An integral piece in your sales performance management process is developing a compensation plan that is data-based and results-driven. Your compensation plan affects everyone and everything in your company. Your reps depend on the plan to direct their selling behaviors and provide financially for their families, while your CEO expects it to reflect corporate goals and enable revenue growth. In order to create a plan that delivers at every level, you need to make sure your sales and finance teams are united and provided the tools they need.
In Xactly’s recent webinar, "CXO Fireside Chat: 5 Ways Data Can Elevate Sales Performance Management in 2019," executive leaders Elizabeth Salomon and Marc Gemassmer answered questions about designing comp plans that reflect their teams’ goals—and shared the results from implementing Xactly sales performance management tools themselves.
The webinar’s Q&A transcript with Marc and Elizabeth has been abridged below. To listen to the full audio, click the link below.
What’s your background and experience with sales compensation and planning?
Elizabeth: I am Chief Financial Officer at Xactly and have been here just about a year. I spent 10 years as a CFO with a private equity organization who invested in software companies, so I have a lot of experience working with companies to help them grow.
Marc: I'm the Chief Sales Officer and I've been with Xactly for nine months. I've been a VP of Global Sales for approximately 10 years and started in tech selling about 20 years ago—actually as an inside rep. So I’m very much used to getting commission checks, and auditing, and all that good stuff.
When did you first start getting involved in the process and start asking questions about what money was going where? And with what intent?
Elizabeth: As I moved into a finance leadership role, I became much more engaged in the sales compensation process—helping to design the plans and calculating commissions for a sales team. So in the last 10 years, I've been a pretty active leader or participant in all of our sales comp design and implementation. One thing that's very clear that I've seen in my experience is that compensation plans determine behavior. And it is one of the most impactful tools used to deliver the results that you want for your company. This is clearly a case where you absolutely get when you pay for.
Marc: I agree. You almost have to think of the flip side of the coin as well. If you create the wrong compensation plans, you can actually drive the wrong behaviors. You can create animosity. You can create a team that doesn’t believe something is possible. So you have to think very carefully about how to drive the right behaviors in your sales team.
Marc, what kinds of changes have you seen in sales team behaviors?
Marc: I'll use Xactly as a great example. There are certain plan aspects that are managed by our board. So our sales reps are fighting for things they know the board cares about. We reward the sales team for that—and being up front about that creates a transparent win-win process for everyone.
Elizabeth, since you were here for the plan design for 2018, what other things were brought to the table that you ended up working on to build into the plan?
Elizabeth: We wanted to extend the term of our contracts and add built-in price increases, so we built our comp plans to reflect that goal. Another area we incentivized was around selling multiple products. We wanted to make sure that our sales team was looking and considering all products when talking to customers—and making sure we got some traction with some of the new products that we were bringing to the market. And true to form, we've seen some results here. Like I said, you get what you pay for if you incent the right behavior.
Marc, the plan was already written when you joined Xactly. So what was the first five-minute review that you did when you saw it?
Marc: Well, I wanted to know if it was actually driving the outcomes that I wanted to drive. So Elizabeth and I talked a lot about what we were trying to incent—and how to drive the right behaviors. When I joined, things were already laid out. So it was looking at, “Okay, tt was laid out for a reason. How do we make sure that people are aware of what those reasons are?” By increasing the transparency down through the sales organization motivates the sales team to rally behind it. I mean, that’s the power of being transparent.
Who else is on the design team with you?
Elizabeth: Our CEO was involved, we also had other representatives from our sales teams. It was a really collaborative effort to make sure that we thought holistically about all the things that we really wanted to drive. We also wanted to ensure the practicality of implementing the plan as well, because you’ve got to keep it simple—we wanted to make sure we were hitting the most important things.
What data did you bring in to be able to evaluate the success of the plan?
