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The Strategic Sales Incentive Plan Audit: Put Away Your Calculator


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presented by Brad Hill of Tandehill Human Capital at the TrueConnection 2008 Sales Performance Management Conference, hosted by Callidus Software

Published in: Economy & Finance, Business

The Strategic Sales Incentive Plan Audit: Put Away Your Calculator

  1. 1. TandehillHuman Capital, A A Human Resources and Pay-for-Performance Consulting Firm Tandehill Human Capital, Human Resources and Pay-for-Performance Consulting Firm The Strategic Sales Comp Audit Put away your calculator Brad Hill Tandehill Human Capital
  2. 2. Typical Audit Objectives. . . • Pay at market. • Reward high performers enough. • Create normal distribution of payouts. • Penalize low performers. … and an awful lot of number crunching Strategic Sales Compensation Audit 2
  3. 3. How Should The Compensation Program. . . • Keep score of employee success? • Raise employee competence? • Improve selling processes? • Make success desirable? • Harness employees‟ discretionary effort? Strategic Sales Compensation Audit 3
  4. 4. Your Audit Objectives. . . • Are you defining „success‟ with the right metric(s)? • Are you rewarding the right competencies? • Are you incenting the best sales process? • Have you created line of sight to success? • Are you communicating sales successes? Study success from every angle Strategic Sales Compensation Audit 4
  5. 5. 1. Defining Success • Brainstorm all possible metrics • Create three incentive plan design alternatives  Overview  Sample calculation  Advantages/disadvantages • Present to the sales force • Develop final recommendation • Present to the sales force Strategic Sales Compensation Audit 5
  6. 6. 1. Defining Success Financial Metrics Qualitative Metrics Gross Margin $ Cross-Selling Gross Margin % Customer Satisfaction Market Share Milestones Product Sales New Products Revenue # New Accounts Sales Growth # Meetings with Propects Days Receiveables Up-Selling Outstanding Strategic Sales Compensation Audit 6
  7. 7. 1. Defining Success • There are lots of great metrics- stick to 1, 2 or 3. • The incentive plan is not a job description- it‟s a mechanism to keep score of achieving this year‟s most critical goals. • If your primary goal is qualitative (customer satisfaction) you need a financial counter-measure. • Get employee buy-in into the selected metric(s). Strategic Sales Compensation Audit 7
  8. 8. 2. Identifying the Right Competencies • Study your top performers. • What makes them different? • Structure your findings  Interpersonal skills, financial acumen, technical knowledge, planning & organization, self direction, results orientation, customer orientation • Base pay rewards should recognize the growth in these competencies. Strategic Sales Compensation Audit 8
  9. 9. 2. Star Performers Deliver What a Top Sales Performer Delivers Hay Group Case Study of 44 Fortune 500 Firms Average Annual Sales Volume $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Top 10% Average Ranking in Sales Force Strategic Sales Compensation Audit 9
  10. 10. 2. Articulating the Competencies Influence Skills Listening Expressing ideas in a way that generates the support and enthusiasm of Attending and being open to the communication of others. Listening is conveying interest and others without appeal to position or authority. understanding in the speaker’s words and non-verbal cues. Competency Scale Competency Scale Elements include (1) type of actions taken to influence others and (2) breadth Elements include (1) being approachable and (2) attending to and remembering what others of impact. have said. -1. Is hostile and unapproachable. Views others as beneath them. Makes no -1. Intimidates others; is closed to input. Regularly interrupts or adds inappropriate comments attempt to influence others. when listening. 0. Gives others the opportunity to speak, but provides few cues to the speaker that they are 0. Doesn’t take a position. Appears uninterested. being heard. Appears distracted or uninterested. 