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Sales Compensation:

p
Establishing Design Principles
David J. Cichelli
Sr. Vice President
The Alexander Group
d i h lli@ l
dcichelli@alexandergroup.com
d

2012 The Alexander Group, Inc.

Topics

Importance of Design Principles

Design Principles Framework

Your Policy Document

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli

Importance Of Design Principles

Answer These Questions

What Are Sales Compensation Design Principles?

Wh Contained
Whats
C
i d in
i Design
D i Principles?
Pi i l ?

Who Creates the Design Principles?

Who Owns the Design Principles?

Why Are Design Principles Important?

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli

Design Principles Framework

Design Principles Topics

Charter

Guiding Parameters

Strategy & Job Alignment


S l F
Sales
Force M
Motivation
ti ti
Pay for Performance
Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies, Goals and Principles

Charter

Plan Elements

Eligibility
Pay Levels
Pay Mix
Leverage
Measures
Mechanics & Pay Curve
Perf. & Payout Periods
Quotas/Targets
Q
g
Crediting & Policies
Special Incentives

Strategy & Job


Alignment

Guiding
Parameters
1

Plan
Elements

Execution

Eligibility

3
Pay
Levels

Sales Force
Motivation
4

Pay
Mix

Leverage

Measures

Investment ROI

Communication

Pay for
Performance

Mechanics &
Pay Curve

Perf & Payout


Periods

9
Quotas/
Targets

Administration

Crediting &
Policies

10
Special
Incentives

Governance,
Assessment,
Design

Execution

Investment ROI
Communication
Administration
Governance, Assessment, Design

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli

Sales Compensation Design Principles


Charter

Overall Strategic Goal

Guiding
Parameters

Rules To Govern Design Solutions

Plan
Elements

Guidelines for Specific Program Components

Execution

Supporting Programs: Required for Any Sales


Compensation Plan

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

Execution

Strategy & Job


Alignment

Guiding
Parameters

Pay
Mix

Leverage

Measures

Investment ROI

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

8
Quotas/
Targets

Communication

2012 The Alexander Group, Inc.

Administration

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

4
Pay
Mix

Execution

Strategy & Job


Alignment

Guiding
Parameters

Leverage

Investment ROI

Measures

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

8
Quotas/
Targets

Communication

Administration

2012 The Alexander Group, Inc.

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli

Sales Compensation Plan Design Principles


Charter

Attract, Retain and Reward Sales Resources To Drive Sales Results


...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Phase I
Start-Up

Phase II
Volume Growth

Phase III
Re-Evaluation

Phase IV
Optimization

Grow; Keep
Customers

HIGH Growth

Launch New
Products
Grow
Really
Fast

Process

ROI

Control
Pricing

Survive

Expenses/
Margins

Grow
Select
Markets
Reposition

BASE Growth
Product
Reduce
Costs

LOW Growth
2012 The Alexander Group, Inc.

Re-Think
Product &
Market
Strategy

SC Establishing Design Principles David Cichelli 10

Design PrinciplesManagement Compass


Results
...Establish roles and goals, reward
for getting the job done. Exit those not
on the same page...

Workforce

Individual
Hire people with destiny,
support them, pay them well
and get out of their way...

...Our people are our greatest


asset...be loyal to them and
they will be loyal to us

Shareholders

Customers

...We are here to serve the


shareholders of this
company...

...Create a great customer


experience and customers
will be loyal
y to us...

Work Team

Institution

...We are team driven...there


...People are lucky to have a job
is no I in team. Work together;
here. We are the leaders in our
Execution
win together
...We know this business...get industry...the company founders
gave us a proud tradition...
the details right and the big stuff
will be easy...
2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 11

Management CompassMatch The Incentive Plan


Results
Goal-Based Compensation

Individual

Workforce
Corporate Bonus Plans

Straight Commission Plans

Shareholders

Customers

Equity Incentive Plans

Customer Service Incentive Plans

Work Team
Team Incentives

Institution
Execution

Seniority-Based Pay

Scorecard Plans

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SC Establishing Design Principles David Cichelli 12

Design PrinciplesSales Accountability Model


Sales Personnel Are The Most Performance Accountable Workforce

Level
Advancement

Sales Funnel
Progression

Appraisal/
Development

Performance
Reporting

Membership/
Engagement

Supervisory
Oversight
Sales
Compensation

Where Does Sales Compensation Fit?


