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Selling Power Magazine Article
Incentivized to Win
While the recession has technically ended, the economy still presents a tough sales environment, and sales reps still need incentives to get out there every day and face the bruising world of delayed decision making and rejections. Cash and noncash incentives continue to play a critical role in maximizing revenue and profit.
But managers have also learned important lessons from tough times. Software vendors are allowing economical implementation and precise targeting of incentive plans and faster payout of rewards - a real plus for motivation. Further, some companies are taking another look at long-term sales incentives to hold on to the best reps they kept during the downturn but who may now be looking at other employment options.
"Chief sales officers are doing it right coming out of the recession," argues Dennis Spahr, vice president of sales effectiveness practice at Sibson Consulting. "They are looking to grow profitably."
Spahr sees several trends in sales performance compensation. First, firms are simplifying sales roles and the compensation plans that go with them. "There are no unique salespeople," explains Spahr. "All are assigned a sales role and a compensation plan for it."
Instead of just controlling the total cost of sales at a fixed percent of revenue, managers are paying more for new business and less for account management. "The increase will be in variable comp, and base will grow at inflation or less," Spahr predicts.
In general, metrics will remain the same. There is a bigger focus on customer satisfaction, but that is hard to measure. Spahr says, "[Customer satisfaction] must be measurable, strategic, and controllable by the rep. Surveyed customers will praise their reps or simply not respond, so firms are looking for other measures, such as repeat business or recurring revenue."
Spahr is seeing firms start to put money back into spiffs and noncash rewards. Of the companies he's reviewed, 72 percent use spiffs, and most of those companies spend 3 to 10 percent of total incentive dollars on spiffs.
Fully 80 percent of Sibson-surveyed firms use revenue as a performance metric. Almost as important is the measurement of profit margin and company objectives. Only 20 percent of firms used margins in an earlier Sibson survey. Most recently, however, 46 percent do. A minority of firms use long-term incentives, mostly for top execs in high tech.
Firms are paying more attention to who designs and controls performance compensation: top management, regional managers, or line managers. Spahr predicts firms will practice tighter management of target pay levels and move money to top performers and away from those who fall behind.
Robert Bentley, associate partner at Aon Hewitt, estimates that about 20 percent of firms use long-term incentives for sales. But in recent roundtables, Bentley is seeing increased interest in long-term incentives.
"Lots of sales reps got beaten down during the recession, and if another company wants to take them, they could go," Bentley says. "So we may want to make them feel better and give them ‘golden handcuffs.'"
Bentley is seeing anecdotal evidence that firms will move in this direction and thinks it is a good idea. "You could hold on to your best reps and also differentiate yourself in attracting new reps."
Long-term incentives include restricted stock, stock options, or phantom stock. Phantom stock is based on an estimate of company value for firms without public shares. Long-term incentives can also be cash that's deposited into an account but not paid out until later.
Recognition at award ceremonies and at trips and conferences are also long-term incentives. Bentley distinguishes these rewards from spiffs aimed at hitting short-term goals or selling new products.
"We are looking at long-term incentives, but not stock or stock options," says Ben Torres, leader of global sales compensation at D&B. Rather, the business-intelligence giant is considering using deferred cash rewards based on recent years' performances.
"It would vest and pay out over no more than three years," Torres notes. "We want to reward our most consistent performers, who tend to be our top performers, because we want to keep them." D&B plans to implement the scheme late in 2012 for application in 2013.
D&B also wants to get more reps making commission. "We have not had the growth we had in past years, but if people are working hard, we want to reward them," Torres says, "so we may lower thresholds." Incentive thresholds of 130 percent of quota might thus be lowered to 115 or 120 percent.
Amit Gupta, regional vice president at Synygy, says he is seeing greater adoption of margin-based metrics for incentive compensation and more targeted goals that combine specific accounts and channel mix.
David Cichelli, senior vice president at The Alexander Group, says many changes in performance compensation occur simply because companies change: "Some companies start with commission because they want to grow fast. Then they get national accounts and midlevel salespeople and managers who have to be paid differently. Then they get bigger and need profit, so they have to pay for profit. Then they have a mature market and have to sell solutions, so they have to pay differently."
Performance metrics change most frequently. Most companies make some change in sales compensation each year, but firms generally overhaul their entire compensation plan once every five to seven years when business objectives have fundamentally shifted.