1. States a position, or gives simple arguments for the adoption of ideas. Presents ideas in own terms, with little apparent sensitivity to the needs or interests of the audience. Takes no further action when initial presentation 1. Shows interest when approached. Follows the speaker’s train of thought. May occasionally meets resistance. add comments that indicate understanding. 2. Attempts to demonstrate the advantages of a particular idea, process, 2. Views listening and understanding as part of the job. Asks questions or makes comments to service or product. May provide additional information when requested. clarify or confirm what the speaker is saying. 3. Considers audience needs and interests in preparation for a presentation or proposal. Anticipates basic responses, including arguments against or other 3. Encourages others to share their ideas, opinions or feelings. Probes to elicit additional resistance. Uses appropriate techniques to respond to resistance. Is regarded information. Often interprets non-verbal cues and makes observations designed to clarify as moderately persuasive. understanding. 4. Is usually able to rally support for their perspective. Develops a plan, 4. Is recognized as someone who actively solicits input from a variety of viewpoints. Listens accounting for major factors (audience, business climate, etc.), and uses a actively and conveys appropriate emotions. Contributes insightful comments or questions that variety of techniques or tools to persuade others to adopt a particular idea, help clarify meaning, and often make the speaker feel valued. Tunes into the speaker’s state process, service or product. of mind by attending to non-verbal cues. 5. Is consistently able to gain the support of others by appealing to their needs, positions and concerns. Creates a complex approach to influencing 5. Personifies expert listening skills and is an advocate for openness and listening at all levels others, based on a knowledgeable consideration of audience, business and of the organization. Gives others their full attention, demonstrating a genuine respect for the organizational context, likely responses or resistance and replies to speaker’s input and perspectives. Goes beyond the verbal message, carefully tuning in to the objections. Is recognized as someone who helps shape the course of events non-verbal cues to extract additional meaning. Uses discovery techniques to clarify meaning and make things happen. and uncover unexpected ideas and insights from the speaker. Strategic Sales Compensation Audit 10
  11. 11. 2. Why Pay for Competencies? Sales Performance Comparison - Average Size of Each Sale Made Case Example -- A Premier Financial Services Firm Average Revenue per Sale +248% 3.5 +101% 4 2.5 Company 3 Average 1.5 2 0.5 1 5 or more 4 3 or less Number of Demonstrated Competencies 0 Strategic Sales Compensation Audit 11
  12. 12. 3. Profiling the Best Sales Process • The best sales process is the one that increases the likelihood of achieving this year‟s plan. • It will be different if you are focusing on sales to new versus existing customers. • Help the sales force understand your goals by detailing how the sales process should be different this year. Strategic Sales Compensation Audit 12
  13. 13. 3. Profiling the Best Sales Process LY # of Contact Return on Customer Type Industry Actual Potential Plan Calls Hours Investment Target Prospect Account O Automotive $ - $ 5,000 $ 100 24 48 $ 2.08 Target Prospect Account U Automotive $ - $ 5,000 $ 50 24 48 $ 1.04 Target Prospect Account U Automotive $ - $ 3,000 $ 100 24 48 $ 2.08 Target Prospect Account O Food & Beverage $ - $ 2,500 $ 50 48 48 $ 1.04 Target Prospect Account O Food & Beverage $ - $ 3,000 $ 50 36 72 $ 0.69 Target Prospect Account O Food & Beverage $ - $ 4,000 $ 100 48 96 $ 1.04 Target Prospect Account U Food & Beverage $ - $ 3,000 $ 25 36 72 $ 0.35 Target Prospect Account U Food & Beverage $ - $ 5,000 $ 25 36 36 $ 0.69 Target Prospect Account O Material Handling $ - $ 2,000 $ 50 48 96 $ 0.52 Target Prospect Account O Material Handling $ - $ 2,000 $ 50 48 48 $ 1.04 Target Prospect Account O Material Handling $ - $ 2,000 $ 50 48 48 $ 1.04 Target Prospect Account O Machine Tool $ - $ 1,000 $ 50 48 96 $ 0.52 Target Penetrate Account U Japanese Automotive $ 25 $ 500 $ 50 24 48 $ 1.04 Target Penetrate Account U Japanese Automotive $ 50 $ 250 $ 50 24 24 $ 2.08 Target