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Trends
March 26, 2014
MERCER 1
Key Context & Trends
Key trend sales compensation is a critical driver for the sales force
Impact of Levers on Sales Productivity*
(% of surveyed companies who ranked lever within top 4)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of Companies
* Source: Mercers Sales Operations Trends Survey of Fortune 1000 companies. The
results are from 78 responses.
MERCER 3
Best practice: view sales compensation holistically
Leaders Laggards
Aligned, Fair, Attainable
Simple Goals Area
Plans Rated Area Effective
or Very Effective*
Design 75% 60%
Clear,
Timely Effective,
Plan & Goal Efficient
Comp Admin Administration 70% 57%
Communication
* Source: Mercers Sales Compensation Practices Survey of Fortune 1000 companies. The
MERCER results are from 91 responses. 4
Best practice is to connect the dots and align
1 2 3
Customer Segmentation & Sales & Channel Strategy Sales Process Definition &
Targeting Alignment
Sales Process
Cust.
Retention Expansion Acquisition 1. Interest 3. Engagement 4.
Seg. 2. Belief
4. Commitment Commitment
Sales Expansion Product First order
planning opportunity Planning (PO signed)
Tier 1 95% $100M $10M Targeting Deal strategy Prototyping Win/loss
strategy and Trialing review
Tier 2 85% $75M $100M Pricing/
Qualification negotiation
(go/no-to
Tier 3 75% $25M $40M decision),
based on fit
& plant
capacity
Targets
6 5 4
Quota Setting Sales Compensation Sales Organization & Role
Build Reconcile Refine Design Design
Senior Management
Senior reviews with Sales Manager
and makes adjustments
Management
based on trend line data Individual Contributor: Directional Incentive Comp Recommendations
and corporate expectations For Sales Rep, Account Manager/Executive, National Account Manager EVP, Americas
Mix &
Upside
Target
Targetpay
paym
mix
ix85/15
85/15
MERCER 5
Simplicity is also a critical best practice
Maximize motivational impact by balancing simplicity and alignment
Strong Management
Simple incentive Processes
plan (minimal
metrics)
Complex incentive
plan (multiple
Weak Management metrics)
Processes
MERCER 6
Effective sales compensation comes from a sound process
Assessment both qualitative Design involves the following Implementation steps can
and quantitative analysis key steps vary based on the degree of
Qualitative analysis includes: 1. Sales Compensation change made to sales incentive
Philosophy programs. Some key activities:
Interviewing key
stakeholders to gather 2. Determine Eligibility Confirm systems and
historical insight and to 3. Set Target TCC Levels administrative capabilities
provide strategic direction 4. Choose Mix of Base and Prepare formal plan
for the future Incentive documents
Understanding current 5. Determine Measures & Draft communication
sales compensation plans Weights materials
Reviewing relevant 6. Design Plan Mechanics Train managers on
business documentation 7. Set Performance changes to the sales
Quantitative analysis Objectives incentive plan
includes: 8. Select Leverage Ratios Set meetings for managers
External compensation 9. Set Payout Timing to communicate changes
benchmarking 10.Validate Plans and Make one-on-one with direct
Reviewing pay and Refinements reports
performance relationships
MERCER 7
Sales Compensation Plan Design Best
Practices
Key success criteria for effective sales compensation design
MERCER 9
Effective sales compensation depends upon role clarity and what good
looks like in terms of results
Existing New
Key Existing Customer
Customer Custome
Strategic
More Volume Current
New Product
HW SW Services WW
Sales
Server CRM
Mainte-
Identify Retain/Defend
Qualify Propose Close
Imple-
ment
Service Gr
nance Direct Indirect
MERCER 10
Design all key sales compensation components as a total solution
MERCER 11
Step 1: Sales Compensation Philosophy
MERCER 13
Step 4: Choose Mix of Base and Incentive
10%
20%
30%
Incentive 40%
50%
Base 60%
70%
80%
90%
100%
MERCER 14
Step 4: Choose Mix of Base and Incentive
Uncapped
$200K
Uncapped
Upside
Uncapped 100
Amount Earned
60 Legend
Above target incentives
20
$100K Target incentives
10
30 Base Salary
50
90
Mix
70
50
MERCER 15
Step 5: Determine Measures & Weights
Effective
Performance
Measures
Supports sales Data can be accurately
strategy and business tracked
objectives Comp
Aligned Data is from a trusted
ready
Consistent with roles source and available for
design and key timely payments
responsibilities
High
Commission-
Based Plans
Number of
Customers
Salary/Bonus-
Based Plans
Low
Short Long
Sales Cycle
MERCER 17
Step 7: Set Performance Objectives
Accurate target setting is key to motivate the field and align with
company success
Target level equates to
100% of plan
30-40% 60-70%
of Sellers of Sellers
Number of
Salespeople Bottom10% Top10%
of Sellers of Sellers
