Administrative Processes and Systems. If not already completed, you have to finish these changes quickly in Q1 before you can process initial payouts. If for some reason the process is not set for payments that should occur, you can use a draw approach until ready, but that clearly is not a preferred practice.

Special notes – for those involved with international plans in countries with Works Councils, you’ll of course need your plans done with enough time for the negotiations and finalization. Meanwhile, for those in California, new laws require commission plans to be clearly documented and signed off by employee and employer. That has caused some to interpret that new plans need to be finalized, communicated, and confirmed by January 1, although most of our clients have not been aligned to that interpretation. Whatever the case, clear plan documentation is an essential part of the new laws.

Second Quarter – Ongoing Plan Review and Early Stage Strategic Thinking

With the plan year in full swing, the second quarter focus should break into two primary focus areas:

  1. Perform Ongoing Plan Review and Maintenance. Plan issues usually escalate in the second quarter, and the compensation team should be vigilant to address concerns and ensure the plans are working as intended. One hopes no plan tweaks or changes are needed, but you’ll want to start capturing feedback coming from the field. Best-in-class organizations will often formalize this feedback by creating an online field survey about the new plan, reviewing the rollout approach, gauging their degree of understanding, and collecting any initial perceptions on the plan’s ability to motivate and drive performance.
  2. Consider Upcoming Deployment or Role Change Needs. In many cases, the effort to change sales roles and coverage can take months to identify, plan for, and implement. To ensure success, we recommend companies start trying to identify these topics even as early as the Second Quarter. By way of example, we had a recent client looking to merge three discrete sales teams (all selling to the same accounts) into an integrated model featuring an account manager/owner with sales specialist support. We spent the last month of Q2 doing focus groups to test the concepts, validate the opportunity, and identify potential pitfalls. Without this step occurring this early, they would not have been able to tackle the significant cultural and logistical change management challenges in time for a go-live in first month of the next year. Planning and successfully implementing significant changes typically requires this kind of runway.

Third Quarter – Plan Assessment Steps

In the Third Quarter and throughout the plan year, topics such as plan administration, review, and maintenance should be ongoing activities. But in terms of unique steps, Q3 is the pivotal quarter to start your formal sales compensation assessment steps, which include:

  1. Perform Interviews. This step should include talking with corporate stakeholders, sales managers, and field personnel to understand upcoming strategies, market opportunities, evolving role definitions, and sales compensation plan performance and needs. The intensity of the interviewing phase should vary based on company needs, but it is essential to collect feedback from various levels. The field survey from Q2 can support these efforts, or you could consider running it now in Q3 if not pursued in Q2.
  2. Begin Reviewing Pay and Performance Data. To supplement the interviews, you should examine the pay-for-performance correlations, quota achievement distributions, and overall payout ranges and upside, among other targeted analytics. This analysis should be by role and can consider multiple data cuts based on quota size, tenure, and other descriptors. While you can start this work on Q3, you will likely want to update it in Q4 when more of the plan year has been completed.
  3. Collect Market Pay Data and Perform Market Pricing. This again is an appropriate annual or bi-annual practice, which can require more or less intensity based on your particular needs. Market data can provide useful and “directionally correct” information on market trends and serves as the “science” part in the “art and science” of determining appropriate pay levels. The “art” portion of course is your actual experience recruiting and retaining the appropriate sales talent.
  4. Begin to Craft the Plan Assessment Story. Whether you actually hold a formal assessment meeting at this time or simply collect the data related to it, you’ll want to have made good progress assessing the plans by the end of Q3. The assessment story should include a review of current plan performance as well as gaps or issues that may need to be address for next year’s plan.

In addition, companies that are looking to make role or coverage changes should continue performing the relevant analytics and draft first cuts at what roles people will fill and which accounts will be assigned to each person. Ideally, some notion of workload planning should be incorporated into how accounts are assigned and how many an individual salesperson can optimally support.

