Salesforce Incentive Compensation Trends
Neil Lappley and Tim Weizer
Lappley & Associates
January 18, 2018
Agenda
n Importance of today’s topic
n Seven trends
n Questions and Answers
n Seven trends ¨ Sales process changing ¨ New Sales roles and
incentive eligibility ¨ Major change in corporate
strategy ¨ Incentive compensation
increasing ¨ ASC 606 regulation impact ¨ Increased use of software ¨ More executive
involvement © 2018, Lappley & Associates, Ltd. All Rights Reserved
Importance of Today’s Topic
n Sales compensation a major expense
n Plans expected to change more often
n “Nothing positive happens until the sale is made” (1)
(1) Quote from The Wall Street Journal
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Sales Process is Changing
n Sales process continues to change with more emphasis on team selling
¨ Buyers have abundant information
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Sales Process is Changing
n Sales process continues to change with more emphasis on team selling
¨ Buyers have abundant information
¨ Buyers want a ME3 approach from sellers
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Sales Process is Changing
n Sales process continues to change with more emphasis on team selling
¨ Buyers have abundant information
¨ Buyers want a ME3 approach from sellers
¨ Customers want “Consultative/Insight” selling
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Sales Process is Changing
How many of you have seen the movement toward team selling?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n Sales Analyst Position ¨ Role: collect and analyze
sales data to improve productivity
¨ Characteristics: analytical, organized, articulate
¨ Prevalence: widespread ¨ Compensation: Base salary
and bonus eligible
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n Win-Back Specialist position ¨ Role: re-establish business
relationship with former customers and sell company products and services
¨ Characteristics: persuasive, focused, insightful
¨ Prevalence: moderate and growing
¨ Compensation: base salary and individual incentive (85/15 pay mix)
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n National Account Manager Type I ¨ Role: predominantly
individual selling ¨ Prevalence: wide ¨ Characteristics:
persuasive, ambitious, resourceful
¨ Compensation: Base salary and individual incentive (75/25 mix)
Company Account
Management NAM of Buying
Organization
Buyers
Companies with Sales Focused NAMS
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n National Account Manager Type II ¨ Role: balanced sales and
relationship ¨ Prevalence: broad and
preferred by B2B ¨ Characteristics:
persuasive, resourceful, insightful
¨ Compensation: and incentive (80/20)
Companies With Sales /Relationship Focused NAMS
Company Account Executives Executives
NAM Management of Buying Organization Buyers
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n National Account Manager Type III ¨ Role: relationship and
coordination ¨ Prevalence: broad ¨ Characteristics:
persuasive, organized, responsible
¨ Compensation: Base and incentive (85/15)
Companies With Relationship/Coordination Focused NAMS
Company Account Executives Executives
Corporate Management NAM of Buying
Organization
Business Unit NAM Buyers © 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n New/added Role for “Rainmakers”
¨ Role: act as a “collegial” mentor to new hires. Take them through a 3 step training process
¨ Prevalence: just starting to appear in companies with large salesforces, e.g., pharmaceutical and software
¨ Characteristics: insightful, collegial, efficient
¨ Compensation: Base and incentive (75/25) plus a 1% commission override on the mentee
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
n To find out what roles may be necessary for your organization, conduct customer research:
¨ Discover any major shortfalls with today’s customer experience
¨ Determine if any of these roles would improve sales results or reduce inefficiencies
¨ If so, conduct a pilot program with a new sales position(s)
© 2018, Lappley & Associates, Ltd. All Rights Reserved
New Sales Roles and Incentive Eligibility
Are any of you implementing new sales roles in 2018?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Major Change in Corporate Strategy
n Arconic made drastic changes to its incentive program ¨ Aggressive business goals
and a very challenging business environment
¨ Mandate; “Pull Every Lever to Grow”
¨ Moved from individual payouts determined by personal performance rating and manager’s input to individual goals
¨ New plans’ pay mix to 75/25 or 80/20 from 90/10
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Major Change in Corporate Strategy n Major, Midwest company made leadership and strategy
changes
¨ 3+ years of sales declines
¨ New CEO and VP Sales from outside
¨ New strategy put emphasis on new product innovations and simplifying the business
¨ Limited pay mix variation across sales positions
¨ New plan included higher weighting to individual performance (50% to 70%) and removed 3 corporate thresholds which determined incentive funding
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Major Change in Corporate Strategy
n Change can result in downsizing a salesforce
¨ Microsoft Corporation’s layoffs executed in order to focus more on selling its cloud computing servoices.
¨ Merck & Co. laid off 1800 U.S. sales people in order to cut costs and shift focus to products with solid growth potential.
