Sales compensation design & trends - Korn Ferry

Sales compensation design & trends

N.A. Chemicals Industry Forum

October 4, 2017

Tom Hill

312-228-1821

[email protected]

© 2017 Korn Ferry. All rights reserved 2

Agenda

1 INCENTIVE COMPENSATION STRATEGIES

2 MOVING THE MIDDLE

3 2017 RECAP & 2018 EXPECTATIONS

4 SURVEY DESIGN RESULTS

5 CONCLUSION / Q & A


Sales Effectiveness: The sales performance model

World-class sales organizations look to align their business strategy and market focus to execute revenue growth. Sales organizations will group their sales functions in an organized and efficient structure to amplify results. Our Sales Performance Model (SPM) identifies the key sales practices needed to maximize objectives.

Value proposition for

the customers and the

business

Performance

standards and rewards

Building a high

performance

organization to match

overall strategy

Alignment of sales

structures, channels

and process

The Sales Performance Model

Defining roles and

behaviors for success

The most successful organizations support these sales disciplines with the proper market data

and industry trends to enable informed customer decisions

1Incentive compensation strategies


Your Evolution Changes Selling Needs

Start-up Growth Hold Focus Rebirth

Sales

Revenue

Growth

Business

Stage

Customers

Value

Proposition

Sales Profile

Sales

Organization

Any customers More customersCurrent

customers

Certain

customers

Redefined

customers

Novel solution Top providerPrice,

availabilityValue, service Unique solution

Self-directed

sharksBigger sharks

Territory /

Account

owners

Account Leads,

SpecialistsConsultants

Hunters Surfers Farmers Drillers Partners

Time


Typical design process

Organization understanding, clarify strategy & operating model

Analytics on performance

Role definitions

Benchmarking – compensation and incentive design

Guiding principles & develop plan design frameworks

Implementation, communication and governance

Cost modeling


The roles sales value matrix

Where are your roles in the matrix?

Once we determine the role, we

can benchmark the roles to typical

plan design, pay-mix,

competencies and other elements

of sales compensation from our

database.

Hunter

Consultative

Farmer

Transactional

Trusted

advisor

Familiar

friend

Field

representative

Deal

maker

Do you keep

customers

satisfied and stock

shelves?

Are you selling up -

pushing promotions?

Do you observe and

report on condition of

products?

Do you scan for

opportunities?

Do you focus on team

selling?

Are you adaptable and

persistent?

Do you influence

through bold actions?

Do you identify and

qualify prospects?

Do you “hook” the

customer?

Do you need to

overcome buyer’s

obstacles?

How quickly and often

do you close sales?

Do you leverage

relationships

Do you scan for new

techniques?

Are you mobilizing

resources?

Do you influence

collaboratively?

Sales Rep

Account

Manager

Strategic

Accounts


Quota Setting Gone Wrong

Individual sales incumbents

Perf

orm

ance %

to g

oal

Incentive p

ayout

$

Achievement as % of goal

Incentive Payout ($)


Threshold 100%

Number of

Salespeople

30-40%of Sellers

60-70%of Sellers

Excellence

Top10%

of Sellers

Quota Performance

Bottom10%

of Sellers

Target level equates

to 100% of plan

Performance level requiring

minimal effort – set based on

historical performance or fixed

costs

Excellence level allows 10%

of sellers to earn upside, it is

usually set using historical

data

Distribution of Performance

Accurate target setting is key to motivating the field and aligning with company success


Case study: specialty chemical

Pursuing new business focus by creating a motivating global sales incentive program, pay-mix, & building collaboration with R&D

Focus on growth

Reward for end results & not activities

Align its sales incentive plans globally

Issue Approach Result

Assess & changed pay-mix and upside

Created success profiles for the roles

Changed plan design around objectives

Improved incentive design

Better coordination between GAM and field teams


Case study: commodity chemical

Improving relationship management selling challenges through role design, sales incentives and goal-setting in a commodity sales environment

Tenured sales team they wanted to retain

Reward top performers from average ones

Issue Approach Result

Quantitative pay-for-performance analysis

Outlined career path

Custom benchmarking

Plan design changes

Lower turnover

Align business to sales objectives

Recognized annual and medium-term performance periods

2Moving the middle

Documenting and replicating the approaches of high-performing salespeople


An uphill battle facing today’s sellers

Sources: CEB; The Challenger Sale, Penguin 2013; The Challenger Customer, Penguin 2015; CSO Insights

Unprecedented

changes in

customer buying

behavior…

…are driving up

sales complexity,

leaving core

performers falling

farther and farther

behind…

…all leading to a

historic decline in

global sales

productivity

57%Today’s B2B buyer is 57% of the

way through the purchase journey

before engaging a salesperson.

6.8The typical purchase now involves

6.8 different stakeholders.

3X

The spread between high

performers and core performers

grows dramatically—to a 3X

productivity gap--as selling

becomes more complex.

53%

In 2016, only 53% of sales reps hit

their quota, down from 57% just

one year before.


Moving the Middle

Boosting the performance of the core of the sales force represents the best opportunity to raise overall sales force productivity.

For a CSO, the single greatest

point of leverage in driving sales

force productivity is to map the

behaviors, competencies and

activities of the top 20% of

performers to identify

performance improvement

opportunities in the core of the

sales force.

Given the greater numbers in

the core, a 5% productivity

improvement will yield 50%

more revenue than a similar 5%

improvement in high performer

productivity.


No Easy Task

‘Honestly, this job would be a lot easier if somebody could just invent a cloning machine

that would allow me to replicate the best people in my organization.”

