5 Key Issues with Sales Force Engagement & Motivation - It's more than a Plan Design Issue
November 24, 2015
The WorldatWork Sales Effectiveness Conference, held the 1st of October, brought together senior HR/compensation and benefits specialists, as well as thought leaders in a dynamic day of debate. Attendees had a full day of sessions, listening and engaging with experts discuss the overall theme of driving sales force engagement and motivation.
At the end of the day, an expert panel was brought together to provide input on a range of topics, allowing attendees to leave the summit with actionable results and drive change at their organization, which included talking points from myself, David Chichelli from Alexander Group, Ron Burke from TowersWatson and Justin Lane from Xactly Corporation. Below we’ve set out the top 5 issues raised for the panel to consider and provide feedback. The topics discussed during the panel include plan design governance, strategic alignment/design methodology, global/uniform versus local/varied design, plan variance by geography, and sales compensation with works councils.
- Plan Design Governance
Who Should Own Sales Compensation?
I always find this question interesting as it is never the same location at each company. The sales incentive program ownership can reside with HR, Sales, Finance or a combination of these groups. Ownership by a single function is dangerous, just because plan design requires buy-in from a range of stakeholders. If the primary motivation for sales is the compensation plan and the plans are Sales owned, they may lack sufficient control and be too sales generous e.g. high accelerators. Plans owned by Finance might be too limiting and not incentivise the salesforce sufficiently e.g. capped plans. Best practice is to set up a multi-functional Commission Board. This body can ensure a balance of interests between sales and the company and exercise the right level of governance.
However, governance is a wide subject with varied accountabilities including design, program management, administration, reporting and audit.
Businesses operate differently from highly centralized and controlled cultures to highly decentralized structures where business units or geos have a high level of independence. We also see many organizations instituting a ‘one company’ culture change project as a way of driving revenue growth or profitability. Organizations realize they are missing significant opportunity, especially regarding cross selling of product.
CLARITY is CRITICAL: It seems this is true in anything important or needing to drive behavior or action. Take for example plan design. If you have a decentralized approach or hybrid approach the alignment and clarity to the impact of changes in a plan design across the organization could be lost with out alignment and clarity. One important aspect is when companies have automated incentive compensation management. Changes to plan design may have a financial impact which could be significant. Something that may seem minor in one division can have a ripple effect positively or negatively if not accurately assessed prior to executing plan changes. Without a clear view of the impact you could inadvertently make a change that is detrimental to the organization.
- Strategic Alignment/Design Methodology
What is the best way to ensure sales compensation plans are in alignment (yet, motivational) with the strategic intent of the company?
Sales compensation should reflect a company’s current strategic focus. This could be revenue growth, profitability, product configuration, account strategies, cost (return on investment) and other key sales strategy objectives.
There are a number of important considerations. It’s almost like yoga you need to be able to FLEX and ALIGN your plans.
FLEX METRICS: Being able to flex within your plan framework. The first is flexibility. A company’s strategy may well play out differently depending on the maturity of the market. A growth strategy should lead to a different priority for plan metrics. In an emerging market, the emphasis will be on revenue growth with less emphasis on margin. In mature markets, the priority will be more on margin. So, being able to flex metrics within a plan framework is highly useful. The weighting of metrics will also change as market presence matures.
Additionally, there will be sector variations. Sectors with high volume but low margin should focus sales roles on maximizing margin. Any minor upward tick in margin will have a significant impact on profitability given the margins involved. We see this in Finance and Retail for example.
ALIGNMENT: The second key consideration is role alignment. Many sectors are changing their go-to-market model requiring different roles to work in teams, for example commercial and technical sales roles in the Pharma sector. Any design must pay attention to how roles work together to generate sales and incentive plan design must make sure that margin is maintained and not eroded by too many roles getting a high level of credit for the same sale.
- Global/Uniform versus Local/Varied Design
Should sales compensation practices follow a uniform corporate approach, or should each sales entity in the local markets design programs to match their sales models?
There is a key dependency here on company culture and strategic direction. There will always be a tension between a centralized drive for some conformity and local desire for plan design to reflect local priorities
Uniform programs promote standard designs, ease of administration and better program governance. Local design recognizes the unique nature of the sales challenges in the local market. They are often more highly attuned to the local market sales jobs and challenges.
Good practice ensures that design for the company follows clear principles. For example, the plan has sufficient simplicity to be clearly understand, the variable pay opportunity is significant enough to drive the desired behavior, or the plan has sufficient flexibility to mitigate against wholesale redesign should company circumstances/priorities change.
- Plan Variance by Geography
Do Pay Practices Vary by Culture?
Some observers note that sales compensation needs to fit within the “culture” of the country. The degree of pay mix (money at risk) and the extent of teaming are often driven by societal sensibilities.
Our view of design is that the drivers for selling success are very similar globally. There is typically, variance in benchmark pay mixes by geography to reflect local market. For example, US designs tend to have more aggressive pay mixes than Europe or some APAC markets. More consistent are the differences between roles – hunter vs. farmer roles and emerging vs. mature markets.
What we find is that the use of structural components like thresholds, accelerators, caps etc. is geography independent.
In terms of teaming, this also driven by the structure of the sales team and the extent that the roles need to work together to maximize selling success.
- Works Councils and Sales Compensation
Do work councils really limit sales compensation design flexibility? Europe and many other areas of the world have regulated employee involvement in employment practices, including variable pay such as sales compensation programs. Does this mean changing the sales compensation plan to ensure alignment with strategy is problematic?
There are some simple guidelines you can follow to make this easier. In Europe, for example, work councils by country tend to be variable in terms of their approach to change. Typically, they will accept plans that mean poor performers are slightly worse off and higher performers better off as a result of plan design changes. They will look for the ‘on target’ performer to be slightly better off. If the on target performer is worse off, the works council will push back.
The company relationship with the work council and its leader is vital. Work councils need as much advanced notice as possible on potential changes so they have input to the review process. They will want to see modelling in order to provide comfort that there will be no nasty surprises. The commitment of a senior business leader to communicate the change is also important.
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If you have any related questions, please contact me at at firstname.lastname@example.org.