isbm webinar 10-08-09 v2 for download 0 [read-only] 08, 2009 · isbm membership – 2009; moving to...

10/8/2009

0

TM

“A Marketer’s Lens on the Role of Sales Incentive Compensation”

Arun Shastri & Chad AlbrechtZS Associates

WELCOME!ISBM Webinar Series

ISBM Mission

ISBM Since 1983...ISBM Since 1983...

…An industry-supported center of excellence; Headquarters at Penn State

OUR MISSION:

Expand research and teaching in business-to-business marketing and sales in academia…

Improve the practice of business-to-business marketing and sales for member firms in industry…

ISBM Membership – 2009; Moving to 100 (Capped) by 2010AgilentAir ProductsAlcoaAlfa LavalAnalog Devices ArkemaAT&TAvery DennisonBayerBrink’sBSN medical Ciba Specialty ChemicalsCisco SystemsConocoPhillipsCorporate ExpressCox BusinessDeloitteDow ChemicalDresser Inc.DuPontEastman ChemicalEka ChemicalsEthicon Endo-Surgery, Inc.ExxonMobil

FerroFin/Econ Partners FlowserveGallup OrganizationGEGraceGraingerGreif, Inc.GyroHSR LLCHoneywellIBMIndiumITTJohnsonDiverseyKennametalKimberly-Clark ProfessionalKodak’s Graphics Comm.LillyLonzaLORD CorporationMARKEMMonitor GroupNalcoNational Starch and Chemical

New PigNIST/MEPNOVA ChemicalsObjective Management GroupParker HannifinPly GemPPG IndustriesRespironicsRohm and HaasSabertSatmetrixSAVO GroupSherwin-WilliamsSiemensSwagelok3ComThilmany Ticona, LLCThe Timken CompanyUBSWESCO DistributionWestinghouseXeroxZS Associates 2

ISBM 2009 Upcoming Eventswww.isbm.org

Oct. 13, ISBM Environmental Sustainability Consortium, Wash. D.C.

Oct. 29, Webinar: Value-Driven Process Improvement: The Fifth P of Marketing, Dr. Reg Goeke

Nov 3-4, Segmentation Marketing, Dr. Robert Thomas, Wilmington, DE

Nov 19-20, Market Research for Business Markets, Dr. Abbie Griffin & Gerry Katz, Wilmington, DE

ISBM WebinarA Marketer’s Lens on the Role of Sales Incentive CompensationOctober 8, 2009

ZS Associates | 847.492.3600 | www.zsassociates.com

ISBM Webinar 10-08-09 v1.0© 2009 ZS Associates 5

Today’s Objectives & Agenda

Agenda Role of sales incentive compensation

relative to other sales force drivers

Ensuring focus on strategic products

Key concepts in the design of sales incentive compensation

Objectives of Today’s Discussion

Deliver insights on the role of sales incentive compensation in driving sales


Arun Shastri is the Managing Principal for ZS Associates’ Boston office. His experience is in helping clients address marketing and sales strategy issues across a wide range of industries. Arun co-leads the sales incentive practice for the B2B vertical at ZS. He holds a PhD from the Kellogg School of Management at Northwestern University.

Phone: 617.557.5811Email: [email protected]

Arun N. Shastri Managing Principal in Boston, MA

Today’s Presenters

Chad Albrecht is a Principal with ZS Associates in Evanston, IL. He co-leads the sales incentive practice for the B2B vertical and has worked with clients in several industries. Chad has helped create and implement motivational sales incentive plans, set fair and challenging sales goals and helped implement incentive administration plans. He has a bachelor’s degree in computer science from the University of Iowa and an M.B.A. from the University of Michigan


Chad Albrecht Principal in Evanston, IL


Introduction to ZS Associates

Role of Sales Incentive Compensation

Techniques to ensure focus on strategic products

Key concepts in the design of Sales Incentive Compensation

Conclusion

Agenda



ZS Associates is a global leader in sales and marketing consulting, capabilities building & outsourcing

BOSTON • CHICAGO • EVANSTON • FRANKFURT • LONDON • LOS ANGELES • MILAN • NEW DELHI • NEW YORK • PARIS • PHILADELPHIA • PRINCETON • PUNE • SAN FRANCISCO • SHANGHAI • TOKYO • TORONTO • ZURICH

A 25+ year old consulting firm specializing in sales and marketing – Consulting– Software– Outsourcing 1,200 professionals providing global service from 18 offices Worked with more than 1,000 companies across

65 countries and 25 industries Founded in 1983 by Andris Zoltners and Prabha Sinha of

Northwestern University’s Kellogg School of Management One of the largest Sales & Marketing consulting firms in the world


Scale Scope Expertise

ZS has a wide range of experience in incentive design and administration that spans multiple industries

Incentive compensation is ZS’s largest business area From simple sub-100 rep

sales forces to multi-team 7,000-rep sales forces Touches 100,000 sales reps

globally, including plan design, goal-setting, and plan administration ZS software and services

administer the incentive compensation plans for over 50,000 US sales personnel ($1.5B in payouts)

Wide range of program management services Design: Program & plan

design, goal-setting, contest design, communications, training, plan assessment & simulation, etc. Administration: Eligibility

management, payout calculations, reporting, plan health check, help desk, communications, etc.

