Sales Compensation: Why Everyone Loves to Hate It

1. Sales Compensation: Why Everyone Loves to Hate It Steve Treder ICBA Annual Seminar Salt Lake City, Utah 7 May 2008

2. Sales Compensation: Why Everyone Loves to Hate it • First Principles: Why and What • The Cycle: Neither Start nor End with Design • The Thrill of Theory, and the Agony of Practice • The Root of All Sales Comp Evil • What Can Go Wrong? Plenty. • But … When It’s Good, It’s Very, Very Good • The Cycle: Focusing Attention Where it’s Due • Conclusion: What Doesn’t Kill You Makes You Stronger ICBA Annual Seminar, 7 May 2008

3. Why Does Sales Comp Exist? • You don’t have to use sales comp • Many successful enterprises have eschewed it • Sales comp often exists for all the wrong reasons: • We’ve always done it • Everyone else does it • Because Sales management loves it • If it’s to be used, it should be a conscious, rational choice ICBA Annual Seminar, 7 May 2008

4. Why Should Sales Comp Exist? • Money: powerful motivator, powerful enough to modify behavior • Sales revenue: exceptionally quantifiable • The performance-reward linkage can be direct and strong • If it’s properly tuned, the sales comp impact on business success can be enormous • But: if it’s powerful enough to modify behavior in positive ways, it’s powerful enough to modify behavior in negative ways ICBA Annual Seminar, 7 May 2008

5. What Sales Comp Isn’t, and What it Is • Isn’t: • Necessarily using commission • Simply variable pay • Is: • Direct linkage of sales revenue results to pay • With “line of sight” as short as possible • With significant pay absolutely, positively at risk ICBA Annual Seminar, 7 May 2008

6. The Sales Comp Cycle OBJECTIVE REVIEW PLAN DESIGN ICBA Annual Seminar, 7 May 2008 ADMINI-STRATION

7. Why it’s Difficult: Mr. Theory, Meet Mr. Practice • Problems with Objectives: • Too easy, too hard, too vague, or not measurable • Problems with Design: • Too simple, too complex, or not administrable • Problems with Administration: • Too slow, too inflexible, under-resourced • Problems with Review: • Too late, too little, or not at all ICBA Annual Seminar, 7 May 2008

8. The Root of All Sales Comp Evil • Nobody “owns” it • Herding cats in Sales, Sales Ops, Marketing, HR/Comp, IT, Finance/Accounting, Payroll, and who knows what else • Toss geographies and/or product lines on top • No company of significant size has ever fully solved this problem ICBA Annual Seminar, 7 May 2008

9. What Could Possibly Go Wrong? • Operational gridlock • Inadvertent giveaways • Windfalls and droughts • “Gaming the system” • SPIFs and other patchwork • Legal exposure • Blamefest and CYA • The tyranny of the calendar • Loss of credibility and its consequences • Business underperformance ICBA Annual Seminar, 7 May 2008

10. But … • That 14th-tee drive … • That’s what Sales Comp is like! ICBA Annual Seminar, 7 May 2008

11. When Objective-Setting is Done well … • All stakeholders are appropriately involved • Valid data, not just hunches and hopes, are employed in the process • Objectives are clear • Objectives are realistic but strong • Objectives are reliably measurable ICBA Annual Seminar, 7 May 2008

12. When Plan Design is Done Well … • Objectives, roles, and metrics are aligned • The “sweet spot” between elegance and simplicity is attained • Everyone can see what’s intended • The Sales force works with the plan, not against it or around it • Administrative needs are designed into the plan ICBA Annual Seminar, 7 May 2008

13. When Administration is Done Well … • The Admin team isn’t required to be superhuman • The process is planned in advance, not made up on the fly • Systems and applications are the right tools for this job • The need for adaptability is expected, and flexibility is designed in • Day-to-day operations are smooth, and summary statistics and value-add analyses are easily available ICBA Annual Seminar, 7 May 2008

14. When Sales Comp Review is Done Well … • It’s taken very seriously, and granted sufficient time and resources • All stakeholders are appropriately involved • It isn’t about scapegoating, it’s about learning and improving • Results are assessed as they are, not as how we want them to be • The conclusions of the Review are applied in enacting changes ICBA Annual Seminar, 7 May 2008

15. When That Kind of Stuff is Happening … • Ping!!! ICBA Annual Seminar, 7 May 2008

16. Greater than the Sum of its Parts • Behold the power of leverage • You don’t have to be strong to hit a golf ball a long, long way • You don’t have to be a genius to implement a Sales Comp plan that delivers tremendous business results • The simple fundamentals, executed properly, yield dramatic return ICBA Annual Seminar, 7 May 2008

17. The Sales Comp Cycle OBJECTIVE REVIEW PLAN DESIGN ICBA Annual Seminar, 7 May 2008 ADMINI-STRATION

18. The Phony Mystique of Plan Design • Design is fun • Design is sexy • Everyone wants to do it, whether they know what they’re doing or not • Design gets too much credit when things go well, and too much blame when things go badly • Designers like to think it’s harder than it is • All plans are just variations on the same basic formula; it ain’t rocket science ICBA Annual Seminar, 7 May 2008

19. The Unsung Heroes of Sales Comp • Admin, the water-carrying grunt • Review, the lonely voice of reason that no one wants to listen to • Yet, this is where the low-hanging fruit is to be found • This is where the competitive advantage is to be gained ICBA Annual Seminar, 7 May 2008

20. So … Why Does Everyone Love to Hate it? • It’s always high-pressure • It’s often ugly • It’s sometimes disastrous • Anyone who’s done Sales Comp any length of time has a dozen war stories to tell • But … ICBA Annual Seminar, 7 May 2008

21. If it was Easy, Anyone could do it • Survive the war • Learn from your mistakes • Make improvements, even if they’re small • Sales Comp can be the most impactful, rewarding, and fun job you’ll ever have ICBA Annual Seminar, 7 May 2008

22. Steve Treder ICBA Annual Seminar, 7 May 2008 Western Management Group 408.358.0450 ext. 225 www.wmgnet.com stevet@wmgnet.com