2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 13

Design PrinciplesSales Compensation Phases

Phase I
Start-Up

Phase II
Volume Growth

Phase III
Re-Evaluation

Phase IV
Optimization

Commission
Commission

Ramped
Commissions
Commissions

Base
Base Plus
plus
Commission
Commission

Multiple Plans

Uncapped
Uncapped

Base Plus
Bonus/Base
Plus
Commission

Add-On
Add-On
Bonuses
Bonuses

Contests
Contests

Salary
Level
Salary Level
Job
Job Families
Families

Regressive/
Managed
Payouts

Reward/
Recognition
No
No Glue
Glue

2012 The Alexander Group, Inc.

Glue

SC Establishing Design Principles David Cichelli 14

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

4
Pay
Mix

Execution

Strategy & Job


Alignment

Guiding
Parameters

Leverage

Measures

Investment ROI

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

Communication

Administration

2012 The Alexander Group, Inc.

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli 15

Guiding Parameters: Strategy & Job Alignment


1

Guiding
Parameters

Strategy & Job


Alignment

Sales Force
Motivation

Pay for
Performance

1
Strategy & Job Alignment
Reinforce strategy and
growth objectives
Align with set of defined job
categories
Drive desired behaviors

Prospects

Conversion
Selling

New Market
Selling

Fulfillment
Selling

Penetration
Selling

Buyers

Customers

Globally consistent to drive


WW strategy
Current

New/Different

Products
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SC Establishing Design Principles David Cichelli 16

Sales Strategy Drives Job Specialization


Primary Focus

Typical Responsibilities

General Sales
Representative

Sells to all segments


Maintains current business
Expands base of business

New Business
Developer

Expands base of business


Establishes and maintains relationships with key decision-makers
Business-to-business selling, using all appropriate resources

Account
Manager

Maintains current business


Services current accounts effectively
Expands business with current accounts opportunistically

Sales
Representative

Sells to and services moderately-sized current and new accounts


Prospects within specified geography

Product Sales
Specialist

Sells specific product to current and new accounts

Industry/Market or Acts as segment resource on an as-needed basis


Channel Specialist
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SC Establishing Design Principles David Cichelli 17

Guiding Parameters: Sales Force Motivation


1

Guiding
Parameters

Strategy & Job


Alignment

Sales Force
Motivation

Pay for
Performance

2
Sales Force Motivation

Source

Need

Target total compensation


objective
Market competitive upside
pay

Influence
Vector

Motivation Response

Positive

Seek Economic Gain

Negative

Avoid Economic Loss

Positive

Seek Acclaim/Belonging

Negative

Avoid Embarrassment/Rejection

Positive

Seek Self-Image Confirmation

Negative

Avoid Self-Image Detractors

Economic

External
Social

Each plan is simple to


understand
Sales force can tie results to
payouts

Internal

Self-Definition

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 18

Guiding Parameters: Pay For Performance


1

Strategy & Job


Alignment

Guiding
Parameters

Sales Force
Motivation

Pay for
Performance

3
Pay for Performance
Tiffany Shop
Sell or Die

Differentiate top & bottom


performance

75th

Pay for results (impact on the


business), not effort

50th

Absolute pay correlates to


absolute results

25th

Market Tracker
Nice Place to
Work
Bottom
Feeder

Low
Performers

Compensation program
meets fiscal requirements

Median
Performers

2012 The Alexander Group, Inc.

High
Performers

SC Establishing Design Principles David Cichelli 19

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

Execution

Strategy & Job


Alignment

Guiding
Parameters

Pay
Mix

Leverage

Measures

Investment ROI

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

8
Quotas/
Targets

Communication

2012 The Alexander Group, Inc.

Administration

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli 20

10

Plan Elements: Eligibility


1

Plan
Elements

Eligibility

3
Pay
Levels

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Eligibility

Eligibility Criteria:
1.

2
2.

Target Pay

Target Rate
Risk

Significant customer and/or


partner contact and
relationship
Persuade the customer to
act in a positive financial
benefit to the company

No Risk

3x
Uncapped

Unit Rate

2x
Capped

Add-On Gainsharing

Target Total
Cash
Compensation

3.

