Tips on selecting metrics for sales incentive plan design purposes. Use of quantitative and qualitative measures. Impact of pay communication on sales employee engagement, and use of performance management and employee appraisal as a channel for these conversations.

1. MEASURING THE
PERFORMANCE OF THE
SALESFORCE
Sandrine Bardot – CompensationInsider.com

2. Agenda
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Background
Quantitative performance measures
Qualitative performance measures
Implementation
Sales employee performance appraisal
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3. 3
Background
Linking design to company strategy
Driving behaviours through the Sales Plan
What's necessary to set proper objectives
What can go in the way of good metrics selection
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4. Sales compensation vs sales budget
4
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5. Linking design to company strategy
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Source : CLC
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6. Driving behaviour through the Sales
Plan
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Main objectives are growth and/or profitability
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Typical internal / employee focused objectives :
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Differentiate high and low performers, manage the latter
out
Ensure external and internal pay equity
Reduce sales administration burden
Skills acquisition
Communication corporate strategies
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7. What’s necessary to set proper
objectives
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The sales incentive plan does not exist in a
vacuum
Address the structure of the sales department
before making any investment in technology
Define outstanding performance
Quality, easily traceable data
Simplicity of design and low number of objectives
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8. What can go in the way of good
metrics selection
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Not recognising the differences in roles
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No good IT and reporting
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Ignoring marketing seasonality, promotions etc
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Not understanding crediting rules and other
reporting realitines
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9. 9
Quantitative performance
measures
Measures
Mechanics
Payout calculations
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10. Quantitative performance :
measures
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4 categories of Sales measures :
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Production (volume) : revenue
(total, new, renewal), price, margin…
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Products (including services) : units sold, product
mix, up-selling, product introduction…
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Accounts (customers, channels) :
new, retained, expanded, satisfied…
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Milestones (events & activities) : threshold
achievement, contract sign-up
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11. Quantitative performance :
mechanics
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Profit-funded bonus pool ?
YTD versus annual quota or seasonality impact and
quarterly quota ?
Thresholds
Hurdles
Sales elasticity variation (hunters or farmers)
Accelerators (additive or multipliers)
Caps or ceilings (if any, hard or soft)
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12. Design elements :
Payout calculations
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Payout frequency
Payout curve : straight line, exponential, stair step, Scurve…
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Will you allow draws ?
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If so, recoverable or not ?
If recoverable, is year-end payout calculated on each
performance measure separately or together ?
What is used for revenue calculation ?
How do you manage
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Windfalls and exceptions
Multiple crediting / double booking (geographic vs major account)
Multi-year agreements
Newcomers...
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13. 13
Qualitative performance
measures
Best practice on choice of measures categories
The debate
Linkage to quantitative targets
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14. Best practice on choice of measures
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Performance measures
Description
Number of metrics
2 -3
Most common metric
76% of companies
Revenue-based
Revenue, volume…
61% average relative weight
2d most common metric
39% of companies
Profit-related
EVA, contribution…
18% average relative weight
Final metric (10-20% of objectives)
Qualititative or customer centric
CS, new account, skills acquisition….
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15. Qualitative performance :
the debate
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“Hard” measures
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Direct impact on
company results
Pay at risk, upside
potential and funding
models require hard
measures for fairness
Soft measures tend
towards stable pay
outcome despite
performance
fluctuations.
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“Soft” measures
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Useful in tough
economic times
(recognition, retention)
Especially adapted to
long sales cycles
The end does not justify
the means. Officialise
company focus on
“good” behaviours vs
“bad” ones.

16. Qualitative performance :
linkage to quantitative
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Shift from purely sales results-driven
incentives
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Incorporate other performance metrics :
 Incentive
pay factors
 Modifiers (hurdle, accelerator, matrix)
 Additional incentives
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17. 17
Implementation
Goal setting
Modeling and deploying the plan
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18. Goal setting
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Cascade of objectives :
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Sales manager quota ≥ sum of ICs objectives
Alignment :
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VP on booking vs sales execs on shipping =>
discrepancies in achievement and payment
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Measurable, aggressive yet realistic objectives
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Define degree of freedom at individual and team
level for goal setting
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19. Modeling and deploying the plan
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Test against historical results
 Model the plan at the individual and overall level
 Test concepts with small group of proven
performers
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Create a scalable process
Ensure accurate incentive compensation and easy
plan administration
Write careful plan documents
Include tools (data, self-service, analytics)
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20. 20
Sales employee performance
appraisal
Influencers of employee commitment
Employee appraisal and the sales force
Sales managers and pay communication
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21. Influencers of employee commitment
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Formal plan communication
22%
How organisations pay
Sales incentive
satisfaction
Manager communication
48%
How organisations communicate about pay
Process fairness
perception
Actual fairness of pay
distribution
64%
Employee commitment
57% higher vs effort of strongly not committed
Source : CLC
Discretionary effort - Impact on company results
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22. Employee appraisal for the sales
force
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Line managers own motivation and development of sales
team
Classic of employee performance management :
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Self-appraisal for reflection on results, values, and career goals
Assess competencies and behaviours, perform skills gap
analysis and implement a development plan
Establish pay raise and promotions opportunities, sanction nonacceptable behaviours
Establish bridges / de-silo sales from rest of the
organisation through a common process
Relationship building and retention
For company, identification of future sales
managers, adaptation of training, coaching ,and “internal”
on-boarding processes.
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23. Sales managers and pay
communication
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At least 2 discussions per year (+23% fairness
perception)
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Clarify the relationship between pay and
performance
Performance criteria
 Bonus criteria
 Pay criteria
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Cover pay potential
Promotion timeline
 Compensation growth potential
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24. Recap - a comprehensive approach
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• Clear goals and strong line of sight
• Clear payment opportunity
• Main recognition tool for the sales force
• An on-going conversation based on feedback
• Opportunity for development plan
• Basis for career decisions
• Somewhat spontaneous
• On-going, timely delivery
• Meaningful but modest reward value, if any
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25. Example one
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Selling products on a short sales cycle :
 Variable
pay = 1.5 fixed pay
 Base salary according to position
 Monthly quantitative “commission” based mostly
on revenue and margin
 Quarterly bonus based on “quality” of sales
(product mix, regularity of sales, visits follow-up)
and “job competencies”.
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26. Example two
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
Selling solutions to long-term customers :
 Annual
bonus paid with 3 quaterly advances
 Based on Revenue, New
Business, Retention, Customer Satisfaction, and
Other Objectives
 Percentage of on- target varies according to
position (15 to 45%)
 Sales
support get the regular bonus, “adapted” to
reflect their role in the sales process.
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27. Free resources from my blog
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http://compensationinsider.com/analyse-my-sip/
http://compensationinsider.com/why-am-i-not-on-thesales-incentive-plan/
http://compensationinsider.com/why-the-sales-directorhas-less-on-target-incentive-than-the-sales-people/
http://compensationinsider.com/prospecting-or-existingcustomers-what-do-you-focus-on-in-your-salesincentive-plan/
http://compensationinsider.com/a-dinosaur-in-dubai/
Recommended reading : Compensating the Sales
Force by David Cichelli
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28. Thank you !
28
+971 566 172 864
Sandrine@Compensationinsider.com
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