Steve MarleyPrincipal,ZS Associates
Chad AlbrechtPrincipal,ZS Associates
Mike MartinPrincipal,ZS Associates
In the last 2 blog posts, we discussed metrics to include in the incentive compensation plan and the plan types that you should use. Now, we turn to the actual calculation of the payout amount.
In the prior “Back to Basics” blog, we covered the basics of choosing the most appropriate metrics upon which to pay for performance. In this blog, we will now tackle the question about which plan type to use.
In the first 2 “Back to Basics” blogs, we covered the basics of getting your guiding principles in place and determining the appropriate pay levels and mix.
In the first “Back to Basics” blog, we covered incentive compensation plan eligibility and guiding principles. In this blog, we want to turn to targeted pay level and mix. By “target” pay level, we mean the pay level that the “average” salesperson will earn for achieving expectations (often 100% of sales quota) in a given year. When we say “target” mix, we mean the way that total pay is delivered – either in base salary or in incentive pay. The mix is normally stated as a ratio, first with the percent base salary, and then the percent incentive. For example, if a job with a target pay level of $100,000 has $70,000 of that delivered in base salary, we would say that the pay mix is 70:30.
As most companies kick off their 2015 plan design this month, our blog is going “back to basics.” Over the next 10 weeks, we will cover all of the building blocks of sales incentive plan design so you have everything you need for your 2015 plan. Each week will focus on a different topic – from pay mix to metrics to payout formula – and provide key ideas on each element.
My colleagues at ZS Associates will soon publish a book called, “The Power of Sales Analytics”, and one of the chapters covers the use of analytics when compensating the sales force.
Most large companies segment their customers to determine whom to target and how best to serve them. Criteria for segmenting customers often include factors such as company size, whether they are a current customer, their industry, or other factors. Analytics help segment these customers into groups, and the groups are then treated alike for the purposes of a go-to-market strategy.
Management by Objective (MBO) plans can be very useful additions to any incentive plan for a variety of reasons:
I had the pleasure of going to Italy recently, and one of my favorite activities was getting coffee at different cafes. I would go three times per day and began comparing coffee across different towns as I travelled. Sometimes, I would also build up the courage to practice a little Italian with the barista.
The book “Thinking Fast and Slow” by Daniel Kahneman makes a provocative claim – for the best CEOs, luck matters more than skill. And he backs it up with data. If the success of the most senior executive in your company is affected by luck more than skill, is it possible that your best salespeople are, as well?
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