This week, I’ve been at the WorldatWork Spotlight on Sales Compensation show in Chicago. I love this show, as it is 100% sales compensation experts from across the globe sharing strategies for better motivating and optimizing their sales operations. On a personal level, I love the location at the Westin Chicago River North. A couple of decades ago this was the Hotel Nikko, and that is where I stayed on my first business trip as a consultant for Sibson & Co as I started a career in Sales Compensation. The first speaker I came to listen to is an old friend, Scott Sands, of Aon Hewitt. His topic was on Sales Compensation’s role in sales transformation. "There is significant disruption in today's economy, some of it productive and some destructive. Many industries (financial services, technology, energy, retail, healthcare, etc.) are going through fundamental transformations that will change them forever. To continue growing, many companies will have to transform their sales forces. Many companies take a logical, holistic approach to this process; others depend on sales compensation to do a lot of the work. This session will help participants assess the issues, determine the appropriate steps in a sales transformation, and evaluate the role sales compensation should (and should not) play in supporting the change." He opened with a great table showing how each intersection of Cost of Sales, Turnover and Market Pay Competitiveness triggers a different response by corporate leaders. His full presentation was fantastic, and I recommend that you reach out to Scott at Aon Hewitt for follow-up if you are interested. When I looked at his table, it triggered a few thoughts on how a smart company should be keeping an eye out for potential problems. Here are a few quick thoughts I had based on Scott’s presentation:
Cost of Sales: What is your cost of sales in terms of incentives?
- Take your revenue goals for the year, and then divide by your budgeted incentives for the year. That is your baseline to track throughout the year. Note: Xactly took a look at the publicly traded firms in our dataset and found that, on average, 7.12% of revenue was spent on incentives.
- Track how close you are to your budgeted number. If you are above, you probably have some SPIFs or accelerators coming into play. Your budget may have been based on a flat level of quota attainment instead of planning for a few heavy hitters at 300% of quota.
- If you are under-spending, you might not be getting the cash into the hands of your performers - and that might trigger turnover.
Turnover: Voluntary and Involuntary
- I have discussed in the past the three points where you can lose top sales performers (these peaks based on and analysis of Xactly Insights™ data). Last month of the year (cash the last check and walk), first month of the year (get the new plan and territory and walk), Middle month(s) of the year (not going to make it this year, time to switch and make club at the new firm).
- What has been your turnover rate over time, and is it higher or lower than the past? How does it compare to your industry? We provide industry based turnover data in Xactly Insights, and we find that it is a great indicator of challenges at a firm. Who knows better about your company’s future than the people on the street that are representing you? If you are losing good reps, look at your comp plan but also look at performance and the product.
Market Pay Levels
- How well do you pay? Are your offers competitive? Do you lose to better offers? But that is just at the offer level. It is much more important to look at pay at different levels of performance.
- Overpaying for underperformance: If a rep is at the 25th percentile of performance, what is their market equivalent? If you are paying them at the median for 25th percentile performance, reps are going to stick around way too long, and they won’t be driven to step up their game.
- Underpaying for over performance. If a rep is at the 75th percentile of performance, but they are being paid at the 60th percentile - they are going to take their skills to a company that more acceleration built into the plan.
- Keep an eye on the market - and watch it constantly. We update our Insights data on a monthly basis so that our clients won’t be caught by surprise when other firms in their market start making adjustments.
Summary: Add three tracking reports to your dashboard: Incentives as a cost of sales, turnover vs. the market, and pay levels at different levels of performance. These will help identify when it’s time to get a team together to determine what can be done to prevent a problem - rather than needing to clean up after a disaster.