CSO Insights has released the results and analysis of their 2009 Sales Compensation and Performance Management Survey. The findings were categorized as Top Ten trends. The following are excerpts from this survey:
1. Percentage of Reps Expected to Make Quota
Nearly one-quarter of firms plan for fewer than half their reps to make quota.
The same percentage expects nearly all of their reps to make plan.
Discrepancies are similar within industries and companies of the same size.
Commentary:
“We have previously noted that quota setting and territory assignment have become increasingly complex as alternate channels (e.g., partners, OEMs, eCommerce) have entered the mix. Further, sales organizations have become more complex with product specialists, industry and/or major account overlays, and other layers of roles and responsibilities being added to the mix. (See http://www.csoinsights.com/Blog/what-we-have-here-is-a-failureor-do-we to read more.) Speaking to a group of compensation managers last year we were surprised to hear general consensus that <60% quota attainment ‘sounded about right.’ In fact, this led directly to this metric being included in this year’s survey. As can be seen, there is no single right answer but designing for ~ 70% of your reps to make their number is the average across all the survey participants. Set the percentage too low (i.e., 20% of reps expected to make quota) and it’s unlikely the company can make plan. Set the percentage too high (i.e., 100% of reps make plan) and you may find cost of sales too high as a percentage of revenues. The pattern above was similar for various industries, though software had the highest percentage of plans designed for ≤50% achievement (23%) and financial services (placed) second (11%).”
2. Percentage of Reps on Track to Achieve Quota
Third straight decline in rep quota attainment, down to 52.6% this year.
Rep quota achievement is not in line with planning assumptions.
Disconnect between what is expected and what really is achieved needs to be addressed.
Commentary:
“It is not surprising that in the face of the global economic slowdown and dramatic contraction of financial markets and credit lending that making the number has gotten tougher. What is surprising is how much tougher and seemingly how quickly quota attainment has fallen off from 62.4% in 2007 to 52.6% this year. (Previously) we noted that on average, revenue plans and commissions plans were developed based on 70% of reps making their numbers. The (survey) numbers point to the fact that those assumptions were very optimistic. Further, no matter how much you over-assign quota, if only half of your reps are succeeding, it will be very difficult for the company to reach its overall revenue goal. You do not want to see reps making their number and the company falling short on revenue. Conversely, you do not want quotas set unrealistically high and the company succeeding while the majority of reps fall short of satisfactory achievement. This disconnect is something that needs to be addressed. As you will see later in this analysis, the tools used to administer these plans may not be up to the task of what needs to be accomplished.”
3. Average Quota Assignment Per Rep
Lower quota attainment may be the result of higher quota assignment.
Quotas in general shifted up in the past year despite sluggish economic news.
Single largest increase in quota was at the very highest segment (>$4 million).
Commentary:
“A strange convergence of increased quotas, decreased economic activity and reduced marketing budgets have contributed to a ‘perfect storm’ negatively impacting 2009s results. At the start of this year, as part of our 2009 Sales Performance Optimization (SPO) study, we reported that 86% of the firms surveyed were raising rep quotas. The (survey) figures represent a breakdown of the average quota assignments. Of note is a six-point increase in the upper half of the quota ranges shown (>$1.5Million)—from 42% last year to 48.8% this year. The lowest range did, in fact, increase two full (percentage) points from 18% to 20%. But the next two ranges both contracted from a combined 40% in 2008 to 31% this year. We have repeatedly cautioned our research clients against trying to ‘expense control/cut your way out of this recession.’ Despite the inherent resistance to cutting headcount in sales, we repeatedly were asked over the past year about sales staff reductions and ramp-up times for experienced reps. At the same time, this year’s Lead Generation Optimization (LGO) study revealed 67% of companies expected the same or lower marketing budgets. In summary, quotas and revenue targets are up, quota attainment is seriously down and marketing budgets are frozen or reduced.”
4. Sales Compensation Spend as Percent of Revenues
Sales comp as a percentage of revenues is down 50% at the high-end range.
Sales comp as a percentage of revenues is up 70% at the low range.
Do not know responses compromising one-quarter of all responses may be biggest surprise of this metric.
