The Strategic Sales Incentive Plan Audit: Put Away Your Calculator

TandehillHuman Capital, A A Human Resources and Pay-for-Performance Consulting Firm
Tandehill Human Capital, Human Resources and Pay-for-Performance Consulting Firm

The Strategic Sales
Comp Audit
Put away your calculator

Brad Hill
Tandehill Human Capital

Typical Audit Objectives. . .

• Pay at market.
• Reward high performers enough.
• Create normal distribution of payouts.
• Penalize low performers.

… and an awful lot of number
crunching
Strategic Sales Compensation Audit www.tandehill.com 2

How Should The Compensation Program. . .

• Keep score of employee success?
• Raise employee competence?
• Improve selling processes?
• Make success desirable?
• Harness employees‟ discretionary effort?


Your Audit Objectives. . .
• Are you defining „success‟ with the right metric(s)?
• Are you rewarding the right competencies?
• Are you incenting the best sales process?
• Have you created line of sight to success?
• Are you communicating sales successes?

Study success from every angle


1. Defining Success
• Brainstorm all possible metrics
• Create three incentive plan design alternatives
 Overview
 Sample calculation
 Advantages/disadvantages
• Present to the sales force
• Develop final recommendation
• Present to the sales force


1. Defining Success
Financial Metrics Qualitative Metrics
Gross Margin $ Cross-Selling
Gross Margin % Customer Satisfaction
Market Share Milestones
Product Sales New Products
Revenue # New Accounts
Sales Growth # Meetings with Propects
Days Receiveables Up-Selling
Outstanding


1. Defining Success
• There are lots of great metrics- stick to 1, 2 or 3.
• The incentive plan is not a job description- it‟s a
mechanism to keep score of achieving this year‟s
most critical goals.
• If your primary goal is qualitative (customer
satisfaction) you need a financial counter-measure.
• Get employee buy-in into the selected metric(s).


2. Identifying the Right Competencies
• Study your top performers.
• What makes them different?
• Structure your findings
 Interpersonal skills, financial acumen, technical
knowledge, planning & organization, self direction,
results orientation, customer orientation
• Base pay rewards should recognize the growth in
these competencies.


2. Star Performers Deliver

What a Top Sales Performer Delivers
Hay Group Case Study of 44 Fortune 500 Firms
Average Annual Sales Volume

$7,000,000

$6,000,000

$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$-
Top 10% Average

Ranking in Sales Force


2. Articulating the Competencies
Influence Skills Listening
Expressing ideas in a way that generates the support and enthusiasm of Attending and being open to the communication of others. Listening is conveying interest and
others without appeal to position or authority. understanding in the speaker’s words and non-verbal cues.

Competency Scale Competency Scale

Elements include (1) type of actions taken to influence others and (2) breadth Elements include (1) being approachable and (2) attending to and remembering what others
of impact. have said.

-1. Is hostile and unapproachable. Views others as beneath them. Makes no -1. Intimidates others; is closed to input. Regularly interrupts or adds inappropriate comments
attempt to influence others. when listening.

0. Gives others the opportunity to speak, but provides few cues to the speaker that they are
0. Doesn’t take a position. Appears uninterested. being heard. Appears distracted or uninterested.

1. States a position, or gives simple arguments for the adoption of ideas.
Presents ideas in own terms, with little apparent sensitivity to the needs or
interests of the audience. Takes no further action when initial presentation 1. Shows interest when approached. Follows the speaker’s train of thought. May occasionally
meets resistance. add comments that indicate understanding.

2. Attempts to demonstrate the advantages of a particular idea, process, 2. Views listening and understanding as part of the job. Asks questions or makes comments to
service or product. May provide additional information when requested. clarify or confirm what the speaker is saying.

3. Considers audience needs and interests in preparation for a presentation or
proposal. Anticipates basic responses, including arguments against or other 3. Encourages others to share their ideas, opinions or feelings. Probes to elicit additional
resistance. Uses appropriate techniques to respond to resistance. Is regarded information. Often interprets non-verbal cues and makes observations designed to clarify
as moderately persuasive. understanding.

4. Is usually able to rally support for their perspective. Develops a plan, 4. Is recognized as someone who actively solicits input from a variety of viewpoints. Listens
accounting for major factors (audience, business climate, etc.), and uses a actively and conveys appropriate emotions. Contributes insightful comments or questions that
variety of techniques or tools to persuade others to adopt a particular idea, help clarify meaning, and often make the speaker feel valued. Tunes into the speaker’s state
process, service or product. of mind by attending to non-verbal cues.