Fourth Quarter – Plan Design, Plan Communication Preparation, and Final Strategic Decisions

This is where both the sales compensation design activities and any strategic implementation activities really heat up. In terms of the incentive designs, you should be sure to:

  1. Hold the Formal Assessment and Design Meetings. We recommend pulling together relevant stakeholders from sales, finance, HR, and systems to review the performance of the current plan designs, identify needs for the upcoming designs, work through options, and finalize decisions on what the new plans should be. In our consulting work, we find the design teams usually include eight to twelve people and require three to four meetings, depending on the magnitude of the potential changes and the efficiency of your design and decision making process.
  2. Perform Cost Modeling and Connect to Budgeting Process. New plan designs should be tested for cost appropriateness using a scenario-based approach. These findings can sometimes lead to tweaks in the plan recommendations and in some environments, the cost modeling connects to the budgeting process as an organization considers costs based on headcount, productivity expectations, and the final plan design decisions. Compensation Cost of Sales (CCOS) is most impacted by target pay levels, headcount and productivity expectations, but the plan design details such as threshold usage and acceleration can have some degree of impact, although usually a secondary one.
  3. Finalize Deployment Model, Role Changes, and Coverage Decisions. The outcomes of these decisions can impact all the elements of sales compensation – pay mix, measures, pay line details, crediting, etc. It is essential to share this information as early as possible with the compensation design team to create effective plans efficiently.
  4. Focus on Quota Setting. Quota setting needs to occur both at the macro-level and at the micro-level (territory/salesperson/account). Deployment and coverage decisions can greatly impact the micro-level quotas and headcount decisions have a bearing on the macro-level one as well. None of these decisions exist in a vacuum so tight alignment is required across the strategic decisions, plan design work, and quota-setting process. The final quotas may be locked in after the year completes, but your organization should make good progress on early drafts by the end off Q4.

As plans start to finalize, your organization should plan for and begin working on the communication steps. These normally include:

  1. Craft a Rollout Plan with Assigned Ownership. We normally like to see a senior leader do the initial plan rollout presentation but the sales managers should be accountable to hold one-on-one sessions with direct reports. To enable the managers to be effective, organizations should hold train-the-trainer calls or meetings. The best plan rollouts follow a cascade approach with senior level visioning and messaging, combined with sales manager one-on-one sessions with the salespeople. In one of our clients, they took the sales manager’s communication role so seriously that in Q2, they surveyed the direct reports to discover whether the sales manager held the one-one-one sessions, how effective they found the explanation, and then the degree of plan understanding that resulted. The findings were tied to the manager’s performance review and coaching was instituted to improve future effectiveness.
  2. Create Rollout Presentation. This will be delivered by the senior leaders as well as elements by the frontline sales managers. The materials need to be thoughtful and well-structured to truly help sell the plans to the sales force.
  3. Prepare Plan Documents and Update Terms and Conditions. Again, this would seem like an obvious step but many companies do a poor job formally providing such materials. The Plan Document should be role-specific and include plan specifics and payout examples, while we normally recommend a single consolidated Terms and Conditions document for ease of review and update.
  4. Provide Excel-based Plan Calculators. These tools can be a very effective way to ensure early and deep understanding of new plans. The calculators are programmed by the corporate staff, ensuring accuracy and that the field reps do not spend time programming their own usually inaccurate calculators. This extra step can go a long way to quick understanding and more effective plan impact.

See, that’s it! Simple as that! Okay, maybe it is not all that simple. Helping create improved sales effectiveness and appropriate sales compensation plans certainly takes high effort and a diligent process. While this roadmap does not include every step or nuance, it includes many of the main and biggest categories of work for which to plan. The timing can shift forward or back, but if you stay on these approximate timelines, you should have an effective year and not one marked by late fire drills and a nagging sense that “we could have done better”. Good luck in your efforts to always create better sales compensation plans and better sales effectiveness solutions!

Seven Tips for Creating New Sales Compensation Plans

Monday, August 18th, 2014

By Clinton Gott

When a current sales year starts to wind down, it becomes time to consider sales compensation plan needs for the next fiscal year. Companies should have appropriate plan designs ready-to-go and set for communication within the first two weeks of a new year. The assessment and design process can take anywhere from eight to twelve weeks, and we find the best outcomes result from following a better process. As you consider your new sales compensation plan needs, we recommend following these quick tips.

