MEASURING THE PERFORMANCE OF THE SALESFORCESandrine Bardot – CompensationInsider.com

Agenda

Background Quantitative performance measures Qualitative performance measures Implementation Sales employee performance appraisal

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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

Background3

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Sales compensation vs sales budget4

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Linking design to company strategy

Source : CLC

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Driving behaviour through the Sales Plan

Main objectives are growth and/or profitability

Typical internal / employee focused objectives : 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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What’s necessary to set proper objectives

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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What can go in the way of good metrics selection

Not recognising the differences in roles

No good IT and reporting

Ignoring marketing seasonality, promotions etc

Not understanding crediting rules and other reporting realitines

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Measures

Mechanics

Payout calculations

Quantitative performance measures9

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Quantitative performance : measures

4 categories of Sales measures :

Production (volume) : revenue (total, new, renewal), price, margin…

Products (including services) : units sold, product mix, up-selling, product introduction…

Accounts (customers, channels) : new, retained, expanded, satisfied…

Milestones (events & activities) : threshold achievement, contract sign-up

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Quantitative performance : mechanics

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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Design elements : Payout calculations Payout frequency Payout curve : straight line, exponential, stair step,

S-curve…

Will you allow draws ? 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

Windfalls and exceptions Multiple crediting / double booking (geographic vs major

account) Multi-year agreements Newcomers...

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Best practice on choice of measures categories

The debate

Linkage to quantitative targets

Qualitative performance measures13

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Best practice on choice of measures

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 metric39% 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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Qualitative performance : the debate

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.

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.

“Hard” measures “Soft” measures

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Qualitative performance :linkage to quantitative

Shift from purely sales results-driven incentives

Incorporate other performance metrics : Incentive pay factors Modifiers (hurdle, accelerator, matrix) Additional incentives

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Goal setting

Modeling and deploying the plan

Implementation17

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Goal setting

Cascade of objectives : Sales manager quota ≥ sum of ICs objectives

Alignment : VP on booking vs sales execs on shipping =>

discrepancies in achievement and payment

Measurable, aggressive yet realistic objectives

Define degree of freedom at individual and team level for goal setting

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Modeling and deploying the plan

Test against historical results Model the plan at the individual and overall level Test concepts with small group of proven

performers

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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Influencers of employee commitment

Employee appraisal and the sales force

Sales managers and pay communication

Sales employee performance appraisal

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Influencers of employee commitment

Formal plan communication Manager communication

How organisations pay How organisations communicate about pay

Sales incentive satisfaction

Process fairness perception

Actual fairness of pay distribution

Employee commitment

Discretionary effort - Impact on company results

64%

57% higher vs effort of strongly not committed

48%22%

Source : CLC

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Employee appraisal for the sales force

Line managers own motivation and development of sales team

Classic of employee performance management : 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

non-acceptable 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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Sales managers and pay communication

At least 2 discussions per year (+23% fairness perception)

Clarify the relationship between pay and performance Performance criteria Bonus criteria Pay criteria

Cover pay potential Promotion timeline Compensation growth potential

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Recap - a comprehensive approach

Incentives

• Clear goals and strong line of sight• Clear payment opportunity• Main recognition tool for the sales force

Performance appraisal

• An on-going conversation based on feedback• Opportunity for development plan• Basis for career decisions

Recognition

• Somewhat spontaneous• On-going, timely delivery• Meaningful but modest reward value, if any

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Example one

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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Example two

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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Free resources from my blog http://compensationinsider.com/analyse-my-s

ip/ http://compensationinsider.com/why-am-i-not

-on-the-sales-incentive-plan/ http://compensationinsider.com/why-the-sale

s-director-has-less-on-target-incentive-than-the-sales-people/

http://compensationinsider.com/prospecting-or-existing-customers-what-do-you-focus-on-in-your-sales-incentive-plan/

http://compensationinsider.com/a-dinosaur-in-dubai/

Recommended reading : Compensating the Sales Force by David Cichelli

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Thank you !

Sandrine BardotConsultant, trainer, speaker, blogger

+971 566 172 864Sandrine@Compensationinsider.com

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