By: Matt Tyre, Director, Client Services

Game planning your incentive compensation program is very difficult in a fluctuating economy; it's hard to predict whether the economy will steadily climb or have some setbacks for 2010. So, how does this impact your program?

You can protect your company, customers and employees by instituting policies and providing increased communication to your sales force. These protective measures are important to all parties involved in the compensation process.

What you can do is introduce legal terms and conditions in the plan document to sales people and ensure that the company reserves the right to adjust targets where necessary. Assessing and establishing targets is very difficult in the most stable sales environment. Therefore, when the market is in a state of flux, it is even easier for the company to miss, and either set targets too high or low. Communicating to your sales people upfront that the company has a right to make changes if required avoids issues with your sales people questioning why the targets are changing in the future. Of course, this could impact a sales person's compensation payout negatively in their eyes. However, as a company you are protecting your sales person from under payouts if the targets are set too high in a flat economy. The protection for the company, in this case, is against large win-falls for sales people if targets are set too low and the economy corrects itself and shows in the positive territory for 2010.

You don't want to de-motivate your sales force with the wrong incentive plan. This will impact how they interact with your customers. These cases can be avoided by simply stating a policy to change the targets to appropriate levels as required. The message can still remain positive in the communication to ensure there is buy-in to the new policy. Leaving the company open to potential issues with your incentive compensation program can be very costly.

By: Matt Tyre, Director, Client Services

I had a lengthy discussion today with a company about the differences between a rewards program versus incentive program. I decided to write about it as i thought this might help others who would like to know the difference between these closely-related programs.

The two types programs are listed below with differentiating factors and examples to help paint a more vivid picture.

1. Rewards Program
• Is a type of incentive that is typically an annual or longer-term program
• Usually results in a onetime bonus payout at the end of the year
• Doesn't greatly impact daily behaviour
• Example: Bonus on annual company performance
• Provides a longer term line of sight
2. Incentive Program
• Are types of compensation that track, and payout, for short-term performance (bi-weekly, monthly, quarterly)
• Payouts are recognized upon achievement of the measure
• Typically bonus and/or commission
• If designed and communicated efectively, they can greatly impact daily behaviour
• Example: Monthly commission on margin with a modifier on new accounts
• Provides a clear, short-term line of sight that can be impacted by daily activities. This incentive tells the sales person to meet margin performance objectives that they can impact and focus on new accounts. When properly communicated, sales people know where to spend their time and effort.

These programs provide two very different sales cultures within an organization. Your industry vertical, regional location and/or your existing sales culture, would also help define which program is better suited to your company.

By: Matt Tyre, Director, Client Services

In the mind of great sales people you may think that compensation is the primary driver in attracting, motivating and retaining their talent. I was in discussions with a Sales Executive recently and we were talking about what would attract a sales person at the senior management level to make a move from their current position. To be honest, I was not shocked to hear that monetary compensation was not their only motivator. Looking at a balanced total reward mix (compensation, benefits, recognition, work life balance, and career development opportunities) was more important to experienced sales people. Younger, less experienced sales people will typically look at money as the main attraction. Senior sales people seem to be more selective on what will attract them to make a move or stay with their current organization.

Here are some key motivators that came up in my conversation:

1. Work flexibility - working from home and flex hours
2. Less travel
3. Reduced distance from home to the office
4. Other monetary benefits - stock options, deferred profit sharing programs
5. Desire to have a leadership role
6. Willing to take slightly less in monetary compensation if some of the above concessions can be made.

You can see that work life and career-advancement opportunities seem to play a prevalent role in the discussions, more so than money. Sure, if you're offered an obscene amount of money most sales people will strongly consider the option, however it just goes to show that money doesn't by happiness and that to get great sales people to work for your company you must look at the total reward mix to attract them.

If you are in a senior management role, what would motivate you to make a move?

