Towers Perrin Njca Sales Comp 051501

Sales Incentives That Motivate Success
New Jersey Compensation Association

Ron Burke
Valley Regency Caterers
May 15, 2001
This document is incomplete without the accompanying discussion; it is confidential and

intended solely for the information and benefit of the immediate recipient hereof.
My goal for this session

is to introduce and discuss:
Key principles of sales compensation (quick overview)
A framework to help clarify your selling roles
An approach to selecting the right selling role
The competencies required for individuals to perform well in each
role
Characteristics of the most effective sales compensation
arrangements for each role
2001 Towers Perrin
S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt
NYO
Sales incentives have been around forever

Words of Wisdom From a 1919 Management Text
You must reward your man in the field commensurate with

the part he plays in creating demand for your product
You must find and pay handsomely
those with the power to persuade
Incentives are necessary to secure the type of man desired,
keep him working at maximum efficiency,
and prevent him from signing with the competition
2001 Towers Perrin
NYO
Legend has it that sales incentive plans are created on the

back of cocktail napkins during happy hour. . .
and experience tells us that the legend is true
But experience also suggests that these same plans create
operational hangovers
2001 Towers Perrin
NYO
What are the critical guiding principles

for any sales compensation plan design?
Keep it simple (but realistic)
Make it understandable
Communicate it clearly
Align with strategy
Align with the job role
Integrate with the total rewards package
Reward for results, not activities
Link to quantifiable measures
If you cant measure it, you cant pay for it!

2001 Towers Perrin
NYO
Sales incentives must

be an integral part of the deal
Total Rewards Framework
(The Deal)
Pay
Salary
Incentives
Long-term pay
Work
Environment
Benefits
Services
Support
Communication
Health and Welfare

Retirement
Development
Training
Career
development
Advancement
2001 Towers Perrin
NYO
What are the elements

of a sales compensation plan?
Commission
Incentive form
Bonus
Fixed %
versus variable
Pay levels
$
1998
Mix
Payout
frequency
Jan Feb Mar Apr

May Jun Jul Aug
Sep Oct Nov Dec
Payout
Mechanics
Performance
measures:
definition
//
0%
80% 100% 120% 140%
Performance
Revenue
Volume
Profit
Market share
Performance
measures: relative
importance
Growth
Baseline
% Weight
2001 Towers Perrin
NYO
It is helpful to break these sales

compensation elements into several components
Inputs
Performance
measures and
weights
Incentive form
Pay mix
Payout frequency
2001 Towers Perrin
Process
Payout
mechanics
Output
TARGET TOTAL
COMPENSATION
NYO
The business strategy and

selling roles must drive the inputs
Busines
s
strategy
Selling
roles
Inputs
Performance
measures and
weights
Incentive form
Pay mix
Payout frequency
2001 Towers Perrin
Process
Payout
mechanics
Output
TARGET TOTAL
COMPENSATION
NYO
Market pay practices need to be

balanced against the business economics
Competitive
market pay
Business
economics
Goal setting
Inputs
Performance
measures and
weights
Incentive form
Pay mix
Payout frequency
2001 Towers Perrin
Process
Payout
mechanics
Output
TARGET TOTAL
COMPENSATION
NYO
The goal-setting process is critical to striking a balance between

market pay rates and affordability
Competitive
Market Pay
Business
Economics
Individual Performance Expectations

Aggregate Business Goals
Market Potential
2001 Towers Perrin
Goal-Setting
Process
NYO
10
Yet, evolutionary changes may not be enough to

bring the economics of distribution into balance
Evolutionary Change
Competitive
market pay
Revolutionary change
Business
economics
Individual performance expectations

Aggregate business goals
Market potential
Role redefinition
Segment roles
New talent sources
Getting the right people in the

right jobs
New distribution channels

Find more efficient ways of
reaching customers and
meeting needs
Goal setting process
Use goal setting to strike the appropriate balance

Raise the bar
2001 Towers Perrin
NYO
11
High-performing sales organizations

answer the two most frequently asked questions
What do
you want
me to do?
2001 Towers Perrin
How will I
get paid?
NYO
12
Selling roles can be

defined by how customers buy
Transactional
Product or services have
known value to customers

Sales cycle is short
Consultative
Customers need help making
the purchase decision

The sales cycle is moderate
to long
Price is a key component of

Customers want an efficient
Value is a key component of

Customers want a solution
buying process
Sales focus on generating
maximum revenue at
minimum cost
2001 Towers Perrin
Sales focus on creating long-
term, profitable customer

relationships
NYO
13
Or, by how salespeople sell

Hunter
New business acquisition

Cold calling or prospecting
Little post-sale effort
Retain and grow accounts

Identifying and addressing customer needs
Farmer
2001 Towers Perrin
Significant post-sale effort

