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Sales Compensation: Establishing Design Principles

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    Sales Com ensation:Establishing Design Principles

    David J. CichelliSr. Vice PresidentThe Alexander Group

    2012 The Alexander Group, Inc.

    c c e a exan ergroup.com

    Topics

    Importance of Design Principles

    Design Principles Framework

    Your Policy Document

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli 2

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    Importance Of Design Principles

    Answer These Questions

    What Are Sales Compensation Design Principles?

    Whats Contained in Design Principles?

    Who Creates the Design Principles?

    Who Owns the Design Principles?

    Why Are Design Principles Important?

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli 4

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    Design Principles Framework

    Design Principles Topics Charter

    Guiding Parameters Strategy & Job Alignment a es orce o va on Pay for Performance

    Plan Elements Eligibility Pay Levels Pay Mix Leverage Measures Mechanics & Pay Curve Perf. & Payout Periods Quotas/Targets

    Investment ROI Communication AdministrationGovernance,Assessment,

    D es i n

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent With

    Corporate Strategies, Goals and Principles

    EligibilityPay

    LevelsPayMix

    L ev er ag e M ea su re sMechanics&

    Pay CurvePerf & Payout

    Periods

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    PlanElements

    Execution

    GuidingParameters

    Charter

    1 2 3

    1 2 3 4

    Quotas/Targets

    SpecialIncentives

    Crediting&Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Crediting & Policies Special Incentives

    Execution Investment ROI Communication Administration Governance, Assessment, Design

    6

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    Sales Compensation Design Principles

    Overall Strategic GoalCharter

    Plan

    GuidingParameters

    Rules To Govern Design Solutions

    Guidelines for Specific Program Components

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    ExecutionSupporting Programs: Required for Any Sales

    Compensation Plan

    7

    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    PlanElements

    GuidingParameters

    1 2 3

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    8

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    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayPerf &PayoutPlan Quotas/

    TargetsSpecial

    IncentivesCrediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    GuidingParameters

    1 2 3

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    9

    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    HIGH Growth Grow; KeepCustomers

    Launch NewProducts

    Phase IStart-UpPhase IStart-Up

    Phase IVOptimization

    Phase IVOptimization

    Phase IIVolume Growth

    Phase IIVolume Growth

    Phase IIIRe-Evaluation

    Phase IIIRe-Evaluation

    GrowReall

    ROIROIROIROI

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    BASE Growth

    LOW Growth

    Reposition

    ReduceCosts

    Re-ThinkProduct &

    MarketStrategy

    Fast Grow

    SelectMarkets

    ProductProductProductProduct

    SurviveExpenses/Expenses/

    MarginsMarginsExpenses/Expenses/

    MarginsMargins

    ProcessProcessProcessProcess ControlPricing

    10

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    Results...Establish roles and goals, reward

    for getting the job done. Exit those noton the same page...

    Design PrinciplesManagement Compass

    CustomersShareholders

    IndividualWorkforceHire people with destiny,support them, pay them welland get out of their way...

    ...Create a great customerexperience and customers

    will be loyal to us...

    ...We are here to serve theshareholders of this

    company...

    ...Our people are our greatestasset...be loyal to them and

    they will be loyal to us

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Execution

    InstitutionWork Team

    ...People are lucky to have a jobhere. We are the leaders in ourindustry...the company founders

    gave us a proud tradition......We know this business...get

    the details right and the big stuffwill be easy...

    ...We are team driven...thereis no I in team. Work together;

    win together

    11

    Management CompassMatch The Incentive PlanResults

    Goal-Based Compen sation

    Custom er Serv ice Incentiv e Plans

    CustomersShareholders

    IndividualWorkforce

    Stra ight Commiss ion Plans

    Equity Incentive Plans

    Corporate Bonus Plans

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Execution

    InstitutionWork Team

    Seniority-Based Pay

    Scorecard Plans

    Team Incentives

    12

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    Sales Personnel Are The Most Performance Accountable Workforce

    Design PrinciplesSales Accountability Model

    Sales FunnelProgression

    PerformanceReporting

    SupervisoryMembership/

    Appraisal/Development

    LevelAdvancement

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    SalesCompensation

    Where Does Sales Compensation Fit?

