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Is Sales Compensation Coming From The Battery Drawer?

Is Sales Compensation Coming From The Battery Drawer?

My mouse started acting up the other day. That usually means the batteries are wearing out, so I headed over to the battery drawer for new batteries.

What a mess. Lots of batteries, finding a fit wasn’t the problem. I just had no idea if any of them were any good. So I did what was necessary, which was try all the various combinations of those batteries until I got something like the performance I needed to make the mouse run again. But at this rate I have no idea how long it’ll work because I somewhat randomized my chances for success by just taking what I could find. (If your battery drawer is better organized than mine, I salute you!)

“…and I thought I was Eveready…”

When you start “going through the battery drawer” to design a sales compensation plan, you have just about as much chance to get it right as I did with my mouse. Problem is, the stakes are a lot higher for your company and the sales force. You might find a great combination that results in a super-charged field sales team, producing at unheard of performance levels. Winner winner, chicken dinner!! On the other hand, think of all the other possibilities, like great payouts but not so great results, or any combination that results in detrimental effects on the sales force or the company..

So randomizing the inputs probably isn’t how you’ll be successful in this particular compensation expertise. You need to be thoughtful with sales compensation plan design so unlike my experience with the battery drawer, you’ll produce the kind of excellence you can rely on. For example:

What Else Other Than the Batteries?

Batteries might not be the problem. Sure, it’s easy to check the batteries first, but you should always start with the owner’s manual! Consider all the factors that influence the results your sales force are getting. Are they trained? What’s the status of your product or service, are you growing or falling behind the competition in features and benefits? Is marketing generating demand? Did the business strategy change and the sales plan didn’t? Are finance or other processes keeping the sales force from getting desired results?

Call MacGyver?

Use the right size batteries, put them in the right way and don’t mix sizes. I’ve opened up battery cases and found the wrong sized batteries even though almost every battery case made is pre-molded to the right size. But desperate times call for desperate measures, right? It can be so easy to just try something and hope it works and everyone can get back to work. But not having the right mix between base and incentive, unclear sales role definitions, having the wrong people on sales incentives or using any old performance measure mix may work for a while but will eventually short out.

How Old Are Those Batteries?

Some batteries aren’t accessible. Many newer electronic products use battery power, but you aren’t supposed to open the battery case. If you’re being told there’s nothing wrong with the sales plan, and you haven’t seen any supporting performance data, I’d suggest getting another opinion. Typically sales operations groups are rich with data, and with a little market data you can fairly quickly get an idea for just how effective your plans are, and whether getting at those batteries might just be a worthwhile project after all. For example, are top performers earning at the desired excellence levels? How much are underperforming reps earning? Did most of the sales force achieve quota last year? Were they supposed to?

“I sat next to this guy on the plane…”

Don’t use used batteries, and safely dispose of the old ones. Chances are your business isn’t really exactly like the one your new sales VP came from, or where your HR/compensation peer works. You have so many options and alternatives when it comes to designing sales incentives; don’t give away your creativity to others. And after you’ve tried something and it didn’t work, make sure you’ve documented what the issue was. Chances are you are probably doing something right but could just use a fresh set of eyes (or new batteries?).

Help?

Sometimes you have to go to Batteries+. Although batteries are available at most corner stores, sometimes you need an expert to help figure out what to do next. Over the years I’ve found that most people seem to think they are compensation experts. As a matter of fact, count the total employees in your company and subtract one and that is the number of people who seem to know as much (or more) about compensation as you do. And you probably don’t need an external consulting expert for every single thing every single year. But if it’s been a while and you’re not sure you’re still getting the most out of sales compensation, there are folks like me who do this work, and by the way really enjoy it. I’ve found few places in a company where you can learn more about a company and what it takes to make them successful than in the process it takes to design sales compensation plans.

Problem solved? Not so much!