High level of sales process


involvement/ownership

4.

Clear and quantifiable sales


objectives

Base
Salary

Base
Salary

Base
Salary

Base
Salary

Types of Variable Compensation Plans

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SC Establishing Design Principles David Cichelli 21

Eligibility Decision Tree


Contact

Style

Job Type

Eligibility

Direct Sales: Sales


Focus Only

3x Uncapped

Persuade
Other
Sellers

Indirect Sales:
Channel Sales
Efforts

3x Uncapped

Persuade
Buyer

Reactive Selling:
Sell on In-bound
Call or Service Issue

3x Uncapped

Fulfill
Customer

Customer Service:
Service Only

2x Capped

Promote

Support:
pp
Influence
Efforts to Achieve
Sales Objective

2x Capped

Administer

Support: Administer/
Implement Sales
Programs

Add-On Team

Execute

Support:
Transaction
Processing

Add-On
Group

Role
Persuade
Prospect

Initiate

Titles

External

Respond

Internal

Facilitate

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SC Establishing Design Principles David Cichelli 22

11

Plan Elements: Pay Levels


1

Plan
Elements

3
Pay
Levels

Eligibility

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

...Medians and Averages Alone Are Meaningless

Pay Levels
Total W-2

Clear and consistent pay


philosophy

$210,000
$200,000
$190,000

Competitive pay levels to


attract the level of talent
sales requires

$180,000
$170,000
$160,000
$150,000

Benchmarking to the right


roles based upon job content

$140,000
$130,000
10th

25th

50th
75th
Percentile
Our Data
Survey Data

90th

Benchmarking to the right set


of companies

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 23

Target Total CompensationJob Levels


Income Producer
High

Sales Representative
Global Account Manager
Senior Account Manager

W-2 Earnings

Account Executive
Senior Sales Representative

Territory Representative

Low
Low

High

Sales Territory Volume

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SC Establishing Design Principles David Cichelli 24

12

Plan Elements: Pay Mix


1

Plan
Elements

3
Pay
Levels

Eligibility

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Pay Mix

Pay mix reflects the jobs


degree of individual influence
within the deal and considers
market benchmarks

100

10

30

50
Mix

90

Jobs with the most influence


on the purchasing decision
have more aggressive pay
mix

Job A
Low

70

50

Job B
Job C
Degree of Influence

2012 The Alexander Group, Inc.

High

SC Establishing Design Principles David Cichelli 25

Plan Elements: Leverage


1

Plan
Elements

Eligibility

3
Pay
Levels

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Leverage

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

200
160

Leverage (upside opportunity)


reflects the jobs degree of
individual influence on
attaining quota and considers
market benchmarks

Perf &
Payout
Periods

120
10
10
10

100

50
Upside

30
50

30

Leverage
3x

30

50
Mix

90

Jobs with the most influence


on the purchasing decision
have a higher upside earning

Job A

70

50

Job B

Job C

Degree of Influence

Low
2012 The Alexander Group, Inc.

High

SC Establishing Design Principles David Cichelli 26

13

Performance MeasuresTypes
Production

Revenue, Profit Dollars, Items Sold

Sales Effectiveness

Customer Impact

Resource Management

Activities

Product
Product, Account,
Account Margin Percent,
Percent Price
Management
Customer Satisfaction, Sales Satisfaction,
Customer Loyalty
Productivity, Channel Effectiveness, Subordinate
Success

Sales Milestone Tasks, Sales Events

Subjective

Supervisor Evaluation

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 27

Performance MeasuresWeightings

Revenue

Profit

New
Accounts

Sales Rep

50%

25%

25%

Key Accounts

50%

Jobs

Pre-Sales

75%

Telephone

100%

KSOs

Total

25%

25%

100%

10%

100%

100%

15%

100%

Customer Service
Channel Mgr

Cross
Sell

75%
70%

2012 The Alexander Group, Inc.

25%

100%

30%

100%

SC Establishing Design Principles David Cichelli 28

14

Plan Elements: Measures


1

Plan
Elements

3
Pay
Levels

Eligibility

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Measures
Just Say No To:

No more than three measures


Criteria include:

Alignment to strategy and job


Influence their measures
((Line of Sight)
g )
Ability to set quotas/goals
Ability to track
Objective metrics

Weights reflect the jobs focus


and have impact

More than three measures


Corporate galactic measures
y measures
Activity
Wishful thinking measures
Weighting less than 15%
Compliance measures
Can not measure measures

Measures aligned vertically


and across teams
2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 29

Plan Elements: Mechanics & Pay Curve


1

Plan
Elements

Eligibility

3
Pay
Levels

Mechanics &
Pay Curve

Appropriate mechanics:
Set thresholds at point of
recurring business
Use quotas to
accommodate varied
territory
Use excellence to set
accelerator rates
Decelerate rate after
excellence to avoid over
payment
Use modifiers, value
adjustments and matrices to
balance measures

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

% of Target
Incentive
600%

Pay Curve

500%
400%

Excellence

Decelerator

300%
200%

Threshold

Target

Cap

No Threshold

Upside

100%
0%
0%

25%

50%

75%

100%

125%

150%

175%

Attainment of Goal

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 30

15

Formula MechanicsSpecification Worksheet


Pay
Program

Formula
Type

Formula
Mechanics
Schedule

Individual

Pay Program

Lump Sum
Step
Formula

Commission
Bonus
ICR
KSOs

Slope
Flat Rate
Progressive
Regressive

Team

Producer
Seller 3x
Sales Help 2x
Add-On
None

Formula
Modifiers

Or Shared Goals
Gainsharing
Pool

Or Location
Sales Unit
Division

Hybrid
Or

Threshold
Cap
Order Size
Account

Draw

None
Revenue
Rates

None
NonRecoverable
Recoverable
Permanent
Expiring

Linkage

Period

Discrete
Cumulative

Value Adjust

Group
G

Limits

None
Hurdle
Multiplier
Matrix

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 31

Formula Examples
Description

Mechanics

Pros

Cons

Percentage of each sale given as


compensation. Different percentage
rates can be used for different products
and rates can ramp as sales increase.

Simple
Motivational

Assign point value to each product sale;


payout depends on total number of
points attained.

Difficult
ff
admin
Can weight
Plan
key products
Shopping

Payout Curve

Earnings increase linearly as quota


attainment increases.

Equalizes
diverse
territories

Step Bonus

Earnings increase in a step-based


fashion as quota attainment increases.

Addresses
No pay
quota setting
between steps
difficulty

Hurdle

Earnings are held back for one measure Creates high


Can be overly
unless the goal for another measure is
priority for
punitive
met.
achievement

Multiplier

Earnings for one measure are increased Balance


Unclear focus
or decreased depending on the goal
asymmetrical
on individual
attainment of another measure.
measures
measures

Commission
Product Points
Product A 15
Product B 10
Product C
5

Product
Points

Matrix

Rev

4
3
2
1
0

2012 The Alexander Group, Inc.

7
5
4
2
1

Payout
30+ Points $20,000
16-30 Points $10,000
5-15 Points
$5,000

10
7
6
4
2
Profit

12
9
7
5
3

18
12
10
7
4

Performance for X-axis measure and


performance for Y-axis measure
determine reward.

Balances
competing
initiatives

Absolute
Payout

Two-step
calculation

Involved

SC Establishing Design Principles David Cichelli

16

Plan Elements: Performance & Payout Periods


1

Plan
Elements

Eligibility

3
Pay
Levels

4
Pay
Mix

Leverage

Measures

6
Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Performance &
Payout Periods

Performance periods should:


Match sales cycle length
Set realistic goals
Minimize pushing/pulling
orders
d

Payment should:
Occur close to sales event
Ensure proper cash flow
Be Consequential

Discrete Periods

Separate, standalone payments for


each period

Progress on Annual Plan

Progress payments on an annual goal

Cumulative Performance-toDate

Divided performance period paid on a


cumulative performance-to-date basis

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 33

Performance PeriodDiscrete And Cumulative


Discrete
Achievement

Incentive Payment

Q1 Actuals versus Q1 Quota

Q1

Q2 Actuals versus Q2 Quota

Q2

Q3 Actuals versus Q3 Quota

Q3

Q4 Actuals versus Q4 Quota

Q4

Cumulative Year-to-Date
Achievement

Incentive Payment

t l versus Q1 Q
t
Q1 A
Actuals
Quota

Q1

Q1+Q2 Actuals versus Q1+Q2 Quota

Q1Q2 less Q1

Q1+Q2+Q3 Actuals versus Q1+Q2+Q3 Quota


Q1+Q2+Q3+Q4 Actuals versus Q1+Q2+Q3+Q4 Quota
2012 The Alexander Group, Inc.