    13

    Design PrinciplesSales Compensation Phases

    Phase I Phase IVPhase II Phase IIIStart-Up OptimizationVolume Growth Re-Evaluation

    Contests

    Base plusCommission

    RampedCommissions

    Add-OnBonuses

    Commission

    Uncapped

    Multiple Plans

    Base PlusBonus/Base

    PlusCommission

    Reward/Recognition

    Contests

    Base PlusCommission

    RampedCommissions

    Add-OnBonuses

    Commission

    Uncapped

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    ManagedPayoutsNo Glue Glue

    Salary Level

    Job FamiliesNo Glue Salary Level

    Job Families

    14

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    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayPerf &Payout

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    Plan

    GuidingParameters

    1 2 3

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    15

    Guiding Parameters: Strategy & Job Alignment

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    GuidingParameters

    1 2 3

    Reinforce strategy andgrowth objectives

    Strategy & Job Alignment1

    Buyers

    Prospects ConversionSelling

    ConversionSelling

    New MarketSelling

    New MarketSelling

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    categories

    Drive desired behaviors

    Globally consistent to driveWW strategy

    Current New/Different

    Customers FulfillmentSelling

    FulfillmentSelling

    PenetrationSelling

    PenetrationSelling

    Products

    16

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    Sales Strategy Drives Job Specialization

    General Sales

    Representative

    Sells to all segments Maintains current business

    Primary Focus Typical Responsibilities

    New BusinessDeveloper

    AccountManager

    Sales

    Maintains current business Services current accounts effectively Expands business with current accounts opportunistically

    Expands base of business Establishes and maintains relationships with key decision-makers Business-to-business selling, using all appropriate resources

    Sells to and services moderately-sized current and new accounts

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Product SalesSpecialist

    Industry/Market or

    Channel Specialist

    Acts as segment resource on an as-needed basis

    Sells specific product to current and new accounts

    17

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    GuidingParameters

    1 2 3

    Guiding Parameters: Sales Force Motivation

    Target total compensationobjective

    Marketcom etitive u side

    Sales Force Motivation2

    Positive

    Negative

    Source Need InfluenceVector

    Seek Economic Gain

    Avoid Economic Loss

    Motivation Response

    Economic

    External

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    pay

    Each plan is simple tounderstand

    Sales force can tie results topayouts

    Positive

    Negative

    Positive

    Negative

    Seek Acclaim/Belonging

    Avoid Embarrassment/Rejection

    Seek Self-Image Confirmation

    Avoid Self-Image Detractors

    Social

    Self-DefinitionInternal

    18

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    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    GuidingParameters

    1 2 3

    Guiding Parameters: Pay For Performance

    Differentiate top & bottomperformance

    Pay for Performance3

    Tiffany Shop

    Sell or Die

    75th Market Tracker

    Nice Place toWork

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    business), not effort

    Absolute pay correlates toabsolute results

    Compensation programmeets fiscal requirements

    LowPerformers

    MedianPerformers

    HighPerformers

    25th

    BottomFeeder

    19

    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    PlanElements

    GuidingParameters

    1 2 3

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    20

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    Plan Elements: Eligibility

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Eligibility

    Eligibility Criteria:

    1. Significant customer and/orpartner contact andrelationship

    GainsharingAdd-On3x

    Uncapped2x

    CappedUnit Rate

    No RiskRisk

    Target PayTarget Rate

    1

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    . ersua e e cus omer oact in a positive financialbenefit to the company

    3. High level of sales processinvolvement/ownership

    4. Clear and quantifiable salesobjectives

    BaseSalary

    BaseSalary

    Target TotalCash

    Compensation

    BaseSalary

    Types of Variable Compensation Plans

    BaseSalary

    21

    Eligibility Decision Tree

    Direct Sales: SalesFocus Only

    PersuadeProspect

    Contact Style Role Job Type Eligibility

    3x Uncapped

    Titles

    Indirect Sales:Channel Sales

    Efforts

    Reactive Selling:Sell on In-bound

    Call or Service Issue

    Customer Service:Service Only

    Support: Influence

    PersuadeOther

    Sellers

    PersuadeBuyer

    FulfillCustomer

    Respond

    3x Uncapped

    3x Uncapped

    2x Capped

    External

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Efforts to Achieve

    Sales Objective

    Support: Administer/Implement Sales

    Programs

    Support:TransactionProcessing

    Promote

    Administer

    Execute

    FacilitateInternal

    2x Capped

    Add-On Team

    Add-OnGroup

    22

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    Plan Elements: Pay Levels