Chief Sales Officer

Fortune 100 Technology company

Without the right tools, it’s hard to identify exactly what makes star

performers who they are—often forcing CSOs to make educated

guesses which lead to a low return on sales force effectiveness

investments.

Even when CSOs can pinpoint differentiated star performer behaviors,

activities and competencies, they struggle to know which ones can be

“exported” and the best means of ensuring adoption among core

performers.


The Problem with Guesswork

Without a clear sense of what differentiated high-performers, sales effectiveness investments fail to pay off and leave a trail of problems in their wake

“Warm body

syndrome”

Managers tolerate low

performers in order to

avoid having

uncovered territories.

“The 80/20

problem”

80% of revenues

comes from the top

20% of sellers.

“Like for like

replacement”

Little confidence that

new hires will perform

any better than the

low-performers they

replaced.

“Behavior

reversion”

Despite money spent

on sales training

and enablement,

new behaviors fail

to stick.


Cracking the High Performer Code- a three step process

…and then assess sellers and managers from

a competency, behavioral, motivational and

time spend perspective…

Salesforce Assessment

Sales Population Definition

Sales Success Profile

We first agree on a common definition of

high performance (today and moving

forward) and segment the sales force by

performance level and role…

…which enables us to produce a robust

Success Profile which defines what “good”

looks like across the organization. This

provides clients with the roadmap needed for

all ensuing sales talent investments—from

hiring to development to employee

engagement, and pay and rewards.

“How do I hire more sellers who

look like my stars?”

“How do I develop my existing

salesforce to do more of what

comes naturally to my star

performers?”

“How do I create a climate that

motivates and rewards the right

behaviors?”


Using the Sales Success Profile as

the roadmap, the next steps we

take will build upon your sales

organization’s strengths and

provide reinforcement in

development areas – putting the

sales organization on the path

to industry-leading

effectiveness:

Success Profiles

Selection

Onboarding

Development & Feedback

Succession & Performance Management

Career Maps

Organization & Role Design

A roadmap for sales force effectiveness

32017 recap and 2018 expectations


Top challenges

In 2016, Hay Group observed that clients focused on: We did NOT see:

Growth in market share/share of wallet

Development of key account roles

Global integration

− Territory versus line of business

Leadership and culture

Attraction and retention

Succession planning

Territory segmentation

Simple commission plans

In 2017, Hay Group observed that clients focused on: We did NOT see:

Post M&A integration

Leveraging growth, investing in sales force

Integration of analytics (small and medium size sales

forces)

Planning and portfolio/account management

Building leadership

Risk and cost analyses


Based on the 2017 results, we expect to see focus on:

Expectations for 2018

Continuing work to better integrate sales forces:

− Post M&A

− Other job families

Increase focus on adapting to new selling models

Build growth through better value

Emphasis on key account management versus territory

2018 will be about

profitable clients and

analytics

4Chemicals industry design results

Specialty & Commodity


Plan design by role

Plan design

Position% offering

sales bonus

% offering

commission

% offering

sales bonus &

commission

% offering

corporate plan

only

Sales Manager 67% 13% 9% 12%

Key Account Manager 69% 14% 12% 6%

Sales Representative 59% 18% 12% 10%

Technical Sales 72% 17% 8% 3%


Plan design by role

Pay-mix

PositionAvg %

Base Salary

Avg %

Incentive

Sales Manager 80% 20%

Key Account Manager 80% 20%

Sales Representative 83% 17%

Technical Sales 83% 17%


The table below outlines the typical pay for performance elasticity.

Elasticity

Level

Pay performance matrix

Median value Average Range (low) Range (high)

Threshold

performance50% 62% 0% 95%

Threshold payout 25% 44% 0% 95%

Maximum

performance120% 160% 105% no max

Maximum payout 150% 207% 125% no max


Plan measures

Most common measures Prevalence

Revenue / Growth 67%

Profit / Profit Growth 61%

Units Sold 15%

Return (ROE, ROI, EPS) 10%

Acct Rec / DRO 14%

New Business / Customers 7%

Objectives 12%

Customer Satisfaction 4%

Subjective / Discretionary 9%

Other 26%


Plan components – line of sight of plan measures

Most Common Components Prevalence

Individual 75%

BU / Division 34%

District / Region 15%

Corporate 43%

Team 26%

Other 9%


Commission design

Design type Prevalence

Flat design 72%

Accelerating

design28%

Rate

differentiatorPrevalence

Product 68%

Performance 32%

Customer/

Channel21%

Modifier Prevalence

Margin 29%

Product Mix 24%

Other 47%


Sales crediting & SFE alert

Credit recognized upon Prevalence

Booking 9%

Delivery 15%

Invoice 33%

Receipt of payment 26%

Recognition of margin 17%

FASB accounting rule changes

One provision deals with the “incremental cost of obtaining a contract.”

Can have a direct impact on how sales commissions and recurring revenues are treated from both an accounting and actual payout perspective.

− The accounting department will need to assess each customer contract to apply proper revenue/expense recognition.

We recommend a review of your current crediting policy.

According to our sales incentive plan data, current sales crediting policies vary and will require some change by many organizations

− particularly those organizations that currently pay Upon Booking.


Map out how the organization creates value

Additional thoughts

What do customers value?

Where does the sales role fit in this map?

What are the 1-3 things this role impacts the most?

Sales incentives are about focus. They should pay for one or

two things.

5Q & A

Date post:	19-Nov-2021
Category:	Documents
Upload:	others
View:	25 times
Download:	0 times

Sales compensation design & trends - Korn Ferry

Documents