Q1Q3 less Q1+Q2


Q1Q4 less Q1+Q2+Q3
SC Establishing Design Principles David Cichelli 34

17

Plan Elements: Quotas/Targets


1

Plan
Elements

Eligibility

3
Pay
Levels

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Quotas/Targets
Quota Distribution

Quotas are fair, realistic,


stretch goals based on sales
potential
2/3 of incumbents achieve
goal
Consistent quota methodology
for similar roles and segments
well documented and
communicated

60-70%
of
Sellers

30-40%
of
Sellers

Bottom
10% of
Sellers

Process includes both topdown and bottom-up

Top
10%
of
Sellers

Threshold

100%

2012 The Alexander Group, Inc.

Excellence

SC Establishing Design Principles David Cichelli 35

Quotas

Forecast

Company Number

Sales Objective

Sales Department Goal

Quota Level 1
Quota Level 2

East Region

Area 1

Quota Level 3
Quota Level 4

West Region

Area 2

Area 3

Area 4

District

Sales Rep

Sales Rep

2012 The Alexander Group, Inc.

Sales Rep

SC Establishing Design Principles David Cichelli 36

18

Plan Elements: Crediting & Policies


1

Plan
Elements

3
Pay
Levels

Eligibility

4
Pay
Mix

Leverage

Measures

Mechanics
& Pay
Curve

Perf &
Payout
Periods

Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Crediting & Policies

Sales crediting rules:


Credit for sales
involvement
Pay for persuasion
Administer Efficientlyy
Avoid budget inflation

Region
Vertical Crediting

Policies for:
Employee changes
Quota changes
Windfall deals/mega deals
Sales crediting

District

SR #1

SR #2

Specialist

Horizontal Crediting

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 37

Plan Elements: Special Incentives


1

Plan
Elements

10

Eligibility

3
Pay
Levels

4
Pay
Mix

Leverage

Measures

Special Incentives

7
Perf &
Payout
Periods

8
Quotas/
Targets

10

Crediting
& Policies

Special
Incentives

Recognition
Contests/Spiffs

Excellence

Overtarget
Incentive
Pay

Use standard governance


process
Incentives will:
Not compete with annual
SIP
Not exceed 5% of
populations TTC
Be limited to more than 5
incentives a year
Last no longer than 1-3
months

6
Mechanics
& Pay
Curve

Target
Incentive
Pay

Target

Salary
Benefits
Sales
Expenses

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 38

19

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

4
Pay
Mix

Execution

Strategy & Job


Alignment

Guiding
Parameters

Leverage

Measures

Investment ROI

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

8
Quotas/
Targets

Communication

Administration

2012 The Alexander Group, Inc.

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli 39

Execution: Investment ROI


1

Investment ROI

Investment ROI
Program cost
adheres to
companys financial
goals
Program costs are
predictable based on
expected
performance
Finance owns
program costing
Program prevents
blow out payouts

Communication

Administration

Governance,
Assessment,
Design

1/3

1/3

1/3

$0.12

$0.08

$0.04

Cost-Per-Order Dollar
160%
140%
120%
Quota Attainm
ment

Execution

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

$180

$360

$540

2012 The Alexander Group, Inc.

$720
$900
$1,080
Quota Size ($K)

$1,260

$1,440

$1,620

$1,800

SC Establishing Design Principles David Cichelli 40

20

Execution: Communication
1

Investment ROI

Execution

Communication

Communication

Administration

Governance,
Assessment,
Design

Key Elements of a Leadership Message

Comprehensive
communication
strategy
Detailed websupport
Estimators
Line-sales
management
communicates to
field
Expansive training
and program
documentation