Commentary:
“Last year twice as many firms (19%) reported sales comp outlay >20%; only 12% reported ≤ 5% of revenues. Sales compensation outlay over annual revenues is inversely proportional; 12% of companies with revenues <$50M reported compensation less than or equal to 5% of revenues; 15% reported compensation at >20% of revenues. Companies with annual revenues >$1Billion reported 27%, and 6%, respectively. Still, these were the extremes and the numbers were generally more consistent across the other ranges. For example, 6–10% of revenues (are) seen as the leading segment above aggregated across all respondents. This was also the leading segment for firms in the <$50M, $50–250Million and $501–$1Billion ranges. 26% of companies with revenues in the $200-250Million reported compensation spend at 11-15% of revenues. And as noted (in the survey results), <%5 was the leading segment for firms >$1Billion. What is surprising is the large number of Do Not Know responses. One-third of the largest firms offered this answer, down to 21% of the smallest firms. This may be another example of sales, marketing and finance looking at compensation and performance figures in parochial ways with little or no thought given to other functional interests and/or measures.”
5. Utilize Accelerators in Compensation Plans
6 of 10 firms use accelerators in their compensation design.
Accelerators more popular with software and telcos; less popular with professional and financial services.
Larger firms more likely to favor accelerators than smaller firms.
Commentary:
“Accelerators are a way of recognizing excellent (i.e., above average performance) while at the same time, telling reps what is important to the company and motivating them to pursue these results. It is possible to tie goals to corporate strategic objectives but we did not explore this. In our survey group, 62% of firms offer accelerators to their commission plans. These accelerators kick in when 101–125% of assigned quota has been reached at two-thirds of companies reporting their use. An additional 23% of reporting firms’ accelerators kick-in between 50–100% of plan. The remaining 10% divide almost evenly, either activating at <50% or >125% of plan. Two-thirds of larger firms utilize accelerators while only one-half of smaller firms do. The break point seems to be above ten (10) sales reps. There can be a number of contributing factors to this but two seem fairly obvious. First, most accelerators are tied to a contest of some sort. Sure, (percentage) of quota attained applies to even a single individual as well as to numbers of individuals, but another component is fueling the competitive juices to see who reaches premium levels fastest, most often, etc. It’s just not that exciting if there are only one or two of us in the race. Second, accelerators tend to indicate more sophisticated and/or complicated compensation schemes—a feature that seems to be part of the price of admission in moving up from small to medium-size business.”
6. Percentage of Reps that Reach Accelerators
Less than 1 rep in 10 reaches accelerators in 31% of firms reporting.
Less than 1 rep in 4 reaches accelerators in 70% of firms reporting.
Quota attainment and accelerators are unexpectedly decoupled from quota levels.
Commentary:
“The purpose of accelerators in compensation plans is to incent and reward exceptional performance. Assuming a level playing field and equitable quota assignments, those reps that achieve sales bookings above and beyond certain thresholds are more generously compensated. But do these programs truly incent performance if their benefits are realized by just a handful of reps? Do accelerators promote higher overall quota striving and, therefore, higher quota attainment? Do accelerators increase the cost of sales as a percentage of revenues? And do lower quotas necessarily translate to higher quota attainment? These are just a few of the questions we had in mind when we added this question to this year’s survey. Interesting to note, with respect to the first of these questions, the lowest accelerator reaching group (≤10%) and the highest (>40%) tied for lowest cost of sales as a percentage of revenues with just over one-half of responding firms reporting <10% of revenues. However, the lowest group was also dead last in percentage of reps meeting/exceeding quota—38%. While highest group averaged 65%! This group also had the highest average quotas with 45% at or above $2.5Million per rep. Apparently, accelerators do not always work.”
7. Impact that Compensation Plans Have on Selling
More than three-quarters of firms feel their comp plans are driving the precise selling behaviors desired.
1 in 8 firms have no idea what impact, if any; their comp plans are having on rep behavior.
Generally upbeat assessment may be more positive than warranted by actual rep behaviors that are reported.
