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2014 Alexander Group Webinar - Is your sales comp plan working?

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Alexander Group compensation experts Paul Vinogradov and Rachel Parrinello share their insights on how to assess your compensation plan for 2014.

Alexander Group compensation experts Paul Vinogradov and Rachel Parrinello share their insights on how to assess your compensation plan for 2014.

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  • 1. Atlanta | Chicago | San Francisco | Scottsdale | Stamford Is Your Sales Compensation Plan Working? How to Assess Your Compensation Plan and Prepare for 2013 September 24, 2013 Rachel Parrinello Principal, Sales Compensation Practice 415-276-5664 rparrinello@alexandergroup.com Paul Vinogradov Vice President 415-276-5670 pvinogradov@alexandergroup.com
  • 2. © 2013 The Alexander Group, Inc.® 2 Welcome! Introductions – Us and You! Is Your Plan Working? AGI Framework and Guidance Questions and Answers
  • 3. © 2013 The Alexander Group, Inc.® 3 About Us Rachel Parrinello Principal, Sales Compensation Practice Paul Vinogradov Vice President  16+ years of sales effectiveness consulting  Runs AGI’s western region office  Runs AGI’s benchmarking practice  Sales compensation speaker  13+ years of sales compensation consulting  Manages AGI’s sales compensation benchmarking  Sales compensation speaker
  • 4. © 2013 The Alexander Group, Inc.® 4 About You – Industries
  • 5. © 2013 The Alexander Group, Inc.® 5 About You – How Many Sales Roles
  • 6. © 2013 The Alexander Group, Inc.® 6 About You – How Many Compensation Plans
  • 7. © 2013 The Alexander Group, Inc.® 7 About You – Plans to Roles
  • 8. © 2013 The Alexander Group, Inc.® 8 About You – Degree of Pain
  • 9. © 2013 The Alexander Group, Inc.® 9 Sales Compensation is a Material Cost Source: Alexander Group Benchmark Database. Costs include all sales and sales related roles that participate in the sales compensation program, including sales management. Compensation Cost of Sales Figures
  • 10. © 2013 The Alexander Group, Inc.® 10 9% 51% 27% 13% No changes will be made Minor changes to some of the plans Significant changes affecting some of the plans Major changes affecting most all incentive plans Most Companies Update Their Plans Each Year 91% plan to make program changes for 2013 For 2013, the extent of changes you plan to make to your sales compensation program are: *Source: Alexander Group 2013 Survey
  • 11. © 2013 The Alexander Group, Inc.® 11 Laggard World Class Where does your company’s compensation plan fit along this continuum?
  • 12. © 2013 The Alexander Group, Inc.® 12 What Is a World Class Sales Compensation Plan? The Sales Compensation Plan is a Valuable Management Tool to Drive Sales Results if Done Correctly  Drives business goals and sales strategy  Aligns with each sales job’s role and objectives  Closely links pay to performance  Motivates and rewards higher levels of achievement  Provides market-competitive pay to attract and retain appropriate level of talent  Is simple to understand
  • 13. © 2013 The Alexander Group, Inc.® 13 What is a World Class Sales Compensation Program?  Linked with fair, equitable and stretch goals  Effectively communicated and documented  Sale force understands the plan  Sales leadership messages how the plan supports strategy  Is fiscally responsible and aligns with budget  Efficiently administrated to provide consistent, accurate, and timely pay  Provides the right level of alignment / equity across the organization  Includes ongoing governance to ensure program integrity  Designed by a collaborative process with key stakeholders from sales, finance, human resources, and sales operations The Plan’s Effectiveness Depends on the Support of People, Processes, and Systems
  • 14. © 2013 The Alexander Group, Inc.® 14 Assessment Angles Program Effectiveness Strategic Alignment Market Alignment Principle Alignment Does your program drive your company’s strategy and align with its job roles? Does your program align to best in class principles? How aligned is your program to the market?