Last night we were going to sit down and binge on a show on one of the streaming services. I went to turn on the TV and a message came up, “No Source Identified” so I take the remote and start pushing buttons, nothing happens. I shout downstairs, “Bring up 2 AAA batteries for the remote!” One, I hadn’t opened the remote fully other than to see it had AAA batteries, and two, I hadn’t thought what else might be wrong. Turns out I was wrong on two counts (the wi-fi needed to be reset, and the remote required 4 AAA batteries). After I reset the wi-fi, everything worked and we happily binged away.

I’m happy again, and continue to learn about batteries.

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 40 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

To read other blogs, go here: https://alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

Over the years I’ve found that most people seem to think they are compensation experts. As a matter of fact, count the total employees in your company and subtract one and that is the number of people who seem to know as much (or more) about compensation as you do. And you probably don’t need an external consulting expert for every single thing every single year. But if it’s been a while and you’re not sure you’re still getting the most out of sales compensation,

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Big, Hairy, Audacious Compensation

Big, Hairy, Audacious Compensation

A while back (1994 to be exact) a term called a BHAG (Big, Hairy, Audacious Goal) was coined.  Think Boeing in Seattle getting into the jet airliner business as an example.

What do you think the compensation plan was like for Boeing executives and engineers?  Do you think it matched the size, scope and impact of their goal – and accomplishment?

Probably not.  And probably never really entered the mind of those, or most rewards designers since.  Isn’t it time to re-think what rewards should look like when someone really and truly “hits one out of the park?”  I’d say so.  It’s not going to be about what the surveys say, or what percentile you decide to pay at.  It should be differentiation on a scale beyond all those things.

Naysayers – WNDITWB

Some might continue to point to their existing plans and programs and say, “That’s what our recognition plan is for,” or “That would be covered in our annual incentive plan,” or “But then they’d make more than the CEO,” or even “We’ve never done it that way before,” (or WNDITWB)

(That last one makes me shudder.)

I recently worked with a client, a small but fast-growing software firm with offices in Silicon Valley and Portland that is making big inroads into data storage and management.  The path to success is clear – create growth and you create value, and being able to do that without outside financing creates exponential value.  Wouldn’t we all agree that creating exponential value would be worth exponential rewards?  Now not something unreasonable, but it has to be impactful.

Think Differently

In my client’s case (software as a service) we discussed the real drivers of value in that SaaS space where they play  – long-term contracts, pre-paid business and attracting logo business.  Other industries will of course have other value drivers that are specific to their type of business, competitiveness, and where they are on the business cycle (start-up, growth, maturity or decline).  Now here’s the thing about rewards under the BHAC thinking.  The amounts can’t scare you, no matter your industry or experience.  They are, by design, BIG AND SCARY (and of course, hairy but that’s not something I’m going to blog about)!

What might a $2M, 2-year contract be worth under a regular commission plan?  5%?  So $10,000, and if structured like most plans, pay that out over the life of the contract.  $416.67 a month – THAT’s exciting!!

It’s the Value, stupid

This isn’t necessarily intended to just get you thinking about sales incentives though.  And as I said earlier, it isn’t going to help if you get caught up in percentiles.  A BHAC plan is about VALUE.  Who would look back 2 years after landing a logo client in Los Angeles that doubles your revenue and increases your market value by $5M and say, “Gee, it was probably a mistake to pay Colleen that $50,000 bonus, don’t you think?”

Let’s pivot to a favorite value creator, product designers.  Could be software engineers in Santa Clara or apparel designers in Beaverton.  I may be wrong, but from my experience, those roles typically come with a caveat on who owns what, i.e., intellectual property.  One company I worked for years ago had a very talented stable of design engineers who over the years created product after product that were patented.  Their reward?  A nice plaque, an original copy of the patent with their name, maybe a promotion, maybe a few percentage point increase in their merit increase that year.  If the company also did well that year, maybe a somewhat larger bonus (say 20% instead of 15%).  Again, how exciting is that?!

