Is Your Sales Compensation Plan Making Money for Your Company?
Recently, Alison Avalos from WorldatWork TV interviewed our very own David Marshall, the co-founder and managing director of Performio.
WorldatWork is a non-profit organization whose focus is to serve and educate individuals and organizations who create compensation and total rewards programs. It is the leading nonprofit association in this area. It aims to accomplish its goals through activities like information sharing, advocacy, knowledge creation, education and certification, and similar activities.
David has been working in the sales compensation field for more than 20 years and is one of the leading experts in creating strategies for compensation and helping companies to improve and grow by creating effective incentive and sales compensation programs. WorldatWork had some terrific questions which, admittedly, he hit out of the park! Watch the video or read on for more of his interview with WorldatWork’s Alison Avalos, with some additional Performio Resources linked throughout.
Joining me today is David Marshall, with Performio, and we’re talking about whether your sales plan is making money. David, this topic sounds a little brash. What were you thinking?
David: Yeah, I guess my career spans over 20 years now in sales comp, and you have lots of conversations with customers, talking about how do we draw the right behaviors, and how do we dial up that and dial that down, that sort of stuff.
I don’t think ever anyone’s actually said to me: how do we get our plan to make more money for the business? And maybe it’s almost too obvious to think of it that way, but what I really encourage people to think about is to come at this from a purely financial point of view.
This is about the corporation — how do we make money for the corporation rather than getting locked in on trying to drive people to do different things? Obviously, you want that to happen as an outcome of your scheme, but the first point from which you come from, the core, is the financial performance of your scheme.
Alison: You’ve talked about the importance of mindset. How does that come into play here?
David: Yes, I guess leading on from this whole idea of what the financial performance of the plan is, I really want people to think about acknowledging that if you look at human psychology, it’s in the infancy stage around how we understand what really drives people, what makes them do the crazy things that they do.
I don’t want to give the impression that sales comp plans clearly influence behaviors — no doubt about that. But what I’m saying from a mindset point of view is that as a sales comp expert, you want your company to be successful and you want to have a successful career, right? And to do that, you need to be able to show that what you’re achieving through your program is measurable and that you’re achieving success against those measures.
Therefore you need to set measures that you can control. You can’t really control people, and I don’t think you should want to control people. What you can control are certain metrics around the efficacy of your scheme that aren’t influenced by the sales training program or the market conditions or what have you. You need to focus on one of those metrics that are a result of the plan. How much are we paying out versus performance to target and so on? How well aligned are the payments to performance?
What is the key performance that the company needs and the performance that salespeople really influence, not just revenue or margin, but getting a clear mindset about, What is the performance we need? How are we going to pay for that? How are we going to measure that? So by mindset I mean it’s really the whole pay for performance mindset so that you can focus on the metrics around that.
There’s another really important point around in terms of mindset. In Australia, we hear this a lot, people complain about, “They want to change the plan halfway during the year, every quarter we’re trying to change the plan.” I’ve had a lot of that here in Chicago and as I go around America, and I wonder though whether we don’t facilitate these problems.
Because we have a mindset that says we can drive people’s behavior by constantly tweaking the plan. If we set that expectation for our stakeholders, then they’re going to tend to want to change the plan. When anything goes wrong or we’re not quite hitting our targets or whatever, or we’re not quite seeing the behavior we’d like to see in the sales force, there will be a tendency to go okay, we’ve got to tweak the plan.
And that’s why mindset is important. If you’ve got a mindset that says the reason why we’re doing this program is to align pay to performance and that is it, you are going to cut out that expectation that this is about how we in a Machiavellian way sort of tweak and influence and drive behavior on a day-to-day basis.
Performio Resource: What Do You Need for Your Team to Be Successful Financially?
If you want to create an environment of success for a high-performance team, you need six elements:
- An office environment that promotes teamwork and success.
- Sales representatives who are well trained and familiar with your company’s goals.
- Leaders of your sales team with a proven track record.
- Clearly defined paths to grow the careers of members of your team.
- Key performance indicators that are measurable and actionable.
- Compensation software that helps your business and promotes growth rather than slows it down and confuses it.
Alison: Okay so, given that, what methodology would you use to drive pay for performance?
David: We’ve seen some great methodologies and what have you, and a huge amount of detail around what are the different types of incentive levers and the mechanics. The methodology that we’ve developed in Australia that’s been very effective is this really visually clean fifteen-step process. We call it the Ready Set Go framework.
And we’ve done that because our stakeholders aren’t experts, right? We’re experts in sales comp, and so are you, [reading this article], but you want to engage your stakeholders in a way that they can understand the components of the scheme and what drives the scheme.
So we have this Ready Set Go framework that’s three steps — five modules per step, so that’s fifteen modules. And it covers both the design and the implementation. And so it’s all about saying you’ve got to be ready before you set your design of the plan before you implement it. So that Ready stage is crucial. It’s about being clear on the purpose of the scheme.