Elizabeth: We looked at historical performance around quota attainments, and we had some new products coming to market—so we wanted to make sure we factored those in. And then we thought about targets. We looked at average discounts. We looked at all of our historical data to help us set reasonable targets. To Marc’s point, we want to make sure that we have targets that are attainable and not demotivating. We also looked at the benchmark data from peer companies within our industry—we have that data available in our Xactly Insights product. We also checked out other sources in the marketplace. We're a private equity-owned company, so we had some market data available as well.
Marc: I want to add an example of what we’re talking about when we talk about benchmarking data. When we recently dove into our Insights product, we were able to see that organizations that had the highest quota attainment on average were organizations that had three elements to the compensation plan. If you had two elements, you didn’t perform as well. If you had more than three elements, you also didn’t perform as well. So there's that magic sweet spot. Sometimes when we try to drive too many behaviors we actually create a really complex compensation plan—then reps and managers don’t know how they're getting paid. That then drives shadow accounting, and reps spend a whole bunch of time trying to figure out how they're paid and double-checking the numbers.
You follow all this data, design the comp plans—what are you doing to recheck your assumptions?
Elizabeth: Well, it's probably different for finance and sales. I know Marc and his sales leadership team are looking at the data all the time about how their team is performing. From a finance perspective, I want to know if we are we getting the results that we intended with the comp plans, how our reps are performing, and if we are we paying relative to the performance that we're getting.
Marc: I’ll also look into things like rep tenure. For my newer reps—how are they doing compared to previous periods, or compared to peer companies? In the past we've seen data indicating we're maybe a little bit behind, so we needed to think about how we might alter some things. Data also tells us that reps peak from years three to five—so we want to make sure our plans are built to help reps get to that point.
The Xactly benchmarking dataset lets you see public and private annual revenues. What specifically are you looking at?
Marc: One thing I'll look at it is a staff’s organization and then I'll pick somebody that has the roughly the same amount of sellers that we do. And I can do that peer analysis, and then I can start layering additional things. So hey, actually open up every software company, open up to the next group of peer companies that are lower, or larger. And again, see how we stack up to them. The other thing that we'll look at is the pay to performance curve. To say, how much are we paying versus the performance we're getting? We found there are times where we'll run a SPIF and it doesn’t actually drive the desired outcome. So I think if you're looking at how your paid performance is going, your tenure, and things like that—that gives you that opportunity to fine tune the comp plan.
All right. So you’ve got a ton of data available. Is it just making things more convulted, or easier to manage?
Elizabeth: Much easier. I mean, there's a lot to look at. But it allows us to make much better decisions. In the past, it used to be based a lot on gut—but now it helps us make a lot more effective strategic decision.
Marc: Yeah, I would absolutely agree. I think that the folks that won't like it are the folks that have historically said, “This is the way we've always done it. And it's my gut, this is tribal knowledge.” I’ve talked to my peers out there who operate like that. And then when they see data that shows them the exact opposite is actually true—that can be a little scary. I think that finance has always been a data-driven type of organization, and I don't think sales has always been data-driven. The platform for the future is going to empower data-driven sales leaders. If you're a data-driven sales leader, what Xactly has will get you incredibly inspired. If you're not a data-driven sales leader, it could scare you a little bit at first because it's going to show you things you might not have known. And that's the wakeup call. Leaders have to be data-driven if we want to thrive, and ultimately, survive.
What role does retention play for you?
Marc: If I look at my number one pain point, and this is for any organization that I have been at, it's attrition. It's unwanted attrition—when I see the top salesperson or salespeople leave. And you'd be surprised, oftentimes people think about attrition, and they only look at those bottom performers. But how do you immediately backfill a top performer with three years experience that leaves today? You need to be aware of how attrition impacts your business. Being aware of the different data points can help you better predict attrition. Get ahead of that because unwanted attrition can often determine when you hit or miss team quota.