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Pay Levels

    Clear and consistent payphilosophy

    Competitive pay levels toattract the level of talent

    ...Medians and Averages Alone Are Meaningless

    $170,000

    $180,000

    $190,000

    $200,000

    Total W-2

    $210,000

    2

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    sales requires

    Benchmarking to the rightroles based upon job content

    Benchmarking to the right setof companies

    10th 25th 50th 75th 90th$130,000$140,000

    $150,000

    $160,000

    PercentileOur Data Survey Data

    23

    Target Total CompensationJob Levels

    High

    Income Producer

    W-2 Earnings

    Sales Representative

    Territory Representative

    Senior Sales Representative

    Account Executive

    Senior Account Manager

    Global Account Manager

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Sales Territory Volume

    Low

    Low High

    24

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    Plan Elements: Pay Mix

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Pay Mix

    Pay mix reflects the jobsdegree of individual influencewithin the deal and considers

    3

    10 30100

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Jobs with the most influenceon the purchasing decisionhave more aggressive paymix

    Mix

    90 70 50

    Degree of InfluenceJob A Job B Job C

    Low High

    25

    Plan Elements: Leverage

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Leverage

    Leverage (upside opportunity)reflects the jobs degree ofindividual influence on

    120

    10

    200

    160

    30

    50

    Upside

    10 3050

    100 Leverage

    4

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    attaining quota and considers

    market benchmarks

    Jobs with the most influenceon the purchasing decisionhave a higher upside earning

    Mix90 70

    50

    Degree of Influence

    Job A Job B Job C

    Low High

    30

    50

    26

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    Performance MeasuresTypes

    Revenue, Profit Dollars, Items SoldProduction

    , , ,ManagementSales Effectiveness

    Customer Satisfaction, Sales Satisfaction,Customer LoyaltyCustomer Impact

    Productivity, Channel Effectiveness, SubordinateSuccessResource Management

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Sales Milestone Tasks, Sales EventsActivities

    Supervisor EvaluationSubjective

    27

    Performance MeasuresWeightings

    Jobs Revenue ProfitNew

    AccountsCrossSell

    KSOs Total

    Sales Rep 50% 25% 25% 100%

    Key Accounts 50% 25% 25% 100%

    Pre-Sales 75% 15% 10% 100%

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Telephone 100% 100%

    Customer Service 75% 25% 100%

    Channel Mgr 70% 30% 100%

    28

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    Plan Elements: Measures

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Measures

    No more than three measures

    Criteria include:Alignment to strategy and job Influence their measures (Line of Sight)

    Just Say No To:

    More than three measures

    Corporate galactic measures

    Activit measures

    5

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Ability to set quotas/goalsAbility to track Objective metrics

    Weights reflect the jobs focusand have impact

    Measures aligned verticallyand across teams

    Wishful thinking measures

    Weighting less than 15%

    Compliance measures

    Can not measure measures

    29

    Plan Elements: Mechanics & Pay Curve

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Appropriate mechanics:

    Set thresholds at point ofrecurring business

    Use quotas to

    Mechanics &Pay Curve

    400%

    500%

    600%

    % of TargetIncentive

    ExcellenceDecelerator

    Pay Curve

    6

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    territoryUse excellence to setaccelerator rates