NYO
14
Putting the two dimensions

together creates a selling role framework
Transactional
Consultative
Hunter
Traditional Small
Game Hunter closing
many small deals
Big Game Hunter

closing fewer, larger
deals
Service reps who tend

the crop to keep from
losing customers
Relationship managers
who grow the
business with longterm customers
Farmer
2001 Towers Perrin
NYO
15
How do you know if consultative

selling is right for your organization?
Transactional
What percent of
Consultative
Low %
High %
No
Yes
Is the customer clear on
Yes
No
how the product adds

value?
Does the delivery,
installation or use of the
product require support?
No
Yes
customers cost structure

or income does product
represent?
Can the product be
differentiated from
competitive products?
2001 Towers Perrin
NYO
16
You should also listen to your customers
Want Transactional Role

Im not going to pay a lot
for this!
When can I order online?
Ill buy from whomever
calls with the best deal

I dont want hassles. I can
take my business
elsewhere
Want Consultative Role

I need someone to explain
my options. Im not sure

what the best solution for
our needs is
We may need to develop a
customized product. Our

needs are unique
Im willing to pay more to
have the best service and

support available
I really value the time my
sales rep spends with me

each month
2001 Towers Perrin
NYO
17
The hunter/farmer decision is often driven

by the product or services life cycle position
Sales
Volume
Introduction
Growth
Hunter role is
more common
Maturity
Farmer role is
more common
Time
2001 Towers Perrin
NYO
18
The typical selling skills required vary by role

Transactional
Hunter
Mastery of sales
process execution
Excellent problem
solving skills
Able to use technology
to facilitate the process
Consultative
Mastery of sales
process execution
Excellent relationship-
building skills
Farmer
2001 Towers Perrin
NYO
19
As do the educational and experience needs

Transactional
Hunter
Consultative
Mastery of sales process
execution
Minimal to modest sales
experience
execution
Deep technical
knowledge
Significant hunter
model selling
experience
Excellent problem-solving
Excellent relationship-
skills
Able to use technology to
facilitate the process
Minimal experience
required
building skills
Deep customer/industry
knowledge
Functional management
experience
Deep industry
experience (may have
been a customer)
Farmer
2001 Towers Perrin
NYO
20
As well as personality traits

Consultative
Transactional
Hunter
execution
experience
Drive/desire to cold call
execution
Deep technical knowledge
Significant hunter model
selling experience
Comfortable interacting
with top management
Excellent problem-solving
Excellent relationship
skills
Able to use technology to
facilitate the process
Minimal experience
required
Strong customer service
orientation
Farmer
2001 Towers Perrin
building skills
knowledge
experience
Deep industry experience
(may have been a
customer)
View customer senior
management as peers
NYO
21
Resulting in distinct recruiting

and development models for each role
Consultative
Transactional
Hunter
Mastery of sales
Mastery of sales
process execution
experience
Drive/desire to cold call
process execution
Deep technical
knowledge
Significant hunter
model selling
experience
Comfortable interacting
with top management
Excellent problem
Excellent relationship
solving skills
Able to use technology
to facilitate the process
Minimal experience
required
Strong customer service
orientation
Farmer
2001 Towers Perrin
building skills
knowledge
experience
Deep industry
experience (may have
been a customer)
View customer senior
management as peers
NYO
22
Although few jobs fit neatly in one

quadrant, some generalizations can be made
Transactional
Consultative
Hunter
Insurance
Agent
Major
Account
Development
Service Rep
Key Account
Manager
Farmer
2001 Towers Perrin
NYO
23
Target total compensation will

differ between transactional and consultative
Consultative
Transactional
Hunter
Low to Moderate TTC
($$)
Lowest TTC ($)
Moderate to High TTC
($$$)
Highest TTC ($$$$)
Farmer
2001 Towers Perrin
NYO
24
Mix and leverage are driven by sales rep prominence

hunters are more prominent than farmers
Transactional
Hunter
Consultative
Low to Moderate TTC ($$)

Highly variable pay
High upside ($$$)
Lowest TTC ($)

Least variable pay
Lowest upside ($)
Highest TTC ($$$$)

Less variable pay
Moderate upside ($$$)
($$$)
Highly variable pay
High upside ($$$$)
Farmer
2001 Towers Perrin
NYO
25
Performance measures vary across all four roles

Consultative
Transactional
Hunter
Low to Moderate TTC ($$)

Highly variable pay
High upside ($$$)
Few performance
measures
Individual measures
Revenue
Lowest TTC ($)

Least variable pay
Lowest upside ($)
Few performance
measures
Individual or team
measures
Revenue
($$$)
Highly variable pay
Highest upside ($$$$)
More performance
measures
Individual plus team
measures
Revenue and profit
Highest TTC ($$$$)

Less variable pay
More performance
measures
Team measures
Profit and growth
Farmer
2001 Towers Perrin
NYO
26
The mechanics are driven by the choice between hunter and

farmer, as well as the type of measure chosen
Consultative
Transactional
Hunter
Farmer
2001 Towers Perrin
Low TTC ($$)

Highly variable pay
High upside ($$$)
Few performance
measures
Individual measures
Revenue
Commission
Most frequent payouts
Lowest TTC ($)