Sales incentive specific tools, infrastructure, and insights Javelin™, ZS’s comprehensive

incentive software platform Annual Incentive Practices

Research (IPR) study Data management and

modeling/simulation expertise Recent book:

The Complete Guide to Sales Force Incentive Compensation



Why “Good” Goals Matter



Conclusion

Agenda



Maximizing Sales & Marketing Effectiveness

Customer Focus & Growth Strategy

CustomerInsight

Segmentation & Targeting

CompetitorInsight

Strategy Execution




Go-to-MarketStrategy

CustomerInsight


CompetitorInsight

ValueProposition

Sales Process

SalesChannelsStrategy

Strategy




Go-to-MarketStrategy

Marketing & Sales Operations

CustomerInsight


CompetitorInsight

ValueProposition

Sales Process

SalesChannelsStrategy

CompetencyModel

Sizing &Deployment

MarketingMix

Hiring, Training & Coaching

SuccessMeasures

Compensation & Motivation

Programs

PerformanceManagement

Information & Tools

Marketing & Sales Analytics

Strategy Execution


Allocation of Time

Issue Possible Incentive Solution

Potential Non-compensation Solutions

Salespeople aren’t allocating their time across products/ markets as desired

Pay more for the product/market that requires more attention

Sales force training

Customer offering

Sales force structure

Better hiring


Allocation of Time



Customer offering


Better hiring





Allocation of Time




Customer offering


Better hiring




Financial Performance

Not achieving the annual revenue target

Run SPIFFs at end of year; Provide guarantees so people won’t leave

Poor forecasting and/or goal setting Sales training







Conclusion

Agenda



Incentive compensation, in addition to sales force structure, can be an effective way to ensure focus on strategic products…

1

2

3

4

5

6

7

Mix – Percent fixed vs. variable pay

Percent of target variable pay associated with a given product

Alignment of measures to product characteristics – revenue vs. profit

Payouts tied to performance on all promoted products

Payout based on a commission structure

Spiffs and contests

Management By Objectives (MBOs)


…but beware of unintended consequences

Product Manager of a tertiary product line launches a contest for a product during Q3 –any salesperson who brings in >$100,000 revenue and is over 105% of goal will get a 42” Plasma TV62% of the sales force qualified for the TVStrategic product sales momentum suffered

(Was tracking to 117% of goal; Q3 ended at 104% of goal on average)

Pay-Performance

PA

Y

PERFORMANCE

R2=0.567

R2=0.265

BEFORE MBOS

AFTER MBOS (TOTAL PAYOUT)

Incentive PlanBase rate 8%Achieve total quota +2%Achieve all 3 products quota +3%Accel >105% if 3 products hit +3%

ResultTotal sales reduced as reps chased comp plan and tried to push sales of a particular product on the customer

Target Incentive

Product A (Goal based) $2,500

Product B (Goal based) $1,500

New Product D (Commission) $1,000

A & B missed goal, D at 500% of goal Company missed overall sales goal Sales representatives at greater than $5,000





Signs of Suboptimal Goal Setting

Conclusion

Agenda



Incentive program management is a cyclical process encompassing many critical elements

PeriodicHealth Checks

Plan Monitoring & Feedback Sales force Brand teams HR / Finance Executive management

Incentive Plan Design Pay for performance Motivational Fiscally responsible Plan communication

Goal Setting Goal setting System & tool setup

Administration Data management & QC Incentive calculations Reporting Exceptions & Research Payout management

IncentiveComp

Process

INPUTS Product Strategy Sales force strategy Company philosophy Industry practice Selling model / roles


Guiding Principles Aligned with Corporate Strategic Goals; Motivational; Simple; Fair; Fiscally Responsible

Within incentive design, there are several sub-decisions, each critical in the final plan design

Overall Incentive Plan

Level Mix PlanPeriod

Other Elements

Metrics Plan Type Payout Curve

Plan Design

$200K

$50K

100% Salary

100% Incentive

How much should the reps be paid?

What should be the salary to incentive mix?

What metrics should be put in place that best support the sales role and desired behaviors? What should their weights be?

$ Sales Unit Sales Gross Margin Activities # of calls

What plan type to choose from?

Commission Goal Based Forced Ranking Matrix MBOs

What will the payout curve look like?

Threshold Slopes Accelerators Kickers Etc.

How long is the plan period?

What is the payout frequency?