Commentary:
“…two-thirds of firms responding to this year’s survey feel their compensation plans generally drive the specific selling behaviors they seek. And this seems to be generally true, if selling to new accounts is what they’re after; a comparable 63% of firms see this as a direct result of their compensation plan. Cross-selling/up-selling accounts, farming additional business from existing customers and selling new products tie for second in the 48% range. Then things fall off pretty dramatically. Want your reps to consistently utilize the company’s selling process? Well, yes, but only 23% of these generally happy firms report this occurring. Looking to share best practices across your sales force? 15% of firms report this happening as an outcome of compensation design. See value in having an accurate forecast? Of course, but only 12% of firms report this being positively driven by their comp plan. An alternative interpretation of the situation is that companies elicit the behaviors they reward. Traditionally, signing up new customers, selling new products and maintaining/farming existing relationships have aligned companies’ desires with reps’ proclivities. But modifying their behaviors (i.e., following process, sharing practices, accurately forecasting) haven’t been part of the natural order of things—and to a large extent still are not.”
8. Selling Behavior Impacted by Compensation Plans
Reinforcing existing behaviors rather than motivating desired behaviors seems to be the case.
Actual behavioral impact levels much lower than overall assessment of comp plans’ impacts.
The number of behaviors influenced mirrors the relatively short list of metrics rewarded.
Commentary:
“As noted in the prior metric on the estimated impact of compensation on rep behavior, nearly 80% of firms feel their plans are driving their reps to perform (i.e., behave) as desired. And yet, even the highest rated behavior—selling to new accounts—is 14% lower as an outcome. The next three behaviors fall off another 14%. So 77% of firms feel the comp plan is driving desired behavior but less than 50% report those specific behaviors being positively encouraged. What’s the deal? The maxim, what gets measured gets managed, may find application here. While the behaviors noted (in the survey) are desirable, we see a clear fall off in their being exhibited. A separate metric in this year’s survey may suggest why this is occurring. Nearly half (48%) of responding firms report their comp plans track three or fewer (1–3) metrics. It is a safe bet that one of these metrics—perhaps the only metric—is quota attainment. A second metric very likely is product mix; this could be percentage of services, partner revenues, and/or new products or accounts. In nearly half of all companies that’s it. There’s no significant encouragement of, for example, selling higher margin products because there is no reward for doing so. It may be measured, even encouraged, but it is not part of the equation when computing pay. Even in companies with a baker’s half-dozen metrics, it is unlikely metrics are in place to track, measure, improve and reward performance with respect to those desired behaviors…”
9. Variable Compensation Error Rate
Getting commission payments out on time and correctly seems not to be a problem.
Accurate and timely payments shouldn’t be confused with behavior shaping payments.
Lack of transparency and real-time reporting limits the leverage of commission payments–even if accurate.
Commentary:
“Nobody is going to argue the importance of getting paychecks correct. It’s imperative and any time it doesn’t happen, things will come to a grinding halt until corrected. But, as seen (in the results), for one-half of all companies reporting, the systems are working pretty smoothly and for another 15%, the error rates are still between 3–5%. The wheels will not be stopped often or for long in these companies. It should also be pointed out that for 30% of companies responding, the answer is Don’t Know. This year’s survey data reveal that just over one-half of all companies compute their commission payments using spreadsheets. Even one-quarter of the very largest firms (i.e., >750 sales reps) do so. While accuracy does not appear to be a problem–65% of these firms report <5% error rate—there are significant limitations to this approach. For starters and almost without exception, these spreadsheet mechanisms have evolved over time. The formulas that drive the eventual payouts are barely visible to and/or understood by the operations people that use them, let alone the sales reps that are the recipients of them. As is seen in the (survey results), this translates into myriad significant management issues. For now, suffice to say, the pay is right but this comes at the cost of selling time corrupted by the need for shadow accounting (i.e., reps maintaining their own books/records); laborious processes to reassign accounts and/or territories; lack of insights into individual performance improvements; no direct link between what I as a rep can control and what I can earn; and more. But, hey, the error rate is low and we already own the spreadsheet software.”
10. Biggest Challenges When Rolling Out Compensation Plans
Biggest single issue is inability to forecast the impact of the compensation plan design.
Plan and market complexity make real-time adjustments difficult, thus limiting possible responses.
Larger corporate and strategic goals are not linked to individual day-to-day activities.