  1. Collect robust perspectives on the current plan’s performance. Interview leaders, take the pulse of the field, and understand what seems to be working or not with the current plans.
  2. Identify the business case for change. Start with an idea of what needs to be addressed and the outcomes you’d like to achieve. You may have new product or deployment strategies, a new sales leader looking to rev up performance, or simply a general sense that “we can do better”.
  3. Champion a cross-functional design team. Sales compensation is a discipline influenced by leaders in sales, finance, human resource, and sales operations. An effective design team brings together six to twelve representatives of these groups to consider plan performance, confirm new plan needs, and work through various design options.
  4. Engage executive decision makers early and often. Interview executives as part of the assessment phase, provide periodic updates, and build buy-in before the final Steering Committee plan review and approval session. We find C-level folks are focused on sales force performance and the sales compensation plans more now than ever, and you want to avoid any eleventh hour surprises.
  5. Perform targeted and appropriate assessment analysis. Even in the era of big data, we advise primarily doing targeted data analysis, potentially testing hypotheses being considered by the organization or exploring insights from the interview phase. In some cases, “boiling the ocean” in terms of data work can paralyze decision-making more than enable it.
  6. Do however pursue diligent cost modeling analysis. As plans are being finalized, enlist analytical horse power to perform scenario modeling on how the plans may perform considering below goal, at goal, and above goal outcomes. Check for impacts on macro-level costs as well as at the individual displacement level. And test the new plan designs using prior year results for a true apples-to-apples test.
  7. Leave at least a month from final plan approval to plan rollout. Depending on the size of your organization, you’ll need at least this much time to prepare plan documents, update terms and condition documents, and create plan communication presentations. The rollout communication should focus on the “what” and “why” behind the new compensation plan designs, as well as the “how” in terms of the design process followed.

We’ve left out one important – consider the world of best practices and how to apply them. Sources of best practices information can come from compensation conferences, industry roundtables, or various assessment and design articles. Just be aware that best practices are not “one size fits all”; emulating a general practice or even what your closest competitor may be doing could be exactly the wrong thing for your unique organization. In some cases, bringing in external support from the consulting community can not only provide best practice insights but also play an important process role. Sales compensation can be a highly political and emotional topic, and stakeholders rarely lack vocal opinions. Sometimes it takes a neutral party to help navigate competing perspectives. In any event, following a diligent design process and including the right inputs will help ensure a successful sales compensation design outcome.

BSC’s Design Guide to Success – Part 10

Wednesday, September 14th, 2011

Each week, we will highlight one of BSC’s Top Ten Tips from our acclaimed Design Guide to Success. To download the full guide, click on to the Articles page.

10. Design Plans with Attention to Communication Messages

Creating new plans and securing official executive approval leaves one crucial step left if you want to be successful – communicating and implementing the new plans!  In too many cases, companies either do not leave enough time or enough resources to complete this essential step.  After working hard to assess the plans, create news plans to drive results, and build consensus and support at all levels of management, seeing all that effort crumble under the weight of a shoddy rollout can be heart breaking. To ensure great performance in this final step, we offer the following insights:

  • Use the communication opportunity to its fullest value. If you’ve ever thrown a tennis ball to an eager Golden Retriever, you know one thing for certain – you have her complete attention.  Those eyes never leave the bright yellow ball ready to spring from your hand.  When salespeople prepare to hear about their compensation, guess what? You have their complete attention.  We strongly encourage companies to use this session to provide the messages you most want them to hear, particularly about this year’s sales strategy and how the members of the sales organization are essential to the company’s success
  • Focus on more than the “what” behind the new plans. We’ve seen too many rollout presentations jump right into plan measures and how they calculate pay, often in gory mechanical detail.  That’s great and certainly important, but there should be some build up. Think what else they may need to know to understand this story’s punch line, such as…
  • Focus on the “why” of the plans.  Talk about the purpose behind the plan changes. What happened last year? What’s new this year? Why are the changes being made?  What drove the outcome of your plan design effort? Salespeople may not always agree with all of the information shared, but people (yes, even salespeople) learn and embrace new things when they have a greater sense of understanding. Attempt to offer it and anticipate one key question – “why?”
  • Focus on the “how”.  In this case, help them understand the (hopefully) rigorous process you followed.  Salespeople most despise when decisions are made from the nebulous “black box”. Hopefully, you have followed a process that garnered field feedback, collected market perspectives, and carefully weighed options. If you follow Tip Three, you included respected design team members.  The plan communication effort is a great time to champion your process and build confidence in its outcome.
  • Create the right materials. The best plan communication strategies include a range of crucial documents, namely the Plan Document itself (describes the plan for a specific role), the Terms and Conditions (contains all the rules and specifics that support the plan), and Plan Calculators (helpful Excel-based worksheets with the new plan programming so salespeople can test and better understand pay results from potential results achieved).  In addition, rollout presentations should be carefully communicated, first to the frontline sales managers and then on to the salespeople themselves (in the process identified below).
  • Cascade the plan communication and repeat as necessary.  Recent psychology studies indicate that humans retain 30% (we actually think it’s even less than that) of what they hear on a good day. Repetition is often a great way to increase odds of retention.  In the case of a comp plan rollout, the messaging approach and messenger both matter.  We normally recommend that the head of sales communicates the plan details to frontline management.  Next, the head of sales should reveal the “what”, “how”, and “why” to the salespeople, and the frontline managers, having already been well-trained on the content, should follow-up with one-on-one sessions and/or question-and-answer events. Cascade the communication; repeat as necessary.  One final point – we highly recommend a sales summit or get together within the first two weeks of the new plan year.  Particularly in periods of significant strategic changes, role adjustments, and new plan deployment, the face-to-face time greatly contributes to a successful rollout and a kick start to your sales results.