Cichelli predicts commissions will increase 3 percent in 2012, as will base pay. Fast-growing (continued on page 2)
But managers have also learned important lessons from tough times. Software vendors are allowing economical implementation and precise targeting of incentive plans and faster payout of rewards - a real plus for motivation. Further, some companies are taking another look at long-term sales incentives to hold on to the best reps they kept during the downturn but who may now be looking at other employment options.
"Chief sales officers are doing it right coming out of the recession," argues Dennis Spahr, vice president of sales effectiveness practice at Sibson Consulting. "They are looking to grow profitably."
Spahr sees several trends in sales performance compensation. First, firms are simplifying sales roles and the compensation plans that go with them. "There are no unique salespeople," explains Spahr. "All are assigned a sales role and a compensation plan for it."
Instead of just controlling the total cost of sales at a fixed percent of revenue, managers are paying more for new business and less for account management. "The increase will be in variable comp, and base will grow at inflation or less," Spahr predicts.
In general, metrics will remain the same. There is a bigger focus on customer satisfaction, but that is hard to measure. Spahr says, "[Customer satisfaction] must be measurable, strategic, and controllable by the rep. Surveyed customers will praise their reps or simply not respond, so firms are looking for other measures, such as repeat business or recurring revenue."
Spahr is seeing firms start to put money back into spiffs and noncash rewards. Of the companies he's reviewed, 72 percent use spiffs, and most of those companies spend 3 to 10 percent of total incentive dollars on spiffs.
Fully 80 percent of Sibson-surveyed firms use revenue as a performance metric. Almost as important is the measurement of profit margin and company objectives. Only 20 percent of firms used margins in an earlier Sibson survey. Most recently, however, 46 percent do. A minority of firms use long-term incentives, mostly for top execs in high tech.
Firms are paying more attention to who designs and controls performance compensation: top management, regional managers, or line managers. Spahr predicts firms will practice tighter management of target pay levels and move money to top performers and away from those who fall behind.
Robert Bentley, associate partner at Aon Hewitt, estimates that about 20 percent of firms use long-term incentives for sales. But in recent roundtables, Bentley is seeing increased interest in long-term incentives.
"Lots of sales reps got beaten down during the recession, and if another company wants to take them, they could go," Bentley says. "So we may want to make them feel better and give them ‘golden handcuffs.'"
Bentley is seeing anecdotal evidence that firms will move in this direction and thinks it is a good idea. "You could hold on to your best reps and also differentiate yourself in attracting new reps."
Long-term incentives include restricted stock, stock options, or phantom stock. Phantom stock is based on an estimate of company value for firms without public shares. Long-term incentives can also be cash that's deposited into an account but not paid out until later.
Recognition at award ceremonies and at trips and conferences are also long-term incentives. Bentley distinguishes these rewards from spiffs aimed at hitting short-term goals or selling new products.
"We are looking at long-term incentives, but not stock or stock options," says Ben Torres, leader of global sales compensation at D&B. Rather, the business-intelligence giant is considering using deferred cash rewards based on recent years' performances.
"It would vest and pay out over no more than three years," Torres notes. "We want to reward our most consistent performers, who tend to be our top performers, because we want to keep them." D&B plans to implement the scheme late in 2012 for application in 2013.
D&B also wants to get more reps making commission. "We have not had the growth we had in past years, but if people are working hard, we want to reward them," Torres says, "so we may lower thresholds." Incentive thresholds of 130 percent of quota might thus be lowered to 115 or 120 percent.
Amit Gupta, regional vice president at Synygy, says he is seeing greater adoption of margin-based metrics for incentive compensation and more targeted goals that combine specific accounts and channel mix.
David Cichelli, senior vice president at The Alexander Group, says many changes in performance compensation occur simply because companies change: "Some companies start with commission because they want to grow fast. Then they get national accounts and midlevel salespeople and managers who have to be paid differently. Then they get bigger and need profit, so they have to pay for profit. Then they have a mature market and have to sell solutions, so they have to pay differently."
Performance metrics change most frequently. Most companies make some change in sales compensation each year, but firms generally overhaul their entire compensation plan once every five to seven years when business objectives have fundamentally shifted.
Cichelli predicts commissions will increase 3 percent in 2012, as will base pay. Fast-growing (continued on page 2)
– Henry Canaday
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