Least variable pay
Lowest upside ($)
Few performance
measures
Individual or team
measures
Revenue
Bonus
Least frequent payouts
High TTC ($$$)

Highly variable pay
Highest upside ($$$$)
More performance
measures
Individual plus team
measures
Revenue and profit
Commission and bonus
Payouts as frequent as
possible
Highest TTC ($$$$)
Less variable pay
More performance
measures
Team measures
Profit and growth
Bonus
Less frequent payouts
NYO
27
A Case: Global leader in technology service solutions

experiencing decline in growth and profitability
Goals
Exceed market growth rate
Grow profitability faster than revenue
Improve high performing sales staff retention

Increase sales force motivation
Improve cross-functional collaboration
Issues
Unclear selling role accountabilities due to blended role

Revenue-based commission plan driving low profit business
Lack of collaboration due to problems with commission sharing
across roles
High turnover due to below market pay levels
2001 Towers Perrin
NYO
28
To improve sales task clarity and motivation,

the blended selling role was split into two roles
Transactional
Consultative
Hunter
Transactional
Consultative
Hunter
Sales
Executive
Blended
Sales
Role
Client
Relationship
Manager
Farmer
For each role a distinct set of

Expectations
Accountabilities
Competencies
2001 Towers Perrin
Farmer
Provided Focus
and Task Clarity
NYO
29
A sales force reorganization enabled

sales management to focus on the right stuff
Selection of the right people to fill these positions
Low span of control to increase emphasis on coaching
Matrix structure to enable collaboration

High level of focus on strategic account plan development and
monitoring
2001 Towers Perrin
NYO
30
And put people in place

with the right competencies
Deep customer relationship development
Effective CXO level selling
Deep technical knowledge in the selling process

Appropriate emphasis on existing account penetration and new
account acquisition
2001 Towers Perrin
NYO
31
The SE pay plan aligned with

the consultative-hunter model
Target Total
Compensation
Pay Mix/Leverage
Performance
Measures
& Mechanics
2001 Towers Perrin
Competitive with:
Technology Industry
CXO level relationship
Deep technical knowledge
50/50/200
Based on high prominence of the
hunter role
1. Deal Commission Matrix on Deal
Profitability by Deal Size
2. Quota Bonus based on annual quota
attainment
3. Deal Kickers additional incentives
for strategic imperatives:
New accounts
Team selling
Q1 business
NYO
32
While the CRM plan followed

the consultative-farmer model
Target Total
Compensation
Pay Mix/Leverage
Performance
Measures
& Mechanics
2001 Towers Perrin
Competitive with:
Technology Industry executive level
CXO level relationship
Deep customer or vertical industry
knowledge
70/30/160
Modest prominence
1. Bonus based on attainment of goals:

Customer revenue
Customer profitability
Future year bookings
Penetration (revenue by LOB)
NYO
33
The organization and compensation plan

changes have generated almost immediate results
Positives
Challenges
New business at it
Some difficulty
highest level in history

Deal profitability
increasing for first
time in 4 years
Improved
collaboration
coordinating multiple
selling resources at
same client
Attraction of hard to
find client
relationship managers
2001 Towers Perrin
NYO
34
Top-performing selling
organizations clearly define roles
Transactional
Hunter
Consultative
Account Executive
Sales Consultant
Account Service Rep
Major Account
Manager
Farmer
Allows for skill and competency development

Sales management effort focused in correct areas
Organizational capabilities support the needs of each role
Unambiguous and motivating compensation plans
2001 Towers Perrin
NYO
35
Remember, although sales compensation

is an important management tool. . .
It is a heavy and blunt tool
Can do much damage is not used effectively
Cannot be used by itself to build a fine-tuned sales organization
2001 Towers Perrin
NYO
36

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Sales Incentives That Motivate Success

New Jersey Compensation Association

This document is incomplete without the accompanying discussion; it is confidential and

My goal for this session

arrangements for each role

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Sales incentives have been around forever

You must reward your man in the field commensurate with

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Legend has it that sales incentive plans are created on the

But experience also suggests that these same plans create

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

What are the critical guiding principles

If you cant measure it, you cant pay for it!

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Sales incentives must

Health and Welfare

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

What are the elements

Jan Feb Mar Apr

80% 100% 120% 140%

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

It is helpful to break these sales

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

The business strategy and

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Market pay practices need to be

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

The goal-setting process is critical to striking a balance between

Individual Performance Expectations

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Yet, evolutionary changes may not be enough to

Individual performance expectations

New talent sources

Getting the right people in the

New distribution channels

Goal setting process

Use goal setting to strike the appropriate balance

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

High-performing sales organizations

2001 Towers Perrin

S:\67022\01PPS\TOOLS\PRESENTA\NJCA Sales Comp.ppt

Selling roles can be

Product or services have

known value to customers

Customers need help making

the purchase decision

the purchase decision

Value is a key component of

the purchase decision

Sales focus on creating long-

term, profitable customer

Or, by how salespeople sell

New business acquisition

Retain and grow accounts

Significant post-sale effort