So again when we talk about pay for performance mindset, the first step is all about purpose. What are the actual objectives of our pay for performance scheme? And again it’s not about being glib — “Oh we want to drive more sales. We want to reward our top performers.” Obviously, you want to be doing that, but what are the specific things that you’re actually trying to reward and drive?
We found with our customers in Australia that it’s been very helpful for companies to not make knee-jerk decisions, and so one of the modules, the eighth module in our framework, is the mechanics. You know, what are the formula, how do you connect performance to reward?
And that’s the funniest part of our game, I guess. That’s where people want to jump in and get down and do all that stuff. And the benefit of our framework is that it is number eight. You’ve actually got to get numbers 1-2-3-4-5-6-7 correct before you get there.
And again, you know, something happens during the year where people go, “Oh, yeah, we’ve got to change the plan.” We always bring people back to number 1. What’s our purpose here, has it changed? If our purpose hasn’t changed, we probably shouldn’t be changing the plan. Likewise, the next step is the design principles. Have our design principles changed? Well, they shouldn’t — that’s what principles are. Principles shouldn’t change, and yet so often we see companies changing their plans because they don’t have a solid bedrock of what their purpose and principles are.
Performio Resource: How Does the Psychology Behind Sales Compensation Plans Work?
Any business needs to know the factors that motivate their employees. Basically, they fall into two groups — intrinsic factors and extrinsic factors.
Extrinsic factors may be seen as the more tangible factors. They include things like job security, wages, the possibility of earning bonuses, fringe benefits, desirable work conditions, health insurance, paid time off for vacations and, interestingly enough, supervision. People are motivated to work towards a goal when they know there’s a strong team leader who can point them in the right direction.
Intrinsic factors are parts of the job that are more intangible. People want to have a job that gives them a challenge, and they want to be recognized for accepting that challenge and conquering it. They want responsibility in their jobs, and they want those jobs to involve meaningful work not tedious labor. People enjoy being involved in decision-making and goal setting, and ultimately, people want prominence for their efforts — to be noticed for making a difference.
A good sales manager recognizes the importance of both intrinsic and extrinsic factors and works to find the proper balance between the two to help motivate their staff. Mindset makes an enormous difference in the success of a company.
Think about it this way — it’s like being like a football coach. A good coach motivates their team and helps them find success. They create a mindset among their players that lead to that success. On the other hand, when a coach “loses the locker room,” failure inevitably follows. In this case, the mindset is one of losing, not winning. Nothing has changed — the players are still as talented as they were before. What has changed is how they approach what they’re doing.
Alison: David, before this interview, you talked about making every day a game day and eliminating hidden costs. How do those points align with the idea of your sales plan actually making money?
David: It’s obvious if you want to make money, you want to have that efficiency, you want to get rid of the costs, and you want to drive your top line. You need to make every day game day — people must be engaged.
And I talk about people being activated. Think of a mobile phone, for example. You’re running a mobile phone company, and you send all these mobile phones out to the stores, but they never get activated. That’s kind of nuts, right? They’re beautiful phones, but they never get activated. And I think we tend to do that with sales comp sometimes — we do these beautiful sales comp plans, huge amounts of effort goes into them, but they never actually get activated.
And by activated, I mean the salesperson actually activates the scheme by saying, “Yes, I accept the terms and conditions of this plan, and I trust the scheme, and I believe that the results are achievable.” And so part of that activation is also having some sort of buy-in to the target setting process.
So you need to activate the scheme up front so that people have accepted the scheme — they’ve bought into the targets — and then there’s an activation process that’s ongoing. Each month you need your salespeople to sort of reconnect with or understand if you’re paying monthly, how they’re being paid. And so you can track these things via log-ins to your ICM solution, through surveys, or through going out and just talking to salespeople. Seeing if they have activated and bought into the scheme.
And then eliminating hidden costs. We talk a lot about this iceberg of clarity above the waterline and complexity below the waterline in terms of all the details of your plan, and I always talk about complexity being exponential. That every time you add a new detail or a new thing into your scheme, it’s not a linear increase in complexity — it’s exponential.
And so very quickly you hit a breaking point where your plan becomes unwieldy to manage and also to communicate. So therefore to activate people becomes very difficult. And too many plans, in my opinion, are way too complex.
Alison: Thanks, David. That’s some great information on helping your sales plan make more money for the organization, which we all want to do.
Performio Resource: Making Every Day Game Day
When you strive to make every day a game day, you’re challenging your sales force to up their game. Game day is about important factors like transparency, accountability, and engagement. You’re looking for opportunities to improve your program that make your sales team more accountable. You’re looking for ways to make your team’s performance more transparent to the entire organization. You also want to implement a communications plan that your team is excited to use and engage with — a communications plan that they recognize will help them improve their performance.
Let Performio Help You Create the Ideal Sales Comp Program
If you are serious about creating a high-performance culture in your company, Performio offers a demo of our software. We invite you to give our outstanding product a try.