1) Compensation of sales managers often focuses too heavily on short-term incentives and lacks balance with long-term objectives. 2) There is an opportunity to simplify sales compensation plans by increasing the frequency of performance-linked targets and goals, using clear earning tables, and improving communication. 3) Organizations should consider balancing short and long-term goals in compensation, using a balanced scorecard approach to performance management, and enhancing recognition of sales staff.

1. REWARDS 2010 SPECIAL
No more
per sale . • •
Compensation of sales managers has always
attracted debates like a magnet. K.S. Kumar,
Executive Vice President, Human Capital,
Fullerton India, offers certain parameters to
put all arguments to rest
Dangling the proverbial carrot is a skill that sales man-
writing desk?" in Alice in the Wonderland, I agers vie to attain excellence in and sales compensation
"Like couldn't help thinking that the usual approach
to Sales Compensation often makes Sales staff
ask this question - "How "Why performance linked
the Mad Hatter's is my is a raven like a
to my compensation?" And for most, the answer is similar
is heavily biased by this philosophy. The key objectives of
sales compensation should be:
To drive higher sales measured most often in units of
sales in order to create good performance and sus-
to the Mad Hatter's response: "I haven't the slightest idea!"
tained growth over the long term.
In a sales organization, a discussion on sales compen-
To promote customer stickiness by cross selling addi-
sation is usually a discussion based only on the incentive
tional products with product wise thresholds.
plan! The typical approach is to set the fixed pay closer to
the median of the market with incentive as the avenue to To create guidelines and rules that prevents staff from
"gaming" the system.
attain better mark-to-market percentile positions. The ratio
To drive prudent credit decisions in case of financial
of fixed pay to variable is sometimes at a low of 80:20 and
services with hold backs of payments earned.
sometimes as high as 40:60. Most managers desire to
To drive higher participation in the incentive plan
automatically weed out underperformers through lower
compensation and keep their performers on their toes Unfortunately, the intention to be comprehensive, bal-
always with a significant variable element. Depending on ance all products, set detailed guidelines and encourage
the industry or the product, incentives are mostly paid participation often ensures that many plans suffer from
out monthly or quarterly and occasionally half-yearly. the following issues:
Annual payments are rare for field staff but seen as a Targets set at the head office and assigned to region-
practice for regional sales roles as annual payments end al/local offices out of sync with actual potential.
up being considered as a bonus and runs counter to the Complex plans with too many targets - thresholds are
philosophy that reward should be as close to the actual either easy and do not change behaviour or too hard
performance to be effective and drive performance. Sales Contests over and above the incentive plan run
52 • People Matters· April 2010

