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SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer Principal, Sales Performance Practice Leader Erik Charles, Xactly Director, Product Marketing MERCER WEBCAST

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Page 1: MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk ... · SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer ... Focused

SALES COMPENSATION OPTIMIZATIONManage Risk to Maximize EffectivenessJULY 24, 2013

Shawn Rossi, MercerPrincipal, Sales Performance Practice Leader

Erik Charles, XactlyDirector, Product Marketing

MERCER WEBCAST

Page 2: MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk ... · SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer ... Focused

MERCER WEBCAST 1

Today’s Speakers

Shawn RossiPrincipal, Sales Performance Practice Leader

Mercer

Erik W. CharlesPrincipal Incentives Strategist

Xactly Corporation

Focused on sales force productivityoptimization for 18+ yearsWidely published and frequent speaker

• Works published in WorldatWork, SHRMand other publications

• Spoken for WorldatWork, SPM SolutionProvider User Conferences and theSales Management Association

Former sales operations strategy executive fora leading consulting companyFormer marketing executive for an eMarketingcompany specializing in the IT Solution spaceBegan sales effectiveness career at AndersenConsulting – focused on CRM and customercare within the telecommunications industry

Focused on sales force effectiveness leveragedthrough application of technology for 20+ yearsWriter and speaker:

• Blog on Sales Force Effectiveness@Xactlycorp

• Speaker for World at Work, AA-ISP, SalesManagement Association

• Articles in Selling Power, World at WorkFormer consultant in sales force effectivenessand compensationExperience as a sales rep, sales manager, andsales operations headAngel investor in business technologyTwitter: @ErikChazLinkedIn: www.LinkedIn.com/in/erikcharles

Page 3: MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk ... · SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer ... Focused

MERCER WEBCAST

Mercer – Who We AreMercer helps clients optimize their workforce performance and maximize theeffectiveness of their benefit and incentive programs

• We are a global consulting leader in talent, health, retirement, and investments.

• $3.9 billion in revenue

• 65-year history.

• Four business segments

• Offices in more than 40 countries

• 19,000+ colleagues

2

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MERCER WEBCAST

Xactly– Who We AreWith Xactly, companies unleash the motivational powerof their incentive compensation. We help companiesof any size Incent Right

3

LEADER IN SAAS INCENTIVECOMPENSATION MANAGEMENT

FASTEST GROWING PROVIDER– OVER 100,000 SALES REPS INCENTED

FOCUSED EXCLUSIVELY ONINCENTIVES AND COMPENSATION

MANAGING >$6 BILLION INCOMPENSATION ANUALLY

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MERCER WEBCAST 4

What Is At Risk Again?

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MERCER WEBCAST 5

Managing Risk: When & What

When What

Sales CompensationEffectiveness

LegalExposure

CostMotivation

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MERCER WEBCAST

Managing Risk: How

EffectiveProgramEffectiveProgram

Fair, AttainableGoals

Aligned,SimplePlans

Effective,Efficient

Comp Admin

Clear,Timely

Plan & GoalCommunication

6

Separating the GoodSeparating the Good

Area

Leaders Laggards

Rated Area Effectiveor Very Effective

Design 75% 60%

Quotas 73% 39%

Communication 73% 61%

Administration 70% 57%

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PLAN DESIGN

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MERCER WEBCAST 88

Focus on Critical Plan Design Components

8

Step 0: Compensation Philosophy

Step 1: Determine Eligibility

Step 2: Set Total Target Cash Levels

Step 3: Choose Mix of Base and Incentive

Step 4: Determine Measures & Weights

Step 5: Design Plan Mechanics

Step 6: Set Performance Objectives

Step 7: Select Leverage Ratios

Step 8: Set Payout Timing

Step 9: Develop Administrative Guidelines

Step 10: Validate Comp Philosophy

Motivation &cost driving plan

components

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST 9

Design Takeaways:Get the total target cash

right (TTC) given theideal talent pool

Mix drastically changesupside opportunity

Leverage is anextremely powerful

behavior drives as it isthe combination of mix

and upside

Amou

ntEa

rned

50

50

100

70

30

60

90

10

20

Uncapped

Uncapped

Uncapped

Mix

Ups

ide

$100K

$200K

Incentive Pay Leverage: A Double-Edged Sword

Leverage can help maximize motivation, but it also introduces the potential forincreased risk.