5. Is consistently able to gain the support of others by appealing to their
needs, positions and concerns. Creates a complex approach to influencing 5. Personifies expert listening skills and is an advocate for openness and listening at all levels
others, based on a knowledgeable consideration of audience, business and of the organization. Gives others their full attention, demonstrating a genuine respect for the
organizational context, likely responses or resistance and replies to speaker’s input and perspectives. Goes beyond the verbal message, carefully tuning in to the
objections. Is recognized as someone who helps shape the course of events non-verbal cues to extract additional meaning. Uses discovery techniques to clarify meaning
and make things happen. and uncover unexpected ideas and insights from the speaker.


2. Why Pay for Competencies?
Sales Performance Comparison -
Average Size of Each Sale Made
Case Example -- A Premier Financial Services Firm
Average Revenue per Sale

+248%
3.5

+101%
4

2.5

Company
3

Average
1.5

2

0.5

1

5 or more 4 3 or less
Number of Demonstrated Competencies
0


3. Profiling the Best Sales Process
• The best sales process is the one that increases the
likelihood of achieving this year‟s plan.
• It will be different if you are focusing on sales to
new versus existing customers.
• Help the sales force understand your goals by
detailing how the sales process should be different
this year.


LY # of Contact Return on
Customer Type Industry Actual Potential Plan Calls Hours Investment
Target Prospect Account O Automotive $ - $ 5,000 $ 100 24 48 $ 2.08
Target Prospect Account U Automotive $ - $ 5,000 $ 50 24 48 $ 1.04
Target Prospect Account U Automotive $ - $ 3,000 $ 100 24 48 $ 2.08
Target Prospect Account O Food & Beverage $ - $ 2,500 $ 50 48 48 $ 1.04
Target Prospect Account U Food & Beverage $ - $ 3,000 $ 25 36 72 $ 0.35
Target Prospect Account U Food & Beverage $ - $ 5,000 $ 25 36 36 $ 0.69
Target Prospect Account O Material Handling $ - $ 2,000 $ 50 48 96 $ 0.52
Target Prospect Account O Machine Tool $ - $ 1,000 $ 50 48 96 $ 0.52
Target Penetrate Account U Japanese Automotive $ 25 $ 500 $ 50 24 48 $ 1.04
Target Penetrate Account U Japanese Automotive $ 50 $ 250 $ 50 24 24 $ 2.08
Target Penetrate Account O Japanese Automotive $ 25 $ 250 $ 50 24 12 $ 4.17
Target Penetrate Account O Machine Tool $ 50 $ 250 $ 100 24 12 $ 8.33
Target Penetrate Account O Building Automation $ 25 $ 200 $ 100 24 12 $ 8.33
Target Penetrate Account O Building Automation $ 25 $ 250 $ 50 24 12 $ 4.17
Target Penetrate Account O XA $ 100 $ 500 $ 150 24 24 $ 6.25
Target Penetrate Account O XA $ 100 $ 500 $ 150 24 24 $ 6.25
O
Target Existing (Perpetuate) Account XA $ 500 $ 500 $ 250 12 6 $ 41.67
O
Target Existing (Perpetuate) Account Printing $ 150 $ 200 $ 150 12 6 $ 25.00
O
Target Existing (Perpetuate) Account Packaging $ 150 $ 200 $ 125 12 24 $ 5.21
O
Target Existing (Perpetuate) Account Plastics $ 100 $ 200 $ 90 8 8 $ 11.25
O
Target Existing (Perpetuate) Account XA $ 100 $ 200 $ 90 8 4 $ 22.50
$ 1,400 $ 41,500 $ 2,105 712 972 $ 2.17


• The best sales process should be described.
• The best sales process should clearly contribute to
success as defined by the incentive plan measures.
• The „best‟ sales process is based on this year‟s
goals and this year‟s knowledge- it should change
and evolve with your business.


4. Creating Line of Sight
• For an incentive plan to be successful, each
employee must know how their actions impact the
result.
• You have two choices.
1. Drill the metrics down to the employee level
(creating 427 different plans and forcing you to hire a
department of metric development and maintenance).
2. Ratchet up the employee‟s understanding of a broader
metric by creating a “personal impact map.”


4. How to Connect Employees to the Formula

1. Start with 2. Identify critical 3. Identify organization actions that affect performance
key measure performance drivers Receivables
drivers
Optimize Inventory
Assets
Competitive Property, Plant & Equipment
Pricing
Other Investments

Reduce Materials
Profitable
Costs
Growth Labor
Deliver
On Time Overhead
Customer
Satisfaction Deliver a
Quality Product

Be
Responsive
Support
Customer Initiatives


4. How to Connect Employees to the Formula

1. Extend from 2. Break into team and individual focus areas
organization
actions Share underutilized equipment
(e.g., printer with another unit)

Better Defer equipment expenditure
Equipment
Usage Borrow equipment

Reduce Lease equipment on short-term basis
Property, Plant
& Equipment
Turn in unused equipment (e.g., printers,
laptops, microfiche machines, etc.)