Monthly Quarterly Semi-annually Annually

Eligibility

Contests

Awards


Less than 10% in incentives hardly gets noticed; 30% or more becomes a dominant message

Variable Pay

Deg

ree

of A

ctiv

ity C

ontro

l

0% 20% 30% 40% 60% 80% 100%

Cost ControlDirection Motivation


Performance metrics should follow 5 key attributes

Strategic

Causality

Measurability

Fairness

Supports the strategy Aligned with business objectives

Sales force has influence over the measure

Performance should be objectively measurable

Measures should not favor any one group of salespeople

Few Max of 3 metrics


There are several types of plans used across all industries, though commissions and goal-based tend to be most common

Commission Plan MatrixGoal Based Management by Objectives (MBO)Relative Ranking

Most appropriate for new products Unfair if territory

potential not balanced

Territory-specific treatment often fairest and most motivational Costlier to administer Depends on national

forecasts

Accommodates two metrics in a single payout table Can be complex

Breaks tie to national forecast and performance Can create

competition

Subjective Most people paid

similar amounts Higher administration

burden for field Does not require

sales data

Pay 10% of first 12 months of

revenue

Nat’l Perf

Terr Perf 97% 100%

80% 500 1000

90% 1000 1500

100% 1500 2000

110% 2000 2500

120% 2500 3000Goal Attainment

Pay

Rank Payout

Top 10% $40,000

Next 20% $20,000

Next 40% $10,000

Next 20% $5,000

Bottom 10% $0

Objective 1 5%

Objective 2 10%

Objective 3 60%

Objective 4 25%

100%


Both existing and new plans must be assessed on several dimensions

Does it drive the desired behavior?

Is it motivational?

Is it fair and paying for performance?

Is it financiallyresponsible?

Supports the sales and marketing objectives Focuses on the “right” customers, activities, products

Is simple to understand and communicate Substantial effort leads to significant reward

Overall payout is competitive in the marketplace Territories with similar earning potential The plan does not penalize sales force for poor forecasts

Total compensation payout is within acceptable range at any level of company performance

Can it be implemented?

Current infrastructure and resources can administer the plan Data available can be confidently utilized to measure performance


Very high incentive component Sell at all costs, invent product application

Paid on units Discount

Paid on sales Enlarge territory

Incentive based on customer satisfaction Seek satisfaction at the expense of seeking sales

Manager sets objectives or determines reward Work the manager, not the customers

Monthly objective with over-achievement bonus Sell every other month

Caps Hoard sales

Team incentive Relax

Complex plan Ignore it

Plan design concepts should be carefully vetted to uncover “unintended consequences” of the plan, or how it might be “gamed”

Potential Rep BehaviorIncentive Feature


There is an ideal range for setting goals – with suboptimal sales both above and below that range

TERRITORY GOAL

DO

LLA

RS

Low, Meaningless Goal Good Effort Goal Peak Effort Goal Impossible to Achieve Goal

Territory Incentive Pay

Expected Territory Sales

Overpay Range Loss of Motivation Range


Territory Opportunity Rigorous Methodology Manager Refinement

Territory potential must be incorporated Can include multiple metrics related

to accounts or geographic elements Typical metrics include medical

procedures, account characteristics, population demographics, and contracting status

Accuracy is tested using historical simulations to check for correlations to actual sales results

Fairness is evaluated by grouping territories with similar characteristics and observing any historical biases

Local knowledge helps refine goals to reflect on-the-ground reality and increases buy-in of sales managers

Reasonable limits on the degree of change should be imposed, as well as a rigorous process

Effective goal-setting processes include a variety of common characteristics

20

60

100

140

160

Low Medium High

PREVIOUS-YEAR GROWTH

% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

20

60

100

140

160

Low Medium High


% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

20

60

100

140

160

Low Medium High


% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

Procedures, Installed Base, Etc.

Prod

uct S

ales

Pot

entia

l ($)

Procedures, Installed Base, Etc.

Prod

uct S

ales

Pot

entia

l ($)






Agenda

Conclusion


In summary, incentive compensation plays a critical role in enabling strategy but compensation is not strategy

Other drivers matter

Beware of unintended consequences

Use a well defined process

Setting good goals is critical

Look at all drivers of sales effectiveness to drive growth Sales compensation is an effective tool, but cannot solve everything

Salespeople will find a way to make money under the plan Make sure their interests and the companies are aligned

There are many critical steps in creating a new sales incentive plan Skipping any one step could result in decreased buy-in or a cost surprise

Companies spend 10X time on incentive design as goal setting Incentive plans are only as good as the goals they are coupled with


Questions?


Chad Albrecht Principal in Evanston, IL


Arun N. Shastri Managing Principal in Boston, MA

isbm webinar 10-08-09 v2 for download 0 [read-only] 08, 2009 · isbm membership – 2009; moving to...

Documents