Sales Compensation Blog

Comp plans created solely by sales executives will emphasize incentives and motivation.  Plans designed by finance will be skewed toward ensuring affordability.

The best  sales compensation plans balance these and other corporate requirements. So when you are developing your comp plans, get input from multiple constituents to help you achieve the right balance.

One person needs to lead the sales compensation planning process.  The leader gathers information, opinions, and advice from other team members, and keeps the project on track and on schedule.  The team leader must also determine the approval process and make sure that "sign off" occurs at the appropriate stages of the project.

The sales compensation team should involve the following:

• The CEO: provides key guidance on the company's strategy
  
• Finance : delivers plan affordability guidelines and sales goals.
  
• HR : contributes job descriptions, base salary, TTC (total target compensation) and organizational structure.
  
• IT: delivers transactional data used by the compensation plan and information about the ability to implement the proposed changes to the plan.
  
• Marketing: presents upcoming campaign strategies that will influence quotas.
  
• Participants: advise on what worked and what didn't work in the current plans and, towards the end of the process, how they perceive the proposed changes to the plan working.
  
• Product Management: informs on road map for new releases and new products which can also influence quota.
  
• Sales Management: analyzes the attainment distribution of the current plans and explains why they may have fallen short or exceeded the goals.
  
• Sales Operations: provides their analysis of the current plans, as well as territory alignment.
  
• Legal: reviews plan to ensure that they are in compliance with current laws, regulations and internal policies.

Small companies will find one person on the team may fill multiple roles.

With your team in place, you'll ensure your sales compensation plan is within budget, is primed to motivate your sales team, aligns to strategic goals, and is well communicated across the organization.

There are two ways to structure quarterly bonuses.  Goals can be cumulative for the entire year or divided into quarters.  

Let's review each option with a simple example:  The quota for the year is $1,000,000. Each quarter is 25% of the annual goal.  There is a $5,000 bonus payable each quarter for achieving the goal.

Let's compare them and discuss implications:

Quarterly - The goal is the same for each quarter - in this case $250k. What's the typical sales behavior with this option? Based on my experience consulting with many companies over a range of industries, the sales rep will attempt to hold orders until the next quarter if they are below the quarterly quota and have no hope in achieving it - putting the order in the bank for the next quarter. I have also seen that the rep will hold an order once the quota for the quarter is achieved - again putting it in the bank for the next quarter. The rep's goal is to do enough to get the quarterly bonus and set themselves up for the next quarter.

Year to Date - The rep must be on target for each of the quarters and that target is the year to date quota. There is no benefit to the rep to hold the sale, no game the rep can play. The rep must be on target for each quarter based on the year to date goal in order to receive the $5,000 bonus for that quarter.

"But, Teanna," I hear, "the rep is so far behind on a year to date basis, he'll never get any of the bonus." My usual response:  why do you want to give him a bonus for underperforming?

I also often hear "what happens if in Q2, the rep has already attained $750,000, enough to earn the Q3 bonus without doing any more sales? Would you pay it out?" I respond, "Yes, absolutely. Show me a rep that is on target to exceed their annual quota and earn accelerated rates, and I'll show you a motivated rep."

On my first Web Seminar yesterday we had 16 questions and they were still coming in 30 minutes after the scheduled end time. These weren't the "what's the dial in number?" questions, they were the "how can I drive results" type questions. I guess it shouldn't have surprised me, because while polling the audience we learned that 2/3 of the attendees needed to have their compensation plans completed by the end of January. That's only 11 business days away! No wonder people were so attentive.

While listening to Liz and Teanna, two of our on-staff sales comp experts, talk about comp plans and especially during the Q&A portion of the web seminar, I suddenly realized that it's a lot harder than just taking a percentage of revenue and paying it out to your sales people. There are people trying to develop team plans, develop different plans based on what products are sold and trying to manage accelerators. And it explains why 87% of attendees were still analyzing, modeling and designing plans. I remember being in sales and those weeks of waiting around for my comp plan. In the mean time, I know I wasn't motivated to do much, because as Liz described in the webinar, sales people are motivated by money and if you don't know you are getting paid, you aren't motivated to get the deal done. On average we got our completed comp plans 4-6 weeks into the quarter. And they re-did them every quarter. And senior management would sit down and review each one. At the time I was just irritated it took so long, but now I understand why and know that it can be better.

It's great to know Makana has a solution that saves time, makes sales people more motivated and in the end helps drive the company strategy versus just unloading product.

Last week we rolled out a new program, Get a Game Plan, to help companies get started on their 2009 sales compensation planning. This program includes a free full year subscription to Motivator, our sales comp planning software and a free webinar on what companies should be doing now to derive more benefits from their plans in 2009.

So this begs the question, why would we give Motivator away for free? Motivator subscriptions are off the charts, in fact the quarter ending in June was a record by several hundred percent over the previous quarter. Also many subscribers are already saving real money -follow this link to see what they have been saying

The reason we are giving Motivator away for free starts with our company mission - to help companies be more effective with their sales compensation planning. And one of the pitfalls (follow this link to last week's webinar recording for more) our sales compensation experts frequently see is that companies start their sales compensation planning too late and shortcut the process - not leaving enough time for important activities evaluating last year's results, involving other functional groups, cost modeling - and they end up regurgitating last year's plan with some minor updates - reinforcing any flaws.

This program is only for a limited time, and as we all know, the early bird gets the worm, so the Get a Game Plan was envisioned to incent more of you to be early birds to help you get started and provide some guidance as to what you should be doing now.

Arthur Gehring
Director of Marketing

One of Makana Solutions' founding principles is to empower sales management to optimize their sales resources through easy access to relevant best practice information on sales compensation. On a regular basis, I, our team of experts, as well as recognized industry authorities, will post what we hope you will find to be relevant, thoughtful advice on sales compensation issues. So let's get started.

SaaS and subscripton-based sales compensation

We recently hosted a webinar with industry experts Jeff Kaplan and Tom Wilson, devoted to the unique challenges of sales compensation in this business model. We recorded the webinar so you can see it in its entirety, but we had so many great questions during the webinar that this is a topic we will be revisiting often and will post relevant information in an area of our site dedicated to SaaS Sales Compensation Best Practices. Below is one of a number of key ideas that came through.

Starts with Strategy and the relateds business roles

We learned in an advance survey of attendees that many of the attending companies had transitioned to the subscription-based model from a traditional enterprise license. Tom Wilson, our guest compensation expert , compared the significant differences in the sales roles for the two models. In the enterprise software model, Tom pointed out that the role is typically one of a "big game hunter" where the sales rep's responsibilities are:

• Find and influence the buyer where the value proposition is based on "projected" return on investment
• Negotiate price and terms
• Close the large "contract" sale
• Design and train to use effectively
• Sell upgrades and expansions

In a SaaS model the responsibilities shift to one of "Master Chef" where the rep's role is to:

• Find and influence the user & buyer where the value proposition is based on "experienced" return on investment
• Negotiate subscription terms
• Close a "commitment" sale
• Tailor and training to expand usage
• Embed the system into the business
  

When the job role shifts this significantly, it is important to take a fresh look at both the skills of the team as well as supporting roles and not just "tweak the plan". Good plan design follows the business strategy. Once you have clarity on the roles and how each role influences the customer, the measures and incentives will be much easier to identify.

There were many questions from the webinar participants that we had no time to answer. Stay tuned to the blog and ask more. I will use this forum to continue the dialogue.