Sales compensation design & trends
N.A. Chemicals Industry Forum
October 4, 2017
Tom Hill
312-228-1821
© 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
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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
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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
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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
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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
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Quota Setting Gone Wrong
Individual sales incumbents
Perf
orm
ance %
to g
oal
Incentive p
ayout
$
Achievement as % of goal
Incentive Payout ($)
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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
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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
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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
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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.
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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.
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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.
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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.
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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?”
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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
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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
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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
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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%
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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%
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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
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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%
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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%
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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%
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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.
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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