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST

EffectivePerformance

Measures

Withinspan ofcontrol

CompreadyAligned

• Ability to consistently andmaterially influence

• Within “line-of-sight” andkey result for the role

• Data can be accuratelytracked

• Data is from a trustedsource and available for

timely payments

• Supports sales strategyand business objectives

• Consistent with role’sdesign and keyresponsibilities

Key best practice is tohave no more than threeperformance measures

and to make certainperformance measuresare aligned with the role

and its keyresponsibilities.

Key best practice is tohave no more than threeperformance measures

and to make certainperformance measuresare aligned with the role

and its keyresponsibilities.

What Can We Measure?Criteria for maximizing motivation and minimizing risk

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST 11

Measures MUST Be Attainable!

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MERCER WEBCAST 12July 24, 2013

How Many Measures Can We Use?

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MERCER WEBCAST 13

If I Can’t See It Or Touch It, Don’t Measure Me On ItTimely line of sight is critical to successful measurement

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MERCER WEBCAST 14

Measurement Timing Will Also Drive WHEN You Book Deals

• You will see spikes in revenue for whateverthe measurement period is.

• Combine monthly and quarterly goals withthe annual numbers to help smooth therevenue cycle.

0%5%

10%15%20%25%

1 2 3 4 5 6 7 8 9 10 11 12

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MERCER WEBCAST 15

AnnualQuota Targets

QuarterlyQuota Targets

>80%of quota

67%

>80%of quota

60%

Measurement Timing Will Also Drive How MUCH You Book

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MERCER WEBCAST

Hidden Risk & Motivation: Crediting Rules

16

Frontline• Global Account

Manager• Local Account

Manger

Overlay

• Sales Engineer• Product Specialist• Services Sales

Executive

Channel• Partner Account

Manager• Channel Manager

Roll-up• First level sales

manger• Second level

sales manager

$10MDeal

Design ConsiderationsDoes everyone getcredit?How much credit doeseach role receive?Does the type ofproduct/solution changehow much credit isgiven?Does the type ofcustomer (i.e. strategic,new, etc.) alter theamount of credit given?

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST

The Challenge with Crediting Rules – Credit Creep…

17

30 COMMISSIONS1Deal

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ROLL-OUT & SET-UP

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MERCER WEBCAST 19

Key Areas for Compensation Governance

• Decision Rights and Accountabilities– Roles– Responsibilities– Approval/review processes

• Plan Design Guidelines– Eligibility, pay levels, pay mix, performance measures, crediting rules,

and mechanics and more• Policy Terms and Conditions

– Procedures for plan acceptance, quota, adjustments, terminations, etc.– Legal aspects related to compensation, benefits, and employee

relations• Plan Oversight provides a check and balance as well as issue resolution

body to govern plan management throughout the year

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST

Assess Individual Level Impact

AttainmentLevel

AverageAttainment

Avg CurrentTarget TCC

Avg CurrentActual TCC

Avg FutureTarget TCC

Avg FutureActual TCC

> +15%Change in TCC

+15% to 0%Change in TCC

0% to -15%Change in TCC

> -15% Changein TCC

105%+ 111% $72,876 $74,976 $77,675 $85,177 8 6 2 0

90 - 105% 98% $112,471 $113,795 $114,124 $112,868 2 13 22 0

70 - 90% 83% $75,809 $72,486 $76,967 $63,531 0 3 6 4

0 - 70% 59% $56,850 $51,183 $58,639 $47,531 0 0 4 1

Top Performer Average Performer Bottom PerformerAttainment 113% 90% 62%

Production $583,546 $2,758,017 $614,036

Current TCC $69,022 $272,998 $73,737Target TCC -New Plan $66,515 $256,944 $85,335Actual TCC -New Plan $73,394 $235,709 $68,268

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST

Threshold 100%

Number ofSalespeople

30-40%of Sellers

60-70%of Sellers

Excellence

Top10%of Sellers

Quota Performance

Bottom10%of Sellers

Target level equates to100% of plan

Performance level requiringminimal effort – set based on

historical performance or fixedcosts

Excellence level allows 10% ofsellers to earn upside, it is usually

set using historical data

Fair Target Setting Is Key To Motivate The Field and Align WithCompany Success

21

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST 22

Once Assigned, What Quota Attainment Can We Predict?