Go Wild?!

We do need to be a little careful though, BHAC isn’t necessarily for everyone.  Some occupations (engineering being one) attract the type of person who may get enormous satisfaction just from the accomplishment.  Some cultures (no matter what the occupation) have a much stronger aversion to individual recognition than others.  Still, it can’t hurt to think bigger than where the data usually lands, right?

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 40 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

To read other blogs, go here: https://alliancecompensation.com/blog/. Our services that could help with your BHAC plan include Executive CompensationSales Compensation and Short and Long-Term Incentives.

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

Think creatively about compensation and rewards for your deal makers and paradigm breakers.

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Follow The Leader

Follow The Leader

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie finger in my ear, you do too.  Sort of a cousin of Simon Says.

Then my mind went to what really happens when we play follow the leader in compensation.  Maybe some or all of this has been on your watch:

  • We let market data dictate what “we believe” jobs are worth and how employees are paid
  • We design incentives based on how our competitors do it, or how the VP did it at her last company
  • We enable management’s somewhat mistaken belief that benchmarking is the only valid approach to program design

When we play Follow the Leader, we handicap our creativity to align our reward programs and systems to our unique business philosophy, strategy, objectives and values.

Throw Out Benchmarking? In Compensation? Heathen!

It’s not my intention to totally scrap the idea that we can learn from others.  Some of the best learnings I’ve had in my career have been from people that have faced challenges and found unique solutions that worked.  For years I kept paper copies of presentations I had attended at conferences, industry meetings, consultant presentations, etc.  And I did go back over them to pull out ideas, but I didn’t take that material and just paste my current company logo in the upper left corner.  It did help though to add elements to programs that would fit the needs of the problem I was trying to solve.  For example, should a bonus program have a payout threshold?  Should a vesting component be used?  These are ways to put real value into company bonus, sales incentive and executive compensation plan designs.

Reasonable Thought

There are other aspects of benchmarking that I am solidly behind (especially when it reinforces my own beliefs!).  Of course, many pay programs are benchmarked to a local market – Seattle, Los Angeles, Phoenix, you name the location and that’s probably right when it comes to certain jobs and levels of pay, for example non-exempt work.  And for example, I see pay practice surveys that show the quantitative metrics participants use in their broad-based bonus plans and the prevalence of that.  (I’d bet right now that not many readers of this know what EVA is, but I worked in a company once where it was the primary metric in the employee bonus plan).  I could easily show how it simply wasn’t appropriate for the level of employee that needed to understand it, but it took an executive departure before we could wrestle that one down.

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(By the way, bonus points if you know the answer to this related quiz question.  What are the two most common quantitative metrics that companies use for their bonus programs?)

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Lemmings?

You might be living under a rock if you’ve never heard (herd?) of Herd Immunity.  (Talk about follow the leader, and yes that’s a jab). One of the more common applications of the compensation ‘herd mentality’ is on market pricing of jobs.  If you are an old-timer like me, you probably know that at one time, job evaluation systems like point factor, classification or factor comparison systems were more prevalent than market pricing.  And if you haven’t taken C2 (the job evaluation class) from WorldatWork, you may never have heard of those.  But much more so than market pricing, they enabled companies to determine how to pay their employees when they selected what was important to them rather than letting the market do it for them.

I still tell my clients that “the market is… interesting… but don’t let it tell you what to do.”  What I mean by that is this: Follow the Leader isn’t always your best choice.  And as a trusted advisor in your company, take heed that if you are going to play that game then you know what you’ve signed up for.

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Quiz Answer: Revenue and Profitability

Internal and External Linkages

To read other blogs, go here: https://alliancecompensation.com/blog/. Here are some of our services related to this topic: Market Review, Short and Long-Term Incentives, Sales Compensation.

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/.

————–

Jim Harvey is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 40 years of experience in corporate leadership roles and consulting, and lives with his wife and four dogs in Sherwood, OR.