  • 15. © 2013 The Alexander Group, Inc.® 15 Overall Strategic Goal Component Guidelines Execution Principles Goal Rules To Govern Design Solutions Guidelines for Specific Program Components Supporting Programs: Required for Any Sales Compensation Plan Design Framework
  • 16. © 2013 The Alexander Group, Inc.® 16 Rules To Govern Design Solutions Guidelines for Specific Program Components Supporting Programs: Required for Any Sales Compensation Plan Design Framework Attract, Retain and Reward Sales Resources To Drive Sales Results Component Guidelines Execution Principles Goal
  • 17. © 2013 The Alexander Group, Inc.® 17 Guidelines for Specific Program Components Supporting Programs: Required for Any Sales Compensation Plan Design Framework Strategy & Job Alignment Sales Force Motivation Pay for Performance 1 2 3 Attract, Retain and Reward Sales Resources To Drive Sales Results Component Guidelines Execution Principles Goal
  • 18. © 2013 The Alexander Group, Inc.® 18 Supporting Programs: Required for Any Sales Compensation Plan Design Framework Strategy & Job Alignment Sales Force Motivation Pay for Performance 1 2 3 Attract, Retain and Reward Sales Resources To Drive Sales Results Eligibility Pay Levels Pay Mix Leverage Measures Mechanics & Pay Curve Perf & Payout Periods Quotas/ Targets Special Incentives Crediting & Policies 1 2 3 4 5 6 7 8 9 10 Component Guidelines Execution Principles Goal
  • 19. © 2013 The Alexander Group, Inc.® 19 Design Framework Strategy & Job Alignment Sales Force Motivation Pay for Performance 1 2 3 Attract, Retain and Reward Sales Resources To Drive Sales Results Eligibility Pay Levels Pay Mix Leverage Measures Mechanics & Pay Curve Perf & Payout Periods Quotas/ Targets Special Incentives Crediting & Policies 1 2 3 4 5 6 7 8 9 10 Investment ROI Communication Administration Governance and Process 1 2 3 4 Component Guidelines Execution Principles Goal
  • 20. © 2013 The Alexander Group, Inc.® 20 Assessment Tools 1 2 3 4 5 Job Confirmation Sales Force Survey Pay and Performance Analytics Market Benchmark Data Philosophy
  • 21. © 2013 The Alexander Group, Inc.® 21 Low Performers Median Performers High Performers 75th 50th 25th What is Your Pay For Performance Philosophy? 1 MarketComparison
  • 22. © 2013 The Alexander Group, Inc.® 22 Illustrative Segmentation and Coverage Map2 Strategic Enterprise Small and Medium Business Sales Engineer Account Manager Inside Sales Sales Support Product Specialist Channel Manager
  • 23. © 2013 The Alexander Group, Inc.® 23 Primary Input – Job Design Customer:  Target Segments  Target Accounts  Buyer Needs  Sales Potential Sales Process:  Lead Generation  Account Development  Propose/Close  After Sales Service  Conversion, Penetration, Retention Products and Services:  Product Type and Complexity  Knowledge Required  New Versus Current ProductJob Bandwidth 2
  • 24. © 2013 The Alexander Group, Inc.® 24 Inventory Sales Roles—Confirm Job Focus Example Roles By Sales Strategy Sales Support Account Executive Product Specialist Vertical Specialist  Supports seller with orders, systems, data requests, etc.  Sells to and services current and new accounts  Focus on set of named accounts, generally within a vertical industry  Overlay specialist called upon by the Account Executive to help sell specific product to current and new accounts  Develops vertical industry strategy and evangelizes company to that vertical market  Acts as an SME and overlay specialist on an as-needed basis Account Manager  Teamed with assigned seller to provide pre- sales and service to assigned accounts  Generally focused on selling existing products to existing accounts Products Current New/Different Buyers Prospects Customers Retention Selling Conversion Selling Penetration Selling New Market Selling Sales Strategy Matrix® Line of Specialization 2