Distribution of Annual Quota Attainment %

100%100%

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MERCER WEBCAST 23

Communications

Software &Technology

48% 30% 22%

Manufacturing& Distribution

41% 33% 26%

39% 35% 26%

39% 25% 36%

36% 28% 36%

26% 45% 29%

BusinessServices

LifeSciences

Media &Entertainment

>120% 80 – 120%On-target Incentive Earnings

< 80%

Every Industry is Different

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MERCER WEBCAST 24

Put Your Best Foot Forward…

Plan Roll-out—Energize and Align

• Layout a strategy and formal roll-out plan

• Leverage multiple communication vehicles;documents, meetings, rallies, etc.

• Sales executives are active, visible champions

• First level managers are the key verbalcommunication point and “face” of the plans

• Track plan acceptance

Communications Motivation Results

Sales CompEffectiveness

Legal

CostMotivate

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ON-GOING

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MERCER WEBCAST 26

Who Wants to Restate Earnings?

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MERCER WEBCAST 27

Compensation Plan Effectiveness Metrics

Analysis Key Data Cuts ObjectiveCCOS / ICOS • Geography

• Position

• BusinessUnit

• Comparatively how expensive is eachincumbent/team/Geo to the company?How much does it vary?

• How effectively does that compensationexpense drive results?

Performance Distribution • Geography

• Position

• BusinessUnit

• How effective is current quota setting?Does it support the achievementphilosophy? (Stretch goals vs. Culture ofAchievers)

• How effective are quotas at targeting realopportunity?

Pay Differentiation • Geography

• Position

• BusinessUnit

• What is the degree of differentiationbetween a median, low, and high performer

• How does that differentiation driveperformance?

0% 0% 0%

31%

2% 1%4%

22%

18%

14%

9%

0%

5%

10%

15%

20%

25%

30%

35%

<18

.5k

18.5

k-37

k

37k-

55.5k

55.5

k-74

k

74k-

92.5k

92.5

k-11

1k

111k

-129

.5k

129.

5k-1

48k

148k

-166

.5k

166.

5k-1

85k

185k

>

NISD $

0%

50%

100%

150%

200%

250%

300%

350%

10th 20th 30th 40th 50th 60th 70th 80th 90th

New Customer Renew + GITA Total Incentive

$87,969

$1,641

$4,170

$19,295

$4,016

$4,297

$5,628

$48,923

TotalIncentive

($000)

$190,430

$2,614

$8,133

$65,810

$7,896

$8,891

$9,761

$87,327

Total Salary($000)

Percent of Target Earned

0.96%

0.56%

0.57%

0.79%

0.87%

0.93%

0.97%

1.23%

CCOS

0.30%

0.22%

0.19%

0.18%

0.29%

0.30%

0.35%

0.44%

iCOS

$29,130,910

$757,812

$2,150,538

$10,802,870

$1,367,883

$1,420,618

$1,590,112

$11,041,077

Total Revenue($000)

$278,399

$4,254

$12,303

$85,105

$11,911

$13,188

$15,389

$136,249

Total Comp($000)

CA

AZ

AS

US

Overall

LA

JP

EM

$87,969

$1,641

$4,170

$19,295

$4,016

$4,297

$5,628

$48,923

TotalIncentive

($000)

$190,430

$2,614

$8,133

$65,810

$7,896

$8,891

$9,761

$87,327

Total Salary($000)

Percent of Target Earned

0.96%

0.56%

0.57%

0.79%

0.87%

0.93%

0.97%

1.23%

CCOS

0.30%

0.22%

0.19%

0.18%

0.29%

0.30%

0.35%

0.44%

iCOS

$29,130,910

$757,812

$2,150,538

$10,802,870

$1,367,883

$1,420,618

$1,590,112

$11,041,077

Total Revenue($000)

$278,399

$4,254

$12,303

$85,105

$11,911

$13,188

$15,389

$136,249

Total Comp($000)

CA

AZ

AS

US

Overall

LA

JP

EM

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST 28

Compensation Plan Effectiveness Metrics continued

Analysis Key Data Cuts ObjectiveCredited Revenue Ratio • Geography

• Position

• How big of a variance exists betweenactual and credited revenue?

• How does the ratio compare to industrystandards?

• How do the use of overlays and variancesin crediting practices affect the ratio?

Pay For Performance • Geography

• Position

• How big a variance is there in how planspay for like levels of performance?

• How effectively do the plans rewardperformance?

• How well are key objectives correlated topay?

Pay Composition • Geography

• Position

• BusinessUnit

• How much more of a top performerscompensation is made up by incentive vs.bottom performer?

• How strongly does the pay componentsdrive performance?

• Do the plans incent for the right focus?

