SI Review: June 2013

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How to Pay Right

Use sales compensation plans to increase your firm’s — and workers’ — growth

By Mark Donnolo

I recently met with two sales leaders of a large staffing company who told me about a major problem facing their sales organization: their top talent was leaving in droves. It started with a trickle — they had lost one or two 18 months ago — but they had been sure when the market picked up the talent would return. Instead, the opposite had happened — their high performers continued to leave. The sales strategy had changed so often it no longer matched up to their compensation plan and none of the job roles were clear any more. Morale lagged.

It happens in the best of times and the worst of times. The wrong compensation plan can wreak havoc on a sales organization. But staffing companies that harness the power of sales compensation can improve their growth and profitability. Here are some ways visionary sales leaders are using sales compensation plans to drive the performance of their company.

Align to the Sales Strategy

At the core of a high-performance sales compensation program are well-defined sales strategies, sales processes and sales roles. Most staffing companies employ a combination of sales resources such as field sales, recruiters and inside sales necessary to pursue the sales strategy. Each sales role should be defined in terms of its critical success factors, role descriptions and competencies. Confirm whether your base pay, salary and incentive mix, upside potential, and performance measures align with each job’s most important roles or whether these components reflect a job that has changed over time. Determine the correct relationships between these components based on each job’s role in the sales process, sales cycle, account type, sales strategy, and management responsibility. A fresh look at your sales strategy may reveal some glaring misalignments that can make a big difference in motivation.

Move the Mighty Middle If you examine the distribution of quota performance in your organization — the percentage attainment of quota at the rep level — odds are you’ll see a large group of reps hovering just below quota. While many organizations invest their effort in developing the high performers, there are huge gains to be made by improving the performance of the mighty middle, meaning those performers meeting between 80 percent and 99 percent of quota. Improving the performance of this group by a few incremental percentage points can have a larger impact on the results of the business than even a dramatic percentage gain from the high performers. Shorter-term performance targets and a look at the motivators in the plan can be used to coax this group along the incremental five percentage points of quota attainment that will deliver a much-needed impact on your business.

For example, a high tech staffing company found that it was actually demotivating its reps from selling placements if they were below 90 percent Of quota. The incremental pay was minimal compared to the effort, and the rep would be assigned the annualized value of that quota for next year, making it more desirable to pass on the deal until next year. This was a lost opportunity for the business and the rep. A change in mechanics to draw reps up to each incremental level of performance made these opportunities much more attractive for the mighty middle and aligned their motivations more closely with the company.

Be a Reverse Robin Hood

Make sure you’re rewarding the top performers at the expense of the low performers. While this may sound extreme, successful sales compensation plans drive a sales culture by rewarding those who deliver results. In terms of upside potential (the portion of target incentive pay available to your top performers), evaluate whether top reps are earning appropriately more than average performers.

Top reps should have an opportunity to earn one to three times the incentive of an average performer. Using precious compensation dollars for those who perform below a minimum threshold depletes financial resources that could be put to better use in the organization and encourages low performers to hang around long after their time. If your most loyal reps are your lowest performers, you’re probably paying too much on the low end of the performance curve. Question whether your low performers are paid too much, resulting in a misallocation of funds to non-producers and putting your top talent at risk of competitive poaching.

Pursue Your Desired ROI

Sales executives often question their return on investment in sales compensation. We often hear, “How do I know what I’m getting back from our compensation plan?” The answer lies in articulating the connection between your sales strategy and your sales compensation plan and the influence the plan can have over executing that strategy. Rather than describing ROI simply in terms of compensation expense versus sales results, look at it also in terms of attainment of stated product objectives, market objectives and sales culture objectives. Key to creating these connections to ROI is following a proven process to evaluate and design the plan. Your sales compensation design process should flow from the strategic decisions around sales roles and the sales strategy to the required design which includes target pay levels, salary and target incentive mix, upside earning potential, performance measures, mechanics and quotas. Evaluate your plan qualitatively and quantitatively in each of these areas to understand your gaps. Then design and refine the plan using the same components to model your financial returns in a strategic manner.

Examine your plan relative to today’s environment. Keep it motivational to reps and align it with the sales strategy. With shifting customer needs, sales messages and sales strategies, applying a structured approach to evaluating the performance of your plan and implementing some creative ideas can re-engage reps and better target the plan to the current economy.

Keep the Sales Reps Engaged

It can be challenging for some organizations to keep reps’ heads in the game and focused on the sales process in a tough economy, when reps are below their earnings range. So, in addition to financial compensation, rewards and recognition programs can drive short-term performance despite overall lagging quota performance. As one staffing executive said, “We can move sales performance ahead incrementally, when reps may otherwise have given up on reaching their overall quotas. Our reps will kill for a T-shirt and recognition in front of their peers.”

Monetary and non-monetary rewards can be used for more specific performance targets, even if the overall growth objective is unattainable by the organization. Using this method, organizations may set goals such as winning the next 10 closed deals for a team or booking an amount of revenue by the end of the quarter. Non-monetary rewards are a powerful alternative in expense-constrained environments. They offer an intrinsic prize and “bragging rights” that won’t get rolled into paying the electric bill like a small cash reward might. Most organizations find that non-monetary rewards are motivational and visible to the organization and draw upon reps’ desire to compete and win. These types of rewards can range from quality of life bonuses for the family, like home cleaning or meal services, to recognition visible to the rest of the sales organization such as car leases or car key lotteries that involve a number of potential winners.

Mark Donnolo is managing partner of SalesGlobe. He can be reached at mdonnolo@salesglobe.com.

[SIDEBAR]

The Building Blocks of Sales Comp

  1. Base Salary pays for the core responsibilities of the job, including a minimum level of sales performance. Above that minimum level, incentive pay kicks in. If a rep has a base salary of $60,000, the rep is almost guaranteed to earn at least that amount for the year.
  2. Target Incentive is the amount of additional pay a rep can expect to earn for hitting his or her goals. If a rep has a base salary of $60,000 and a target incentive of $40,000, she has the opportunity to earn $100,000 if she achieves 100 percent of her quota.
  3. Upside Potential is the amount of pay a rep can earn for achieving more than 100 percent of her quota. If our rep has a base salary of $60,000, a target incentive of $40,000, and upside potential of 200 percent, she may earn an additional $40,000 if she achieves a certain level above quota. This brings her total annual income to $140,000. The amount of upside potential is usually determined by the competitiveness of the market to attract and retain top performers and the margins of the business to sustain a certain level of pay for top performance.

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