Inventory equipment from PP&E list and
Equipment identify excess/unused items
Not Used
Find secondary markets for unused
equipment

Check with other divisions for possible
transfer of unused equipment


4. Personal Impact Map ... Sales Growth
Promptly calling for backup and promptly responding.
Check availability on unfamiliar, odd products before customer leaves (RX).
Wait Times Give customer more accurate time-frame on RX & Photo.
Call customer if late.
Customer
Employee Accessibility Cashier close to front door, acknowledge customers as they enter.
Service Checking out – Did you find everything OK? Be on the floor as much as possible.

Customer Acknowledgement 5 Foot Rule - Approach customer “Can I help You?”
Eyes, hi’s, and help.

Aim Checklist Properly scanning items, I.e., 2 different Revlon lipstick colors. Sales & Refunds done properly.

Stock Supply on Floor Bring out of stock, overstock, and out of season product issues to managers attention.
Reorder Outside merchandise in the RX.
Sales Easy to Locate Communicate ideas to manager & corp. Cross merchandising – Q Tips.
Growth
Clean Store Bathrooms - clean / stocked Parking lot / trashcans Entranceway
Carpets Spill Facing

Shopability Clear Aisles Restock Shopping Carts Baskets

Notice devastated areas. Take initiative to face without being asked.
Faced Products Keep RX faced because customers can see in the RX too.
Help FS I.e., RX Checkout.
If you notice a sign that is not clear, correct it.
Sales Item Signage If you notice an item is scanning incorrectly, price modify, and remove incorrect sign.
Notify pricing department.
Merchandising “Hot Item” Visibility Ensure sale end caps are fully stocked at all times.

Individual Product Accountability Make sure your immediate area is neat, clean, and stacked, I.e., cashier ringing would fill
candy and top of checkout. Photo lab tech would check film, top of checkout.

Community Employee Visibility Encourage employees to get involved in charity or volunteer program (hospital, retirement, 5K).

Involvement CVS Visibility Work with corporation or request grants to your charity / programs.


7 th Inning Stretch


5. Communicating Successes
• Forget industry stories and best practices- create
your own.
• Don‟t bring in outsiders to train your reps, have
your best reps do the job.
• The most credible and applicable success stories are
the ones that occur within your organization.
• Share the tips and traits of your recent successes.


5. Communication Motivates

78% of companies
Communication Effectiveness is Linked to
Motivational Value
that thought the
pay „information
80%
shared‟ was very
70%
effective, felt the
60%
pay plan was
50%
motivational
40%

30%

20%

10%

0%
Not EffectiveMarginally Effective Very
*2003 Loyola/World at Work research
Effective Effective
Com m unication Success/Motivational Value


5. Communication Effectiveness
How would you rate the effectiveness of the
information shared about pay?
70%

60%

50%

40%

30%

68% of employees 20%

do not feel pay 10%
communications 0%

Effective

Marginally
Effective

Effective
Effective
are very effective

Very
Not
Level of Effectiveness

* Loyola/World at Work research


5. Communicating Performance
• Yes, the check is a powerful communicator.
• But, the reasons behind the check are educational.
• What are the three things the rep did well that
contributed to the large check?
• What are the three things the rep did poorly that
led to the small check?


Parting Thoughts
• Cost of sales trumps cost of labor- forget about
market data, you have more important work to
do.
• Without employee buy-in your plan is doomed.
• You can pay for performance without motivating
higher levels of performance.
• First define sales success, then focus on the sales
processes and competencies that drive success.
• The big gains are generated by lifting up the
entire sales force.


Question #1
The key to incentive plan success is. . .
a) Getting the formula right.
b) Modeling the plan under different scenarios.
c) Motivating the right kind of behaviors.
d) Punishing poor performers.
e) Rewarding your top performers.


Question #2
The most important party to buy-in to the plan is …
a) Company leadership.
b) Sales leadership.
c) Plan participants.
d) Human resources.
e) Finance.


Question #3
Achieving optimal incentive plan ROI will come
from. . .
a) Getting high performers to improve 10%.
b) Taking pay from low performers and giving it to
high performers.
c) Getting low performers to improve 25%.
d) Improving everyone‟s selling processes and
competencies.
e) Setting a reasonable cap.


• Tandehill Human Capital is a Chicago-based human
resources consulting firm founded in 2003.
• Tandehill is dedicated to creating programs and processes to
maximize the motivation and productivity of employees,
managers and executives.
• Our consultants have an average of 20 years of consulting
experience, working with companies such as Aldi Foods,
General Electric, Goodrich, Nucor Steel, Panera Bread, St.
Joseph Health System, Square 1 Bank, Toyota, Tulane
University and Verizon.
• Tandehill‟s Mission is to improve business performance by:
– 1) increasing your return on investment in employee pay, and
– 2) providing employees with a sense of purpose in their work.


Contact Information

29 West 560 Point Oak Drive
Warrenville, IL 60555
630.836.0895
brad_hill@tandehill.com


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