MERCER 18
Step 8: Select Leverage Ratios
300%
Payout Curve Leverage A decelerated
slope above (or
cap) at
250%
Excellence can
help to control
Payout as a % of Target
150%
The slope is
accelerated above
100% Target (100%) to set
the prize beyond
the finish line and
50% reward for
Payments 3/31/2014
outstanding
begin once a performance
0%
threshold level
is achieved 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150%
% Goal Attainment
Pay Mix The more aggressive the Pay Mix, the more frequent the payout
Number of
The greater the number of Performance Measures, the less frequent
Performance
the payout
Measures
Weighting of
The higher the weighting of the Performance Measure, the more
Performance
frequent the payout
Measures
Common payout frequencies are monthly, quarterly or annually and vary based on the factors above
2 Maximize motivation of plan but still balance ROI with compensation spend
Meets Principles Objectives Partially Meets Principles Objectives Fails to Meet Principles Objectives
MERCER 21
Appendix: Sales Compensation Effectiveness
Assessment Best Practices
Assessment: understanding the current compensation plans
Key red flags include:
1. Plans with high levels of uncapped upside
2. Performance levels with no threshold
3. Performance measures not based on quantifiable results
4. Highly frequent payments
5. Low weightings on performance measures
Performance / Payout Level
Performance Payout (as a % of Target) Payout
Role Weighting Component Detail
Measure Mechanism Frequency
Threshold Target Excellence
MERCER
Competitive compensation analysis
Example of competitive total target cash benchmarking
Illustrative
75th %ile
$140 $180
$60 $100
In In
Thousands
Base Salary Total Cash Compensation Thousands Base Salary Total Cash Compensation
MERCER 24
Competitive compensation analysis
The following pay mix exhibit shows how the mix of base and incentives (variable
compensation) compares to market benchmarks
61%
60% 74%
20% 39%
26%
0%
Sales Person Recruiter Vice President of Vice President of EVP of Solutions
Recruiting
March 31, 2014 Sales 25
MERCER 25
Key effectiveness metric: performance distribution by role
Goal Achievement
MERCER 26
Source: Financial data obtained from Company (Dec 2010)
Key effectiveness metric: pay composition by role
Incentive Pay
MERCER 27
Source: Financial data obtained from Company (Dec 2010)
Key effectiveness metric: pay for performance by key business objective
180%
160%
140%
2
R = 0.3251
120%
3YR Avg Goal Attainment
100%
80%
60%
40%
20%
0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
% Audit (of Total Revenue Generated)
MERCER 28
Source: Financial data obtained from Company (Dec 2010)
Key effectiveness metric: pay differentiation
% of Median Payout
Incentive Pay as a
Earner Position
MERCER 29
Biography
Shawn Rossi is a Principal and the North America Leader for Mercers Sales Performance Practice.
Based out of Atlanta, he leads engagements with clients to deliver straight forward, aligned, high
impact sales effectiveness solutions.
With over eighteen years experience, Shawn has expertise in a variety of industries including
technology, distribution, retail, telecommunications, banking, media, insurance, and medical device
companies; all with the goal of improving sales and marketing effectiveness.
Shawns engagement experiences specifically include working with leading global companies
including Apple, Allstate, Bank of America, Microsoft, Halliburton, Aflac, Unisource, Oracle, IBM,
United Healthcare, TBC, AT&T, T-Mobile, HP, Verizon, Superpages.com, Lexmark, Randstad,
Ryder, NCR, Motorola, FedEx, St. Jude Medical, Smith & Nephew, Red Bull, Sysco, Johnson &
Johnson, Ecolab, McKesson, Network Appliance, Samsung, Clear Channel and Vodafone.
Mr. Rossis key core competencies include:
Shawn Rossi Sales Transformation (spurred by acquisitions, new product launches, going into new markets)
Sales and Channel Strategy
Principal, North America
Practice Leader Sales Effectiveness Assessment & Dashboards
Sales Organization and Role Design
Sales & Marketing
Performance Practice Sales Compensation Design & Administration
Quota/Goal Setting
678.427.8275
Sales Process Definition/Re-engineering
shawn.rossi@mercer.com Sales Training & Enablement
Atlanta With over 30 widely published articles, speeches and webinars, Shawn is a recognized thought
leader in the sales performance management space. He has had works published in WorldatWork,
SHRM and other publications. Additionally, he has spoken at multiple conferences and via the web
for World at Work, SPM Solution Provider User Conferences, and the Sales Management
Association.
Shawn holds an MS in Physics from Auburn University and graduated Cum Laude from Wake
MERCER
Forest University with a Bachelor of Arts degree in Physics. 30
Questions
&
THANK YOU!
MERCER 31