Steve MarleyPrincipal,ZS Associates
Chad AlbrechtPrincipal,ZS Associates
Mike MartinPrincipal,ZS Associates
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?
In my last blog, I mentioned “epic” (or, really, just large scale) games outside of the standard compensation plan that could motivate your sales force – games that could pit the entire sales force into a sweeping us-versus-them situation. While that sounds grand (like a summer blockbuster movie), game-play with your sales force does not always require sweeping scale or nationwide involvement.
Have any urban legends in your sales force? You know, the ones such as “big territories can’t grow” and “I don’t have any sales opportunities left.” These urban legends spread from salesperson to salesperson and, whether real or fiction, dictate sales force perceptions. You need to be aware of these field perceptions, rectify the ones that need to be corrected and “mythbust” those that are fiction. These impressions could drive your sales force’s satisfaction with their sales incentive plan, their quotas and, in extreme cases, their job.
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