    Decelerate rate afterexcellence to avoid overpayment

    Use modifiers, valueadjustments and matrices tobalance measures

    0%

    100%

    200%

    300%

    0% 25% 50% 75% 100% 125% 150% 175%

    Attainment of Goal

    No ThresholdThreshold

    Target

    Upside

    Cap

    30

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    FormulaModifiers

    FormulaType

    FormulaMechanics

    PayProgram

    Formula MechanicsSpecification Worksheet

    Limits Threshold Cap Order Size Account

    Draw None Non-

    Recoverable Recoverable

    Schedule Lump Sum Step Formula

    Slope Flat Rate Progressive Regressive

    Value Adjust

    Individual Commission Bonus ICR KSOs

    Team Shared Goals Gainsharing Pool

    Pay Program

    Producer Seller 3x Sales Help 2x Add-On

    Or

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Permanent Expiring

    Period Discrete Cumulative

    Revenue Rates

    Linkage None Hurdle Multiplier Matrix

    Group Location Sales Unit

    Division

    Hybrid

    Or

    Or

    31

    Formula ExamplesMechanics Description Pros Cons

    Commission

    Percentage of each sale given ascompensation. Different percentagerates can be used for different productsand rates can ramp as sales increase.

    Simple Motivational

    AbsolutePayout

    ProductPoints

    Assign point value to each product sale;payout depends on total number ofpoints attained.

    Can weightkey products

    Di icult admin Plan

    Shopping

    Payout Curve Earnings increase linearly as quotaattainment increases.

    Equalizesdiverseterritories

    Two-stepcalculation

    Step Bonus Earnings increase in a step-basedfashion as quota attainment increases.

    Addressesquota settingdifficulty

    No paybetween steps

    P ro du ct A 1 5 3 0+ P oi nt s $ 2 0, 00 0

    Product B 10 16-30 Points $10,000

    P ro du ct C 5 5 -1 5 P oi nt s $ 5, 00 0

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Hurdle

    Earnings are held back for one measure

    unless the goal for another measure ismet.

    Creates high

    priority forachievement

    Can be overlypunitive

    MultiplierEarnings for one measure are increasedor decreased depending on the goalattainment of another measure.

    Balanceasymmetricalmeasures

    Unclear focuson individualmeasures

    MatrixPerformance for X-axis measure andperformance for Y-axis measuredetermine reward.

    Balancescompetinginitiatives

    Involved

    4 7 10 12 18

    3 5 7 9 1 2

    2 4 6 7 1 0

    1 2 4 5 7

    0 1 2 3 4

    Rev

    Profit

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    Plan Elements: Performance & Payout Periods

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Performance &Payout Periods

    Performance periods should:

    Match sales cycle length

    Set realistic goals

    Minimize pushing/pulling

    7

    Separate, standalone payments foreach period

    Discrete Periods

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    orders

    Payment should: Occur close to sales event

    Ensure proper cash flow

    Be Consequential

    Cumulative Performance-to-Date

    Divided performance period paid on acumulative performance-to-date basis

    33

    Performance PeriodDiscrete And Cumulative

    Achievement Incentive Payment

    Q1 Actuals versus Q1 Quota Q1

    Discrete

    Achievement Incentive Payment

    Q2 Actuals versus Q2 Quota Q2

    Q3 Actuals versus Q3 Quota Q3

    Q4 Actuals versus Q4 Quota Q4

    Cumulative Year-to-Date

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    c uas versus uo a

    Q1+Q2 Actuals versus Q1+Q2 Quota Q1Q2 less Q1

    Q1+Q2+Q3 Actuals versus Q1+Q2+Q3 Quota Q1Q3 less Q1+Q2

    Q1+Q2+Q3+Q4 Actuals versus Q1+Q2+Q3+Q4 Quota Q1Q4 less Q1+Q2+Q3

    34

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    Plan Elements: Quotas/Targets

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Quotas/Targets

    Quotas are fair, realistic,stretch goals based on salespotential

    2/3 of incumbents achievegoal

    30-40%of

    Sellers

    60-70%of

    Sellers

    Quota Distribution

    8

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Consistent quota methodologyfor similar roles and segments

    well documented andcommunicated

    Process includes both top-down and bottom-up

    Threshold 100% Excellence

    Top10%

    ofSellers

    Bottom10% ofSellers

    35

    Quotas

    Quota Level 2

    Quota Level 1

    Sales Objective

    Forecast Company Number

    Sales Department Goal

    East Region

    Area 1 Area 2

    West Region

    Area 3 Area 4

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Quota Level 4

    Quota Level 3 District

    Sales Rep Sales Rep Sales Rep

    36

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    Plan Elements: Crediting & Policies