Commentary:
“As seen (in the survey results) there are numerous sales management issues associated with the roll out of each year’s compensation plan. Clearly the most common and immediately significant is the inability to accurately forecast what the economic impact will be of modifications to the existing plan. This inability to conduct “what if” scenarios, to compare various schemes based on widely varying assumptions and/or levels of execution limit managers’ ability to optimize sales performance. For sales ops, one-third of respondents report that including certain sales behaviors (e.g., consistent use of the CRM system, contributing best practices to the sales knowledge base, selling higher margin deals) may be desirable, but the fact is they’re just too hard to incorporate into the current pay computing system. And these limitations are in play before the plan is even launched. Once turned on, there are even fewer tools to alert managers that the market has moved, other than to learn long after the fact when this is reflected in lower bookings. But wait, there’s more. In today’s marketplace, companies are challenged to present a consistent face and message to both customers and prospects. And yet a quarter of companies report an inability to provide a clear link between corporate goals/objectives (other than sell as much of our stuff as you possibly can!) and the individual reps in the field and/or on the phone that are connecting with customers each day.”
The following are verbatim recommendations from the CSO Insights Sales Compensation and Performance Management 2009 Survey Results and Analysis:
1. Look for accuracy, ease of use and multi-dimensional tracking.
Incentive and compensation management is about more than simply getting the decimal in the right place and getting checks out on time. Beyond accurately calculating payments due, you also want the ability to easily model various comp plan scenarios, and to do so based on multiple desired behavioral metrics.
2. Align pay to performance and profits.
Visibility into actual performance enables sophisticated fine tuning such as paying differently on higher margin products and services; varying (e.g., reducing) incentive based on discount percentage; creating competitive SPIFs and contests and varying commission rates by product to reward the specific behaviors that contribute to bottom line results.
3. Excel is amazing and amazingly limited.
Everyone has experienced the power of using today’s spreadsheets for various calculations. Still, today’s fast moving business environment requires companies to be able to readily adapt and foresee the implications of doing so. Excel allows you to calculate complex formulas but not to integrate various dimensions of performance from other enterprise systems (e.g., ERP, CRM, etc.). Additionally, Excel-based comp plans have seen error rates on average of 3% to 8%, and using spreadsheets sales reps lack real-time visibility via the Web.
4. Mine the gold in your system’s information.
Powerful analytics geared toward mining historic data enable true process improvement. Reliable post-sale data tied to pre-sale process metrics, for example, can identify: individual and collective forecast variances; historic close rates when certain buying influences are/are not involved in the sales process; which products have sales cycles short enough to still impact this period’s results; etc.
5. We work for the money but live for the strokes.
Not all rewards are financial. Recognition and reward programs can be more than simply monetary. Your comp plan can also include points awarded for desired or exemplary behavior, not simply revenue bookings. Travel awards, merchandise certificates, gift cards (e.g., Starbucks, Amazon, etc.) can enrich the work experience and give impact when saying “Well done!”
6. Sales 2.0 requires Sales Management 2.0.
Today’s sales reps face increased demands from buyers, competitors and increasingly complex products/services. Coaching reps to improve performance and providing meaningful feedback requires more of managers than simply barking, “Make it happen!” Dashboards and other graphic performance displays enable sales management to spot key performance indicators early and offer reps relevant and appropriate guidance.
7. Put the power in the hands of the users.
In the past, business intelligence systems were expensive, complex, and run/maintained by IT. Today’s new Sales Performance Management systems are lightweight, offer pre-packaged content and can be modified on the fly by end users. Having the ability to see what you want/when you want and doing so based on real-time data supports more agile and informed decision-making and higher adoption rates of the tool by both reps and managers.
8. Increase adoption of CRM.
Single sign-on and access to incentive data directly from CRM systems drive and motivate behavior literally at the point of sale. With compensation schemes/rules tied directly to each active opportunity, “what if” scenarios for possible customer solutions can show potential commissions and rewards payments, enabling reps to focus time and energy on configuring deals for maximum results.
9. Benchmark for success.
Leveraging Sales Performance Management intelligence (via analytics and services) allows you to monitor and assess the health of your sales pipeline and revenue generating performance. Establishing compensation benchmarks provides a basis for continually increasing sales effectiveness, productivity, and profitability, which together drive competitive advantage.