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Major Change in Corporate Strategy
n With ever increasing competition, more demanding customers, and tighter profit margins, get prepared for major changes to the salesforce’s size and compensation plan
¨ Review the current territory design to determine if it properly fits current sales projections
¨ Determine if some current customers should be turned over to a new or expanded inside sales group
¨ Avoid complexity in the new incentive plan
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Major Change in Corporate Strategy
How many of you have changed your incentive plan after a change in corporate strategy?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Incentive Compensation is Increasing
n Continuing trend toward a more leveraged pay mix
¨ From an 80/20 pay mix to 70/30
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Incentive Compensation is Increasing
n Continuing trend toward a more leveraged pay mix
¨ From a 80/20 pay mix to 70/30
n Noticeable increase in max payout opportunity
¨ 200% of target incentive at 125% of quota
¨ Desire to push top performers to excel
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Incentive Compensation is Increasing n Continuing trend toward a more leveraged pay mix
¨ From a 80/20 pay mix to 70/30
n Noticeable increase in max payout opportunity
¨ 200% of target incentive at 125% of quota
¨ Desire to push top performers to excel
n More use of modifiers to incent key objectives
¨ Margin (23%)
¨ Product Mix (26%), Customer Relationship (12%) © 2018, Lappley & Associates, Ltd. All Rights Reserved
Incentive Compensation is Increasing
Have you increased your incentive leverage recently?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
ASC 606 Regulation and Its Impact
n ASC 606 is a new FASB and IASB joint standard dealing with revenue recognition from contracts with customers
¨ Previously both boards had their own, separate standards creating confusion and complexity.
¨ New standard increases financial comparability across companies and industries.
¨ Implementation must occur no later than 1/1/2018 for public companies and 12/31/2019 for private companies.
© 2018, Lappley & Associates, Ltd. All Rights Reserved
ASC 606 Regulation and Its Impact
n ASC 606 may have major impact on salesforce compensation
¨ Plan design: May require rework
¨ Plan execution: Incentive payment amounts and timing
© 2018, Lappley & Associates, Ltd. All Rights Reserved
ASC 606 Regulation and Its Impact
n Here’s what Human Resources should do:
¨ Sit down with the CFO to discuss what salesforce compensation data the CFO needs
¨ Be prepared to conduct a review of the 2018 salesforce compensation plans. For example,
n The timing of incentive payments to recognize the new revenue recognition standard
n The potential for “holdbacks” to ensure compliance
© 2018, Lappley & Associates, Ltd. All Rights Reserved
ASC 606 Regulation and Its Impact
Have you had this discussion already?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Increased Use of Software
n Many software programs now exist to automate and organize the sales compensation plan
n Useful for complex plans or fine-tune any plan
n Primary benefits include ¨ Improved accuracy ¨ Efficiency ¨ Clarity ¨ Added control
© 2018, Lappley & Associates, Ltd. All Rights Reserved
More Executive Involvement
n Today there’s more involvement by executives in the process steps
n There are generally five steps ¨ Initial design options ¨ Preliminary incentive plan
design ¨ Financial modeling and
impact analysis ¨ Final incentive plan design ¨ Detailed communication
and implementation plans
© 2018, Lappley & Associates, Ltd. All Rights Reserved
More Executive Involvement
n Vice President of Sales
¨ Role: Promoter of Sales as wealth producers
¨ Involvement: In all five steps
© 2018, Lappley & Associates, Ltd. All Rights Reserved
More Executive Involvement
n Chief Human Resources Officer
¨ Role: Process facilitator and overseer of company’s compensation prpgrams. Engender collaboration across functions.
¨ Involvement: In all steps of the process. Helps strike meaningful balance of sales motivation and sales cost
© 2018, Lappley & Associates, Ltd. All Rights Reserved
More Executive Involvement
n Chief Financial Officer
¨ Role: Controller of sales compensation as a cost center and variable budget line item
¨ Involvement: Primarily in steps 3 and 4
© 2018, Lappley & Associates, Ltd. All Rights Reserved
More Executive Involvement
n Chief Marketing Officer
¨ Role: Advocate for an incentive or spiff for “push” products
¨ Involvement: In most instances, primarily in steps 1 and 2
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Summary
n These trends will present the CHRO with challenges
¨ Manage complexity
¨ Balance salesforce motivation and cost
¨ Manage time and resource commitments
¨ Ensure compliance with ASC 606
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Summary
Have you seen any other changes we haven’t touched on?
© 2018, Lappley & Associates, Ltd. All Rights Reserved
Q
A © 2018, Lappley & Associates, Ltd. All Rights Reserved