BSC’s Guide to Success: In Conclusion

We hope our Top Ten Tips help you ensure a successful plan assessment and design outcome.  These pieces of advice were identified while working with clients to solve their most daunting and important sales effectiveness and sales compensation issues.  There are certainly other topics worth considering, particularly around best practices in sales compensation design, which we will tackle in upcoming white papers, books, and publications.  But we are confident that the tips provided here can help you achieve a better design process and a better overall outcome.

Here’s to a future of better design processes and better sales compensation plan designs!

BSC’s Design Guide to Success – Part 7

Monday, August 22nd, 2011

Each week, we will highlight one of BSC’s Top Ten Tips from our acclaimed Design Guide to Success. To download the full guide, click on to the Articles page.

7. Garner Qualitative Input

Motivating behavior and rewarding for actual results represent typical goals of a sales compensation plan.  While data can test for the correlation to results, it becomes more of an art than a science to discern if your plan actually creates incremental or targeted activities in pursuit of those results.  BSC strongly recommends that qualitative input be gathered and presented to sales leadership and the design team.  In addition to providing perspective on how sellers perceive and react to the plans, the effort to collect field and manager input provides the opportunity to address real issues the sales team encounters.  It also provides a basis for achieving field buy-in to any recommended changes.

There are four methods for collecting field input:

  • Monitor and catalog activity with a web-based or call-in process related to questions, issues or challenges with the current plans.  This represents a passive approach to defining input and limits “field buy-in” impact, unless some confirmation of the issues is communicated back to those responding.  This effort can identify current issues but may not provide an exhaustive or go-forward assessment of the selling environment or any recent field changes. It’s a lower energy and lower impact approach.
  • Conduct an online survey.  This provides a broad touch and valuable data for report back to the field as new plans are communicated.  Survey results are best used to create conversations about the implications of the data, rather than to be used as raw facts.  While open-ended questions and requests for comment can add understanding, they don’t provide give and take on the “context” of the commentary.
  • Conduct focus groups of similar sales roles.  Staging focus groups with individuals who perform the same sales role can provide in-depth understanding of how salespeople actually perform their job and how the sales compensation plan impacts their activities or targeted results.  Combining dissimilar sales roles (e.g., major account lead with territory manager, or direct sales rep with channel sales manager) causes more time to be spent on surface discussions of unique job situations, rather than a deep dive into core issues shared by the participants.  The sessions should be well structured and should include:  reaction to survey data if available, analyses of issues and concerns, brainstorming of possible solutions, and testing of alternative options. Focus groups can be cost prohibitive as they require sellers to come to a common location, yet they can add a great deal to the understanding of your current situation.  This cost must be weighed against the strong participative and high quality interaction benefit they provide.
  • Interview top performers.  Conducting interviews of individuals in the top half to top quartile of your sales performers can allow for detailed information gathering as well as highly targeted participation messaging to valued contributors.  These are best for providing job specific and sales deal specific information.  Have the individual talk through the sales process with specific customers and detail the impact the compensation plan has on how they sell or attempt to influence the customer’s purchase decision.  Enough interviews are needed to provide critical mass of information for each role so as to avoid over-generalization of the individual situation to the total sales team.

We would be remiss to not point out that the sensitive nature of these data gathering efforts require assurance that individual input will be held in confidence. Outside third parties can be very helpful in providing a safe process and ensure information is shared in a non-biased manner to the design team.