Elizabeth: I think another key area where data is really rich and really valuable is in territory planning. With our AlignStar product, we’re able plan territories based on real data that shows what a real territory is worth. This was eye-opening for me because all my previous experiences have been very subjective, it has all been based on gut. This new ability to really get granular around territory planning, it's huge. As a CFO, I value that tremendously because it allows me to really optimize where we put sales resources. I know exactly where there's opportunity—and we can maximize our resources where the opportunity is, and minimize it where it’s not.
Marc: And that has a lot to do with retaining reps because when I talk to—whether it's finance leaders, sales leaders, sales-operations leader—we've all heard the story. Somebody says, “Well, Erik is doing fantastic, because his is the best territory. And I am doing poorly because my territory is terrible.” But what we are doing now is—it's the democratization of territories—it’s being able to say through data, “No, you all have the same opportunities.” That's the way you want to build your territories. That's the way to enable your reps to sell at their top levels.
Is this the end of the sales/finance typical conflict?
Elizabeth: The end? I think there is still a stereotypical sales/finance conflict. I think here at Xactly though, Marc and I work pretty well. Obviously, we're the sales compensation company, so we get it, and we know how to work together. Certainly, there have been conflicts in the past. But I think having the data provides a framework that we can all focus on. It makes it a lot easier to have productive discussions that result in great decisions.
Marc: Yeah absolutely, we're now in tune to together say, “Hey, how should we end this next fiscal period?” We can actually holistically fix things now. You get a powerful relationship when you bring finance and sales together.
It's already time to start planning for next year. What's going to change for 2019? What new data and tools are you embracing next?
Marc: Xactly recently acquired a company that's a market leader in sales planning. If you look at how sales planning historically was done, it was done in excel. And it was done as a one-time thing. You spend weeks, or months, saying, “Let's go build a plan.” And we do it, and we load it, and we decide how many people we’re going to hire, what their ramps are, all that kind of stuff. But once it's done, we never look at it again, right?
And I'd say that's true for sales folks, for sale leaders, and for finance. And that doesn’t scale and you miss opportunities. You need to create a continual planning environment where you're bringing sales and finance together to look at how to go build what-if scenario models—and then continually run that. For example, most people believe that for field salespeople, the ramp time is always nine months. And that's not because that “fact” is data-driven, it's just because somebody at one point in time picked nine months—and finance was okay with it and sales could live with it—so we moved on.
What if we could apply what real ramp times were? How much different would our business be? We would know at a board level if we need to hire faster or slower. It just gives us that data, which is power, and I think that's going to be the difference for us moving into this next fiscal year—not doing it on excel, or other non-purpose-built sales planning solutions—we're building our FY20 plan on our own technology.
Any final comments from the two of you?
Elizabeth: I'm excited as we move into this next year's planning using data, using these tools. I think the opportunity to get it right is better all the time. The days of trying to do things by gut and by excel are over, thankfully.
Marc: I'd echo that. I'm really excited because I've lived the majority of my sales leadership life without this set of tools–wondering how to really format headcount and capacity plans. How do I build the appropriate territories? How do I incent people correctly, make sure that the commissions are paid correctly, how do I give visibility to that? How do I see back into their performance, back into my planning solutions so I can see where am I right, where am I wrong?
Inevitably, we're going to be right or wrong on some things. And we need to course correct, right? You can't just course correct on an annual basis. The most agile organizations are going to do it much sooner than that. How do I predict correct attrition? And if I can stop that—if I can stop one of my top sales reps from leaving—that's a hugely powerful tool to us. And then lastly, how do I also provide training? Do my top-performing people have what they need? Do they have certain territories and geography?
Again, if I can become more data-driven, it makes me that much more effective at helping ensure not only that we hit top-line numbers—which Elizabeth cares about—but also those bottom-line numbers. Now we can sales performance management in a responsible and appropriate way.
To learn more about the sales performance management tools that Marc and Elizabeth depend on, request a demo from an Xactly Expert.