Sales compensation programs need to have consistency across an organization as a whole. Typically a framework is developed to create the alignment across multiple business units and within the job functions. With this approach you provide the individuality that each business unit needs, but holistically the company has a similar structure in their comp plans.

There are two levels in the framework process. First is looking at the company as a whole and then looking at each business unit's:

• Business Goals and Objectives
• Strategies
• Tactical Execution and;
• Key Performance Metrics

The second level is taking this information and looking at the key elements in each business unit. Some elements included in Sales Compensation Frameworks:

• Sales Roles
• Pay Mix
• Metrics for Measurement
• Performance and Payout Frequency
• Individual/Team Measurement

When designing a framework you can take a basic excel spreadsheet and build a table. The table should be presented in a way that you can compare the jobs and the differences in mix, individual or team metrics, and the performance and payout frequency. When you build your framework you should see some consistency in some of the measure/metrics, except the variability by role and level of responsibility. An example would be to have a sales rep focused on individual gross margin sales and a manager being rewarded on the sum of all sales for their sales reps and for their region in gross margin sales. The consistency in the design will unfold and should ultimately tie back to the business goals and objectives for the company and their business unit.

We posted a blog recently trying to justify the role of each department in the sales compensation design and communication process. We received several observations and mixed opinions; now we would like to hear from YOU! Who do you think owns the sales compensation responsibilities?

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By: Matt Tyre, Director, Client Services

This week I had the opportunity to work with one of our customers in the software industry on a sales incentive compensation plan for a new hire. In designing a plan we assessed many elements of the role and the anticipated impacts on the business. I thought it may help others out there trying to find simple ways to learn how to design plans. Here is a high level, 10-step approach!

1. Have a company framework - a framework provides consistency in the plans for the company, from a communication and design perspective. This should include consistent measures/focuses so all your sales people are rowing in the same direction.
2. Establish the Role - In this case it was an entry-level, New Business Development role, or in simple terms, a Sales Rep. When establishing the role we know the nature of the position; where a Sales Rep is a hunter, and the Account Manager being a farmer.
3. Establish Target Total Compensation (TTC) - Look at market data to establish what the job is worth and what the business can afford. Also, audit the current compensation pay structure for current employees, so you are providing fair and equitable pay for performance.
4. Establish your mix (eg. 50/50) - The mix is how much of your total target pay is base and how much is target incentive. When setting up the mix for the role recognize the impacts of higher or lower base salaries it will help in establishing the performance and payout frequency for your sales people.
5. Establish the key metrics and measure of performance for the role - The metrics should be measurable and link back to the objectives and strategies of the company. If a company is quite simply looking at revenue figures, than a metric for gross margin dollars doesn't link back.
6. Establish the type of incentive(bonus, commission, MBO) - Depending on the role, sales life cycle, individual or team performance, etc. a bonus or commission may apply more appropriately in the defined performance measures. In setting up your measures look at individual and team performance. In this case, we looked at a very simple individual performance metric of revenue and applied a single fixed commission.
7. Establish the performance and payout frequency - This was important as we increased the frequency to accommodate the cost of living and having a lower base salary and being paid out on incentives quarterly was to long of a period. We increased the pay and performance periods to monthly.
8. Set targets - Set realistic targets that can be achieved by at least 70% of your sales people. If you set stretch targets that are unachievable you are driving the wrong behavior with your sales people. When you look at target setting you can look at previous year's performance in the territory or if the person has been with the company for while you can look at the trending numbers to set proper targets.
9. Set Commission rates - look at the profitability of your business to establish how much you can pay and still reach the profit level you are trying to achieve. Also, consider what the market is paying and if it applies to your business.
10. Costing/Modeling - how much will this plan cost the business if the sales person hits x%? Run the numbers against previous year's data to see if their performance is the same as last year; what will it cost?

After constructing the plan in an hour, the President of this software firm presented the plan to the candidate and they start next week! Our customer is happy, and so is their new employee.

Hope these simple guiding principles help to design your own sales compensation plans!