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Sales crediting rules:

    Credit for salesinvolvement

    Pay for persuasion

    Administer Efficiently

    Crediting & Policies

    Region

    DistrictVertical Crediting

    9

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Avoid budget inflation

    Policies for: Employee changes

    Quota changes

    Windfall deals/mega deals

    Sales crediting

    SR #1 SR #2 Specialist

    Horizontal Crediting

    37

    Plan Elements: Special Incentives

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayCurve

    Perf &PayoutPeriods

    PlanElements

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    Special Incentives

    Use standard governanceprocess

    Incentives will: Not com ete with annual

    OvertargetIncentive

    Pay

    Recognition

    Contests/Spiffs

    TargetIncentive

    Excellence

    10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    SIP Not exceed 5% ofpopulations TTC

    Be limited to more than 5incentives a year

    Last no longer than 1-3months

    Pay

    Salary

    Benefits

    SalesExpenses

    Target

    38

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    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayPerf &Payout

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    Plan

    GuidingParameters

    1 2 3

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    39

    Execution: Investment ROI

    Investment ROI Communication AdministrationGovernance,Assessment,Execution

    1 2 3 4

    Program costadheres tocompanys financialgoals

    Program costs are

    Investment ROI

    100%

    120%

    140%

    160%

    ment

    Cost-Per-Order Dollar1/3 1/3 1/3

    $0.12 $0.08 $0.04

    1

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    expectedperformance

    Finance ownsprogram costing

    Program preventsblow out payouts

    0%

    20%

    40%

    60%

    80%

    $0 $180 $360 $540 $720 $900 $1,080 $1,260 $1,440 $1,620 $1,800

    QuotaAttain

    Quota Size ($K)

    40

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    Execution: Communication

    Investment ROI Communication AdministrationGovernance,Assessment,Execution

    1 2 3 4

    Comprehensivecommunicationstrategy

    Detailed web-support

    Communication2

    Key Elements of a Leadership Message

    State Compelling Business Condition1

    Disconnect from Past2

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Estimators

    Line-sales

    managementcommunicates tofield

    Expansive trainingand programdocumentation

    Present the Future3

    Thank for Past Efforts4

    Call for Volunteers5

    41

    Execution: Administration

    Investment ROI Communication AdministrationGovernance,Assessment,Execution

    1 2 3 4

    Single source forprocessing andreporting

    Plans areadministered in a

    Administration

    COMPLEXITY(Jobs x Measures x

    High

    BOE

    3

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    ,

    cost-efficient manner Clearly defined and

    consistent policiesand procedures forplan administration

    Standards governingexpected behaviorsand performance

    Rules x Changes)

    INTENSITY(Incumbents x Transactions x Period)

    Low

    Low High

    42

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    22

    Execution: Governance, Assessment, Design

    Investment ROI Communication AdministrationGovernance,Assessment,Execution

    1 2 3 4

    Governancestructure exists toassess, design,

    Governance,Assessment,

    DesignSales

    Management

    Establish Objectives, Define Deployment,Identify Measures, Represent FieldPerspectives and Own the Sales Comp Plan

    Marketing Confirm Product and Price Objectives

    4

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    mp emen an auplans

    Defined roles andaccountabilities

    Specified process

    Governance bodyenforces alignmentto principles

    FinanceEstablish Expense-to-Revenue Ratio, Costof the Plan and Provide Administration

    Sales OperationsProvide Pay/Performance Data, EnsureTracking and Evaluate Plan Performance

    HR/CompGather External Pay Data and Facilitatethe Design Process

    43

    Assessment: Data AnalysisPay Percentile Distribution ChartsAnalyze the range of payouts across incumbents by percentile Purpose: Assess the level of pay variance and upside pay levels

    Analyze the range of revenue across incumbents by percentile Purpose: Assess the level of revenue variance between individual reps