2. to cover short term dips in performance in specific Balance Short Term & Long Term
products resulting in sudden increases in sales (often
with mis-selling) and drop in performance after the Parameters
contest - almost like withdrawal symptoms! Move the typical short term bias on objectives and targets
Managers goals often not aligned with the sales staff towards a balance between the short and long term. This
goals - objectives of profitability often conflict with needs to be clearly specified in goal sheets and shared
the 'more sales units' goals of the sales staff. through levels of management. The reward could be
Too many caveats leaving staff frustrated or unclear through a pre-defined amount as a bonus if long term pa-
on how much they will earn or lose. rameters are met. While this approach clearly puts mon-
If performance trend is below minimum threshold dur- ey behind the organizational objectives versus individual
ing a particular month, many stop trying. Once thresh- objectives, a defined sum could also promote retention.
old for earning is achieved, some stop trying to achieve
beyond the threshold and instead hold sales leads and Balanced Scorecard
postpone to next month to help attain the minimum.
Low performers continue in the system while strong Performance Management reviews tend to be an accu-
performers get disenchanted with the tougher targets mulation of monthly target achievement and people is-
and new rules. sues often don't get adequate focus.
High fixed variable ratios make As these reviews lead to the annual
financial coping difficult for the THERE IS compensation review, a balanced
strong performer who has a cou- scorecard approach with equal
OPPORTUNITY IN weightage to people, process, cus-
ple of bad months - the drop in
incentives hurt quickly and keep SIMPLIFYING AND tomer, business and financial goals
people on a constant treadmill. would be a useful method to temper
The economic downturn and the INCREASING THE sales at any cost. This will support
pressure on costs have made many both audit and team objectives, help
organizations review their sales FREQUENCY OF identify the individuals with poten-
compensation plans. Employers tial for sales and business manage-
PERFORMANCE LINKED ment and avoid making bad manag-
have had, on the negative side, to
deal with employees mis-selling re- COMPENSATION ers out of exceptional sales officers.
sulting in losses, lack of adequate
customer due diligence and outright TARGETS AND GOALS, Improved
fraud. In many companies, lower
sales across all sectors have auto- AS WITH ENHANCED Communication
matically lowered incentive earn- There is a huge opportunity in both
RECOGNITION & simplifying and increasing the fre-
ings. Coupled with higher inflation,
the lower earnings were a double TRANSPARENT quency of performance linked com-
squeeze for employees. pensation targets and goals. Consid-
As organizations try to address CAREER PATHS er replacing complex policy docu-
these issues, they have created ments and caveats with 'Earning Ta-
some new trends, which are: bles' which show the actual rupee
1. Balancing fixed and variable pay value that will be earned for every
with a bias to reduce the variable or 'at risk' pay. unit of performance. Clearly specify deductions or take
2. Organizations particularly in financial services hurt outs and leverage technology to keep employees in-
by the credit crisis are focusing more on 'responsi- formed on a daily basis if possible of where they stand on
ble selling' with an increased trend to back end part the earning table or what additional effort is required to
of the payments to be released after confirming that move to the next slab. Earning tables should be easy to
no mis-selling or poor credit performance has oc- understand and there should be no hesitation to put these
curred. on notice boards or to provide a sales compensation pay-
3. Tighter performance management metrics to ensure slip on a monthly basis just like a monthly payslips.
that sales plans are more closely intertwined with or-
ganizational objectives - a closer link with indicators
of profitability.
Enhanced Recognition
4. Reworked communication to ensure greater compre- It is often said that people join a company but leave their
hension. supervisors. Lack of recognition is often cited as a key
5. Increased focus on audit and due diligence of con- reason for disengagement and ultimately 'surfing the
struction and payments of Incentive Plans. thresholds' performance and attrition. Many organiza-
However there are clearly several ways to improve tions do a great job of a structured recognition program
overall sales management and align compensation more that transparently identifies/ classifies performers into
closely to longer term objectives. groups with clear benefits to graduate into the higher cat-
People Matters' April 2010 • 53

3. REWARDS 2010 SPECIAL
egory. One retail organization has a guaranteed over- organization linked to performance can be added. Reward
seas trip with recognition from the CEO for their 'Club a sales officer to remain a sales officer if that is what he is
100' each year. A pat on the back, an appreciation card, best suited for rather than try to make him a sales manag-
small awards, dinners, et ai, have a big impact when de- er and setting him up to fail. Some innovative methods
livered with a personal touch. have included a role specific retention of part of the monthly
incentive with a matching contribution from the Company
Transparent Career Paths that is paid out if the employee remains with the organiza-
tion for between three to five years. Another innovation is
and Development Plans share of branch level profitability on an annual basis pro-
Slightly obtuse perhaps, but better compensation can be vided one remains part of a particular branch for long.
delivered if a structured and transparent career path is In summary, the clear direction fuelled by the down-
published that allows employees to see what they need turn is a focus on responsible selling with rewards spread
to achieve both in terms of performance and skills to get over the lifecycle of revenue from the product with a balance
promoted to the next level in the organization. The next of audit and compliance. Recognition and developmental fo-
level should represent a higher compensation level and cus are useful non-cash high impact rewards that can help
with a clear enhancement of responsibilities that justify align heart and mind with the organizational objectives.share
the higher compensation. It is essential that these steps of branch level profitability on an annual basis provided one
are not just sales target achievement steps but include, remains part of a particular branch for long.
for instance, certified skills relevant to the next role like In summary, the clear direction fuelled by the downturn
managing through metrics, advanced product expertise is a focus on responsible selling with rewards spread over
and coaching for performance. Focused development by the lifecycle of revenue from the product with a balance of
design is often a cherished reward! audit and compliance. Recognition and developmental fo-
cus are useful non-cash high impact rewards that can help
align heart and mind with the organizational objectives. _
Design for loyalty and retention
Appropriate elements in the compensation structure K.S. Kumar is Executive Vice President, Human Capital, Fullerton India
that support retention both in the same role and in the
.
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