  • 25. © 2013 The Alexander Group, Inc.® 25 Job Profile Example – Strategic AM Job Summary  Responsible for end user sales of Company products and services to new and existing strategic (5,000+ employees) accounts  Executes complex sales and effectively manage the sales process and activities  Effectively engages other sales resources as required Primary Secondary Teaming Independent Small Team Large Team Product Type Point Product Solution Architecture Job Category Technical Account Partner Product Sales Motion Market Coverage Mature Emerging Segment Generalist Specialist Selling Type Inside Field Hybrid Sales Strategy Identify / Qualify Lead Qualify & Develop Oppty Validate & Approve Solution Fulfill Renew Sell-Thru / Enablement Sales Cycle 0 Months 18 Months 24+ Months6 Months Sales Process Complexity Low Medium High Sales Process Management People Manager None Global No / Minimal Focus Strategic Enterprise Commercial SMB Specialization Quota $4M - $10M Account Load 3 – 5 Accounts New Opportunities in Existing Accounts Renewal / Recurring in Existing Accounts New Business in New Accounts Sales Process Sales Focus Type of Sale Channel-led StrategicTransactional Key Metrics Renewal Bookings New Bookings E/B 2
  • 26. © 2013 The Alexander Group, Inc.® 26 Complete a Survey to Capture Sellers Sentiments Competitive TTC Motivates Overachievement Challenging, Achievable Quotas Clearly Communicated Easily Track Comm. Earned Overall Rating 3.4 3.6 2.8 3.7 3.1 3.2 Strongly Agree Agree Disagree Strongly Disagree 3 -13% -9% -28% -10% -23% -19% -5% -9% -13% -4% -10% -5% 51% 49% 31% 53% 36% 38% 7% 16% 4% 19% 9% 5%
  • 27. © 2013 The Alexander Group, Inc.® 27 Use Time To Drive Design & Measure Success Selling Time Product B Selling Time Product A 80% 20% 55% 45%Selling Time Product B Selling Time Product A 3 FY12 Time Profile FY13 Time ProfileNew Plan 0% 100% 200% 300% 400% 0% 100% 200% %TargetIncentive % of Quota Achievement 5x 3x 5x Accelerator if Achieve Product B Quota
  • 28. © 2013 The Alexander Group, Inc.® 28 5 Must Do Pay and Performance Analyses4 A B C D E Pay Vs. Performance Scatter Plot Incentive Payout Percentile Distributions Quota Size Correlation Scatter Plot Quota Performance Distributions Quota Performance Percentile Distributions
  • 29. © 2013 The Alexander Group, Inc.® 29 A) Pay vs. Performance Scatter Plots4  What: Correlation of incentive pay and sales performance.  Purpose: Identify inconsistencies between pay and performance.
  • 30. © 2013 The Alexander Group, Inc.® 30 B) Incentive Payout Percentile Distributions4  What: Range of incentive payouts across incumbents by percentile.  Purpose: Examine pay discrimination and assess upside opportunity.
  • 31. © 2013 The Alexander Group, Inc.® 31 C) Quota Performance Distributions4  What: Performance distribution across incumbents.  Purpose: Assess the effectiveness of the goal-setting process and compare performance range and shape with best practice distribution.
  • 32. © 2013 The Alexander Group, Inc.® 32 D) Quota Size Correlation Scatter Plots4  What: Effect of quota size on target achievability.  Purpose: Assess the effectiveness of the goal allocation process and need varied accelerator structures based on quota size.
  • 33. © 2013 The Alexander Group, Inc.® 33 E) Quota Performance Percentile Distributions4  What: Range of quota performance across incumbents by percentile.  Purpose: Assess current threshold and excellence levels; determine percent of incumbents above and below target performance levels.