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie […]

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Increase Your Impact, When to Hire an Expert

Increase Your Impact, When to Hire an Expert

If you are like me, you like to do things yourself. I generally know how long things will take and I like the satisfaction of saying “I did it.”  But there are times when I pause and ask myself does it make sense for me to do this. Should I hire an expert? This is especially true when I’m busy, and I must choose between projects or a relatively simple but urgent request. I can end up in a situation where an opportunity to increase impact escapes me.

I’m Not a Plumber

For me personally, I really dislike plumbing and I’m not good at it. No matter what I struggle to squeeze into those little spaces and feel like I am going to break something. And there always seems to be a leak when I’m done. So, even though I don’t like to spend the money, for me an expert is always the way to go!

Do You Need to Hire an Expert?

At your company, there are several situations where it makes sense to go with an expert including:

  1. You do not have someone on your team with the knowledge or experience,
  2. When you are dealing with issues that impact a very sensitive employee group or a lot of employees where it is critical to get it right,
  3. When you need or have to improve credibility with stakeholders including management or employees,
  4. There are special laws that need to be considered and you just don’t deal with them on a regular basis,
  5. You have team members who are on leave or vacation, and of course,
  6. Your team is already at or beyond capacity and you do not need or want to hire someone but you just could use the extra hands.

Example of an Expert: Executive Compensation

When thinking about executive compensation, it makes sense to get help from an expert when hiring executive officers. There are a lot of factors to consider in this situation including internal equity, employee perceptions for publicly disclosed compensation information, the Compensation Committee, the Board of Directors, and how your investors and shareholder advisory groups will view the situation. Making a mistake here can create headaches for you when it comes time to seek shareholder approval of your executive compensation practices or proposals.

When you do decide to hire an expert, remember, their help can take many forms.

Extension of Your Team

We all know that during the year, there are times when there is more work than our teams can handle. Also, our staff will take vacations or go on family medical leave. Consider hiring a partner who can act as an extension of your team with dedicated hours to do what you need done for a period of time or just be available when you need help. Your partner can help with critical projects or the day-to-day work (e.g., market pricing or job offers) so you can focus on other priorities.

Content Creation

Experts will create the design, or fine tune yours. Creating everything that supports rolling out the design including presentations, communications, and plan documents. This approach is great when you do not have the expertise OR bandwidth for the project. Hire an expert.

Co-Author Work In Partnership

This is a great idea when you want to be involved in the work while getting expert help. Your company can learn a lot using this approach.  Remember, this also creates a situation where you are partners and have an equal stake in the results. I was fortunate to partner and co-present with Jeremy Erickson of Pillsbury Winthrop Shaw Pittman LLP and Jon Burg of Infinite Equity on the impact of the CEO Pay Ratio requirements at a Global Equity Organization conference. Working with Jeremy and Jon provided the opportunity to partner with an expert and gain expertise and directly apply it in a business setting.

Expert Plan/Content Review

External viewpoints are very helpful when making sure your proposed designs, plans, programs and/or content are designed and communicated well. External advisors typically look at things differently since they have exposure to multiple companies and designs. You will most likely appreciate their insights and suggested improvements. And, it provides you the ability to say an expert agrees with your approach which will increase your impact.

Doing projects yourself is very satisfying; however, sometimes the decision to hire an expert is the right choice. Use a model that works well for you and your company.  Each project and situation is different; trust your judgement on when to “jump in the pool” and hire someone.  For me, hiring a plumber is always the right thing to do!

To read other blogs, go here: https://alliancecompensation.com/blog/. Our services associated with our specific expertise include Compensation-as-a-Service, Executive Compensation, Sales Compensation and Market Review.

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/


David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Post Falls, ID.

Doing projects yourself is very satisfying; however, there are times when hiring an expert is the right choice especially when you use a model that works well for you and your company.

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