    Margin Attainment Percentile Distribution ChartsAnalyze the range of sales performance across incumbents by percentile Purpose: Assess current threshold and excellence levels; determine percent

    of incumbents above and below target performance levels

    Pay vs. Revenue Attainment Correlation ScatterAnalyze the correlation between total compensation and revenue generation

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Purpose: Identify inconsistencies between payouts and revenue

    Pay vs. Margin Attainment Correlation ScatterAnalyze the correlation between total compensation and sales performance Purpose: Identify inconsistencies between pay and performance

    44

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    Design Methodology

    Confirm Des ign Execu te

    BusinessObjectives

    Sales Strategyand Structure

    Job Design

    Eligibility

    TargetPay

    PayMix

    Upside

    Measures

    Weightings

    Mechanics

    Performance

    Period

    PayoutFrequency

    Quota

    Crediting

    Cost Modeling

    Administration

    Documentation,Communicationand Rollout

    Sales Representative

    Key Account Manager

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    CompensationPhilosophy

    OngoingEvaluation

    Channel Manager

    Technical Specialist

    45

    Design Spreadsheet

    Sales Representative

    National Accounts Manager

    Vertical Market Representative

    Channel Sales Manager

    $140,000

    Y

    Y

    Y

    Y $150,000

    $120,000

    $120,000

    50/503x

    70/303x

    75/253x

    80/202.5x

    Rep Perf

    Volume

    Volume

    Volume

    Volume

    Partners

    Retention

    Price

    60%

    40%

    70%

    30%

    70%

    30%

    80%

    20%

    Comm

    Bonus

    Bonus

    Modifier

    Matrix

    Matrix

    Matrix

    Matrix

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Sales Associate N $68,000 100/0Volume

    MBO

    85%

    15%

    Merit

    Merit

    46

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    Sales Compensation Plan Design Principles

    Attract, Retain and Reward Sales Resources To Drive Sales Results...Consistent WithCharter

    ,

    EligibilityPay

    LevelsPayMix

    Leverage MeasuresMechanics

    & PayPerf &Payout

    Strategy & JobAlignment

    Sales ForceMotivation

    Pay forPerformance

    Plan

    GuidingParameters

    1 2 3

    Quotas/Targets

    SpecialIncentives

    Crediting& Policies

    1 2 3 4 5 6 7 8 9 10

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    Investment ROI Communication AdministrationGovernance,Assessment,

    Design

    Execution

    1 2 3 4

    47

    Your Policy Document

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    Crafting A Policy Document

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli 49

    David J. Cichelli, Senior Vice PresidentDavid Cichelli, a Senior Vice President with The Alexander Group, Inc., a sales effectivenessconsult ing f irm, contributes his knowledge and experience to a wide array of salesorganizations. His clients include leading companies in technology, telecommunications,wholesale/distribution, financial services and healthcare. David helps clients redefine anddeploy sales coverage to ensure optimal sales performance. By applying the AlexanderGroup's Sales Management System, he helps companies achieve their sales objectives

    Business Experience

    Prior to joining the Alexander Group in 1985, David served for five years as

    , , , ,sales forecasting,quota allocation, sales force automation solutionsand sales compensation.

    Widely recognized by national professional associations and trade publications for his work inlinking sales compensation to management's objectives, David is a frequent speaker on salescompensation topics. He is author of McGraw Hil ls Compensating the Sales Force (2nd

    edition). He is also the author of The Sales Growth Imperative, published by McGraw Hill. Heserves a leadership role in the design of the firm's sales effectiveness conceptual models.David is an officer of the company.

    2012 The Alexander Group, Inc. SC Establishing Design Principles David Cichelli

    compensation consult ing firm. Previously, he had spent seven yearsproviding support to the field sales organization of a multinational Fortune200 chemical company.

    Academic Credentials

    M.S., Michigan State UniversityB.S., Pennsylvania State UniversityFaculty Experience: Merage Foundation University California, Irvine;WorldatWork; Columbia University

    50

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    omp

    2012 The Alexander Group, Inc. SC Establishing Design Principles David CichelliAtlanta | Chicago | San Francisco | Scottsdale | Stamford


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