  • 34. © 2013 The Alexander Group, Inc.® 34 Illustrative Market Data  Plan Type  Sales Incentive Plan  Mgmt. Incentive Plan  Profit Sharing  Pay Levels  Pay Mix  New Hire Practices  Excessive Payout Practices 5  Measures  At-Risk  Add-On  Linked  Pay Curve  Thresholds  Excellence  Caps  Formula / Calculation Methodology  Performance Period  Payout Frequency  Crediting Rules  Policies  HR Changes  Quota Changes  Cost Metrics  Plan  Administration  Administration  Tool  FTE  Ticket  Accuracy Rate  Processing  Communication Plan Data at Job Measure Level Data Program Data
  • 35. © 2013 The Alexander Group, Inc.® 35 Analyze All Plan Design Components Plan Design Components  Pay Mix  Performance Measures/Weights  Plan Mechanics (Bonus, ICR, etc.)  Payout Curves & Rates  Thresholds  Excellence Points  Upside/Leverage  Caps  Linkages, Hurdles  Performance Period  Payout Frequency  Add-on Bonuses  Sales Quota Crediting Sample Plan Component Analysis 5
  • 36. © 2013 The Alexander Group, Inc.® 36 Illustrative Market Alignment Comparison Aligned w/ Market Minor Misalignment w/ Market Major Misalignment w/ Market To Be DeterminedLegend: Plan Component Market Comparison Comparison Details Pay Mix • Pay mix is on par with benchmark companies Measures • Benchmark companies use between 2-3 measures, including linked metrics Mechanics • All benchmark companies use a quota based mechanic # of Pay Curves • More pay curves than benchmark companies Thresholds • Most benchmark companies pay from the first dollar Payout Limits • Most benchmark companies do not use a deceleration rate and/or cap Leverage • Equal upside opportunity than the benchmark companies Excellence • Calculated excellence points appear aligned to market Pay Curve • Rates >100% are below average relative to benchmark companies Performance Period • Most benchmark companies use annual performance period Payout Frequency • Most benchmark companies provide monthly payouts Calc. Methodology • Most companies use cumulative methodology; some use cumulative-period-to-date Crediting • Sales crediting at bookings aligns; however shipment/invoice payment credit does not Key areas of misalignment include # of accelerator rates, the rates and crediting. Summary Benchmark Findings AM Overall Comparison 5
  • 37. © 2013 The Alexander Group, Inc.® 37 Investment ROI Communication Administration Governance and Process Attract, Retain and Reward Sales Resources To Drive Sales Results Eligibility Pay Levels Pay Mix Leverage Measures Mechanics & Pay Curve Perf & Payout Periods Strategy & Job Alignment Sales Force Motivation Pay for Performance 1 2 3 1 2 3 4 Quotas/ Targets Special Incentives Crediting & Policies 1 2 3 4 5 6 7 8 9 10 Illustrative Assessment Using the Framework = Working Well = Minor Area for Improvement = Major Area for Improvement Component Guidelines Execution Principles Goal
  • 38. © 2013 The Alexander Group, Inc.® 38 AGI’s Sales Compensation Services Sales Compensation Process Design and Optimization2 Sales Compensation Design Principles3 Sales Compensation Scorecard4 Sales Compensation Benchmarking5 Surveys / Custom Studies6 On-Going Advisory Services7 Plan Design1
  • 39. © 2013 The Alexander Group, Inc.® 39 Closing Remarks  Convene a design team with the right stakeholders  Develop a work plan of activities and events – typical process takes 8-12 weeks depending on # of jobs & payees and degree of change  Develop a scorecard to assess your overall program and drive continual improvements The difference between an average program and a best-in-class program can drive .5% - 5% difference in sales results. Don’t miss your opportunity to leverage one of the most powerful levers the sales organization has to drive results!
  • 40. © 2013 The Alexander Group, Inc.® 40 Great sales organizations add value to the products they sell The 2013 Chief Sales Executive Annual Forum will recognize the value creators - select companies and sales leaders with the creativity, agility and foresight to build and execute a value centric growth strategy around the unique capability of the sales force. We will explore in detail both the leadership elements and tactical dimensions of their approach. The 2013 Chief Sales Executive Annual Forum is for top sales executives who are charged with launching a value centric growth strategy and building a sales organization to support their sales growth objective. As a sales or sales operations leader, you will have the opportunity to: • Test your thinking on how to instill value in your sales force • Compare yourself with skilled value creators • Learn new approaches to address specific value challenges www.alexandergroup.com/events/cse-annual-forum Executive Level Networking Facilitated Roundtables Keynote Sessions St. Regis Monarch Beach, CA November 11-13
  • 41. © 2013 The Alexander Group, Inc.® 41 Questions?
  • 42. © 2013 The Alexander Group, Inc.® 42 Rachel Parrinello Principal, Sales Compensation Practice 415-276-5664 rparrinello@alexandergroup.com Please contact either of us for any additional information or questions. Paul Vinogradov Vice President 415-276-5670 pvinogradov@alexandergroup.com