Penetrate Account O Japanese Automotive $ 25 $ 250 $ 50 24 12 $ 4.17 Target Penetrate Account O Machine Tool $ 50 $ 250 $ 100 24 12 $ 8.33 Target Penetrate Account O Building Automation $ 25 $ 200 $ 100 24 12 $ 8.33 Target Penetrate Account O Building Automation $ 25 $ 250 $ 50 24 12 $ 4.17 Target Penetrate Account O XA $ 100 $ 500 $ 150 24 24 $ 6.25 Target Penetrate Account O XA $ 100 $ 500 $ 150 24 24 $ 6.25 O Target Existing (Perpetuate) Account XA $ 500 $ 500 $ 250 12 6 $ 41.67 O Target Existing (Perpetuate) Account Printing $ 150 $ 200 $ 150 12 6 $ 25.00 O Target Existing (Perpetuate) Account Packaging $ 150 $ 200 $ 125 12 24 $ 5.21 O Target Existing (Perpetuate) Account Plastics $ 100 $ 200 $ 90 8 8 $ 11.25 O Target Existing (Perpetuate) Account XA $ 100 $ 200 $ 90 8 4 $ 22.50 $ 1,400 $ 41,500 $ 2,105 712 972 $ 2.17 Strategic Sales Compensation Audit 13
  14. 14. 3. Profiling the Best Sales Process • The best sales process should be described. • The best sales process should clearly contribute to success as defined by the incentive plan measures. • The „best‟ sales process is based on this year‟s goals and this year‟s knowledge- it should change and evolve with your business. Strategic Sales Compensation Audit 14
  15. 15. 4. Creating Line of Sight • For an incentive plan to be successful, each employee must know how their actions impact the result. • You have two choices. 1. Drill the metrics down to the employee level (creating 427 different plans and forcing you to hire a department of metric development and maintenance). 2. Ratchet up the employee‟s understanding of a broader metric by creating a “personal impact map.” Strategic Sales Compensation Audit 15
  16. 16. 4. How to Connect Employees to the Formula 1. Start with 2. Identify critical 3. Identify organization actions that affect performance key measure performance drivers Receivables drivers Optimize Inventory Assets Competitive Property, Plant & Equipment Pricing Other Investments Reduce Materials Profitable Costs Growth Labor Deliver On Time Overhead Customer Satisfaction Deliver a Quality Product Be Responsive Support Customer Initiatives Strategic Sales Compensation Audit 16
  17. 17. 4. How to Connect Employees to the Formula 1. Extend from 2. Break into team and individual focus areas organization actions Share underutilized equipment (e.g., printer with another unit) Better Defer equipment expenditure Equipment Usage Borrow equipment Reduce Lease equipment on short-term basis Property, Plant & Equipment Turn in unused equipment (e.g., printers, laptops, microfiche machines, etc.) Inventory equipment from PP&E list and Equipment identify excess/unused items Not Used Find secondary markets for unused equipment Check with other divisions for possible transfer of unused equipment Strategic Sales Compensation Audit 17
  18. 18. 4. Personal Impact Map ... Sales Growth Promptly calling for backup and promptly responding. Check availability on unfamiliar, odd products before customer leaves (RX). Wait Times Give customer more accurate time-frame on RX & Photo. Call customer if late. Customer Employee Accessibility Cashier close to front door, acknowledge customers as they enter. Service Checking out – Did you find everything OK? Be on the floor as much as possible. Customer Acknowledgement 5 Foot Rule - Approach customer “Can I help You?” Eyes, hi’s, and help. Aim Checklist Properly scanning items, I.e., 2 different Revlon lipstick colors. Sales & Refunds done properly. Stock Supply on Floor Bring out of stock, overstock, and out of season product issues to managers attention. Reorder Outside merchandise in the RX. Sales Easy to Locate Communicate ideas to manager & corp. Cross merchandising – Q Tips. Growth Clean Store Bathrooms - clean / stocked Parking lot / trashcans Entranceway Carpets Spill Facing Shopability Clear Aisles Restock Shopping Carts Baskets Notice devastated areas. Take initiative to face without being asked. Faced Products Keep RX faced because customers can see in the RX too. Help FS I.e., RX Checkout. If you notice a sign that is not clear, correct it. Sales Item Signage If you notice an item is scanning incorrectly, price modify, and remove incorrect sign. Notify pricing department. Merchandising “Hot Item” Visibility Ensure sale end caps are fully stocked at all times. Individual Product Accountability Make sure your immediate area is neat, clean, and stacked, I.e., cashier ringing would fill candy and top of checkout. Photo lab tech would check film, top of checkout. Community Employee Visibility Encourage employees to get involved in charity or volunteer program (hospital, retirement, 5K). Involvement CVS Visibility Work with corporation or request grants to your charity / programs. Strategic Sales Compensation Audit 18
