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Are You Paying For Performance? How to Measure Sales Compensation ROI
 

Are You Paying For Performance? How to Measure Sales Compensation ROI

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How do best-practice firms figure out whether they are getting an adequate return on sales compensation investments? By measuring and managing correlation between their sales forces’ performance ...

How do best-practice firms figure out whether they are getting an adequate return on sales compensation investments? By measuring and managing correlation between their sales forces’ performance and pay. In this archived webinar, Sal DiFonzo and Mike Rose review several commonly used sales compensation analysis tools that quantify sales compensation plan effectiveness.

Using a case study, including performance and compensation data from a sales organization considering sales compensation plan revisions, they illustrate how easily adaptable analysis tools can reveal important pay plan strengths and weaknesses. Among the topics covered are: how to define incentive compensation plan effectiveness; the importance of correlating pay and performance; measuring incentive compensation plan effectiveness; and implications for incentive compensation plan changes.

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    Are You Paying For Performance? How to Measure Sales Compensation ROI Are You Paying For Performance? How to Measure Sales Compensation ROI Presentation Transcript

    • Are You Paying for Performance? How to Measure Sales Compensation ROI
      Mike Rose
      Infotensity
      Sal DiFonzo
      Upside Solutions
      October 1, 2009
      © 2009 The Sales Management Association
    • The Sales Management Association
      Visit Us Online at www.salesmanagement.org
      A global, cross-industry professional association for sales operations and sales management.
      Focused in providing research, case studies, training, peer networking, and professional development to our membership.
      2
      Copyright © 2008 - 2010 The Sales Management Association. All rights reserved.
    • ContentsToday’s Presentation
      • Defining incentive compensation plan effectiveness
      • Correlating pay and performance
      • Measuring incentive compensation plan effectiveness
      • Implications for incentive compensation plan changes
      3
      © 2009 The Sales Management Association
    • Case Study
      • Technology company with history of rapid growth
      • Three month project completed in January 2009
      • Analyze the company’s pay according to the standard methodologies used for high-performance sales forces
      4
      © 2009 The Sales Management Association
    • Case Study
      CurrentSituation
      • Growth rates beginning to decelerate
      • Organizational road blocks
      • Technical support reporting to sales
      • Sales does not have time to manage technical resources
      • Technical support consumed with clerical activities
      • Senior management determined that the cost of sales was too high
      5
      © 2009 The Sales Management Association
    • Case Study
      CurrentSituation
      • Pay Data for 2008
      • Salary
      • Total Field Sales
      • Field Bonus
      • Extra Bonus
      • Performance Data for 2008
      • Quota Achievement
      • Quota size
      6
      © 2009 The Sales Management Association
    • Sales Incentive Compensation Principles
      • Normal distribution of performance – The Bell Curve
      • Healthy sales forces exhibit a normal distribution of performance
      • High-performance sales organizations exhibit a high correlation between pay and performance
      © 2009 The Sales Management Association
    • Sales Incentive Compensation Principles
      • Threshold = 10th Percentile = 70% Goal Achievement
      • Target = 30th Percentile = 100% Goal Achievement
      • Excellence = 90th Percentile = 120% Goal Achievement
      8
      © 2009 The Sales Management Association
    • Hypotheses
      • Pay and performance follow normal distributions
      • Pay is highly correlated to performance
      9
      © 2009 The Sales Management Association
    • Analysis and Observations
      Total Incentive Compensation
      • On average, Field Sales account for 62% of Total Incentive Compensation
      • The allocation of payments shows where sales reps earn their income. Do payouts match the component weightings in the sales compensation plan?
      10
      © 2009 The Sales Management Association
    • Analysis and Observations
      Pay vs. Performance
      Q3 shows a weak correlation between pay and performance
      Q3 Attainment vs. Payout
      Named Account Manager
      11
      © 2009 The Sales Management Association
    • Analysis and Observations
      Pay vs. Performance
      No relationship between quota attainment and quota size is ideal
      12
      © 2009 The Sales Management Association
    • Recommendations
      • Emphasize the connection between pay and performance
      • Investigate reasons for under performance
      • Understand causes for weakening pay vs. performance correlation
      • Examine quotas for equity issues
      • Change compensation plan accordingly
      13
      © 2009 The Sales Management Association
    • Sales Compensation Design Outcomes
      • Preserved the earnings opportunity for high performers in a higher quota environment
      • Offered middle performers an extra incentive to achieve target by offering “The Money Zone” at 100% revenue and gross margin achievement
      • Significantly reduced earnings opportunity for low performers
      14
      © 2009 The Sales Management Association
    • Appendix: Pay Mix
      • The pay mix is the ratio of base salary to incentive at risk, expressed as a percentage of target pay
      • For example, a “75/25 plan” features 75% of target pay in base salary and 25% in incentives
      • Degree of influence determines pay mix
      • High influence means low base, high risk
      • Average business to business sales person in U.S. has a pay mix of 70/30
      15
      © 2009 The Sales Management Association
    • Appendix: Leverage
      • Leverage is also known as “upside”
      • Leverage represents the number of dollars available at excellence for every dollar earned at target
      • The dollars earned at excellence should approximate the 90th percentile of the labor market
      • “Two for One” is a common rule
      • For example, a 70/30 pay mix results in an additional “two more thirties” or two times target incentive at excellence
      • Excellence is defined as the 90th percentile of performance
      • For some situations the 90th percentile is 110%
      • In other situations the 90th percentile is 150%
      • Depends on how difficult it is to achieve goal
      16
      © 2009 The Sales Management Association
    • Learn More
      The Sales Management Association
      This abridged presentation is provided as a preview.
      Our members may download slides and view archived webcasts of this material. Find out more and consider joining the Sales Management Association: www.salesmanagement.org
      17
      Copyright © 2008 - 2010 The Sales Management Association. All rights reserved.
    • About The Sales Management Association
      www.salesmanagement.org
      The Sales Management Association is a global professional association for sales management and sales operations. The SMA fosters a community of interest among sales force effectiveness thought leaders, consultants, academics, and sales management practitioners across many industries.
      Through training workshops, online resources, and research materials, The SMA addresses the management issues of greatest concern to members. The SMA’s focus areas include management leadership, sales force performance coaching, sales planning, sales process management, enabling technologies, incentive compensation, and sales force support.
      Copyright © 2008 - 2010 The Sales Management Association. All rights reserved.