R2 = 0.5353

0

50,000

100,000

150,000

200,000

250,000

0% 20% 40% 60% 80% 100%

$25,674 $25,828 $25,839 $25,969 $25,827

$19,815 $23,620 $27,731$36,800

$26,970

$7,483$12,362

$15,968

$26,738

$15,612

$12,573

$22,999

$12,444

$8,861

$5,247

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

LowestQuartile

3rd Quartile 2nd Quartile Top Quartile All Reps

Aver

age

Pay

12250%

N/A

N/A

11069%

9481%

10172%

Actual CCOS

$481,536

$15,653

$56,836

$147,103

$37,356

$224,589

TCC Paid ($MM)

N/AN/A$24,019,577239Federal

82,025$3,931$322,442,0812,508All

N/AN/A$47,685,44965World Wide

84,689$1,329$112,551,841885EMEA

30,990$394$12,210,125343Asia Pacific

57,054$2,208$125,975,090976Americas

Credited toActual Revenue

RatioActual Revenue2

($MM)Credited

Revenue1 ($MM)Number of

Associates1Region

12250%

N/A

N/A

11069%

9481%

10172%

Actual CCOS

$481,536

$15,653

$56,836

$147,103

$37,356

$224,589

TCC Paid ($MM)

N/AN/A$24,019,577239Federal

82,025$3,931$322,442,0812,508All

N/AN/A$47,685,44965World Wide

84,689$1,329$112,551,841885EMEA

30,990$394$12,210,125343Asia Pacific

57,054$2,208$125,975,090976Americas

Credited toActual Revenue

RatioActual Revenue2

($MM)Credited

Revenue1 ($MM)Number of

Associates1Region

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST 29

Keep Talking to Provide Motivational Thrust

Communications Motivation Results

In-Period Performance to Date (PTD)Reports

• Self-service, easily accessible reports for the field

• Updated frequently; daily for high transactionbusinesses, weekly at a minimum

• Simple, easy to digest reports that provide line ofsight into:– Performance against plan measures, including

access to the transactions/credits– Position and stack ranking against peers– Forecast pay based upon deals in the pipeline,

especially to show how thresholds andaccelerators can be achieved

Sales CompEffectiveness

Legal

CostMotivate

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MERCER WEBCAST

So Who’s On First?

30

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MERCER WEBCAST

Are You Sure?

31

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MERCER WEBCAST

WARNING SIGNS

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MERCER WEBCAST

Warning Signs – Do You Have Any of These?

Quotaattainment& companyresults notaligned

Forecastinaccuracy

Elevatedturnover levels& disputes

Unhealthy levelof channelconflict

Rising cost ofsale

33

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MERCER WEBCAST

How Do Your Managers Handle Turnover?

34

18.6%

22.2%

IF THEMANAGER IS:

POOR REPTURNOVER IS:

5.6%ON THE MARGIN

MISSING QUOTA

HITTING QUOTA

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MERCER WEBCAST

Can You Predict The Loss Of Top Performers?

35

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MERCER WEBCAST

What Is It All Costing You? Remember ROI?

36

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MERCER WEBCAST

Final Checklist

What are you trying to ACHIEVE this period?

WHO is going to do it for you?

How much TOTAL are you willing to pay?

What are you going to MEASURE?

WHEN we will you write the check?

How will you KNOW if you have succeeded?

How will you know if you made a MISTAKE?

When you make an ADJUSTMENT?37

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MERCER WEBCAST

Remember – This Is ALL Connected

38

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MERCER WEBCAST 39

Questions

QUESTIONSPlease type your questions in the Q&A section of the toolbarand we will do our best to answer as many questions as wehave time for.

To submit a question while in full screen mode, use the Q&Abutton, on the floating panel, on the top of your screen.

CLICK HERE TO ASK A QUESTIONTO “ALL PANELISTS”

FEEDBACKPlease take the time to fill out thefeedback form at the end of this webcastso we can continue to improve. Thefeedback form will pop-up in a newwindow when the session ends.

www.mercer.com/webcastsView past recordings and sign up forupcoming webcasts

Shawn RossiPrincipal, Sales Performance Practice Leader

[email protected]

Erik W. CharlesPrincipal Incentives Strategist

Xactly [email protected]

Page 41: MERCER WEBCAST SALES COMPENSATION OPTIMIZATION Manage Risk ... · SALES COMPENSATION OPTIMIZATION Manage Risk to Maximize Effectiveness JULY 24, 2013 Shawn Rossi, Mercer ... Focused