  19. 19. 7 th Inning Stretch Strategic Sales Compensation Audit 19
  20. 20. 5. Communicating Successes • Forget industry stories and best practices- create your own. • Don‟t bring in outsiders to train your reps, have your best reps do the job. • The most credible and applicable success stories are the ones that occur within your organization. • Share the tips and traits of your recent successes. Strategic Sales Compensation Audit 20
  21. 21. 5. Communication Motivates 78% of companies Communication Effectiveness is Linked to Motivational Value that thought the pay „information 80% shared‟ was very 70% effective, felt the 60% pay plan was 50% motivational 40% 30% 20% 10% 0% Not EffectiveMarginally Effective Very *2003 Loyola/World at Work research Effective Effective Com m unication Success/Motivational Value Strategic Sales Compensation Audit 21
  22. 22. 5. Communication Effectiveness How would you rate the effectiveness of the information shared about pay? 70% 60% 50% 40% 30% 68% of employees 20% do not feel pay 10% communications 0% Effective Marginally Effective Effective Effective are very effective Very Not Level of Effectiveness * Loyola/World at Work research Strategic Sales Compensation Audit 22
  23. 23. 5. Communicating Performance • Yes, the check is a powerful communicator. • But, the reasons behind the check are educational. • What are the three things the rep did well that contributed to the large check? • What are the three things the rep did poorly that led to the small check? Strategic Sales Compensation Audit 23
  24. 24. Parting Thoughts • Cost of sales trumps cost of labor- forget about market data, you have more important work to do. • Without employee buy-in your plan is doomed. • You can pay for performance without motivating higher levels of performance. • First define sales success, then focus on the sales processes and competencies that drive success. • The big gains are generated by lifting up the entire sales force. Strategic Sales Compensation Audit 24
  25. 25. Question #1 The key to incentive plan success is. . . a) Getting the formula right. b) Modeling the plan under different scenarios. c) Motivating the right kind of behaviors. d) Punishing poor performers. e) Rewarding your top performers. Strategic Sales Compensation Audit 25
  26. 26. Question #2 The most important party to buy-in to the plan is … a) Company leadership. b) Sales leadership. c) Plan participants. d) Human resources. e) Finance. Strategic Sales Compensation Audit 26
  27. 27. Question #3 Achieving optimal incentive plan ROI will come from. . . a) Getting high performers to improve 10%. b) Taking pay from low performers and giving it to high performers. c) Getting low performers to improve 25%. d) Improving everyone‟s selling processes and competencies. e) Setting a reasonable cap. Strategic Sales Compensation Audit 27
  28. 28. Tandehill Human Capital • Tandehill Human Capital is a Chicago-based human resources consulting firm founded in 2003. • Tandehill is dedicated to creating programs and processes to maximize the motivation and productivity of employees, managers and executives. • Our consultants have an average of 20 years of consulting experience, working with companies such as Aldi Foods, General Electric, Goodrich, Nucor Steel, Panera Bread, St. Joseph Health System, Square 1 Bank, Toyota, Tulane University and Verizon. • Tandehill‟s Mission is to improve business performance by: – 1) increasing your return on investment in employee pay, and – 2) providing employees with a sense of purpose in their work. Strategic Sales Compensation Audit 28
  29. 29. Contact Information Tandehill Human Capital 29 West 560 Point Oak Drive Warrenville, IL 60555 630.836.0895 Strategic Sales Compensation Audit 29