State Compelling Business Condition

Disconnect from Past

Present the Future

Thank for Past Efforts

Call for Volunteers

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 41

Execution: Administration
1

Execution

Investment ROI

Communication

Administration

Governance,
Assessment,
Design

Administration
Single source for
processing and
reporting
Plans are
administered in a
timely accurate and
timely,
cost-efficient manner
Clearly defined and
consistent policies
and procedures for
plan administration
Standards governing
expected behaviors
and performance

High

BOE

COMPLEXITY
((Jobs x Measures x
Rules x Changes)

Low
Low

High
INTENSITY
(Incumbents x Transactions x Period)

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 42

21

Execution: Governance, Assessment, Design


1

Execution

Investment ROI

Governance,
Assessment,
Design
Governance
structure exists to
assess, design,
implement and audit
a dit
plans
Defined roles and
accountabilities
Specified process
Governance body
enforces alignment
to principles

Communication

Administration

Governance,
Assessment,
Design

Establish Objectives, Define Deployment,


Identify Measures, Represent Field
Perspectives and Own the Sales Comp Plan

Sales
Management
Marketing

Confirm Product and Price Objectives


Establish Expense-to-Revenue Ratio, Cost
of the Plan and Provide Administration

Finance

Sales Operations

Provide Pay/Performance Data, Ensure


Tracking and Evaluate Plan Performance

HR/Comp

Gather External Pay Data and Facilitate


the Design Process

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 43

Assessment: Data Analysis


Pay Percentile Distribution Charts
Analyze the range of payouts across incumbents by percentile
Purpose: Assess the level of pay variance and upside pay levels
Revenue Attainment Distribution Charts
Analyze the range of revenue across incumbents by percentile
Purpose: Assess the level of revenue variance between individual reps
Margin Attainment Percentile Distribution Charts
Analyze the range of sales performance across incumbents by percentile
Purpose: Assess current threshold and excellence levels; determine percent
of incumbents above and below target performance levels
Pay vs. Revenue Attainment Correlation Scatter
Analyze the correlation between total compensation and revenue generation
Purpose:
P
Identify
Id tif inconsistencies
i
i t
i b
between
t
payouts
t and
d revenue
Pay vs. Margin Attainment Correlation Scatter
Analyze the correlation between total compensation and sales performance
Purpose: Identify inconsistencies between pay and performance

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 44

22

Design Methodology

Crediting

Quota

Payout Frequency

Performance
Period

Mechanics

Execute

Weightings

Measures

Sales Strategy
and Structure

Upside

Eligibility

Business
Objectives

Pay Mix

Design

Target Pay

Confirm

Administration
Documentation,
Communication
and Rollout

Sales Representative

Job Design
Key Account Manager

Corporate
Compensation
Philosophy

Cost Modeling

Ongoing
Evaluation

Channel Manager
Technical Specialist

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 45

Design Spreadsheet

Sales Representative

50/50
3x
70/30
3x

$150,000

75/25
3x

$120,000

80/20
2.5x

$68,000

$120,000

National Accounts Manager

$140,000

Vertical Market Representative

Channel Sales Manager


Sales Associate

2012 The Alexander Group, Inc.

100/0

Volume

60%

Comm

Price

40%

Bonus

Volume

70%

Bonus

Retention

30%

Modifier

Volume

70%

Matrix

Rep Perf

30%

Matrix

Volume

80%

Matrix

Partners

20%

Matrix

Volume

85%

Merit

MBO

15%

Merit

SC Establishing Design Principles David Cichelli 46

23

Sales Compensation Plan Design Principles


Attract, Retain and Reward Sales Resources To Drive Sales Results
...Consistent With
Corporate Strategies,
Strategies Goals and Principles

Charter

Plan
Elements

Eligibility

Sales Force
Motivation

3
Pay
Levels

Execution

Strategy & Job


Alignment

Guiding
Parameters

4
Pay
Mix

Leverage

5
Measures

Investment ROI

Pay for
Performance
7

Mechanics
& Pay
Curve

Perf &
Payout
Periods

8
Quotas/
Targets

Communication

2012 The Alexander Group, Inc.

Administration

10

Crediting
& Policies

Special
Incentives

Governance,
Assessment,
Design

SC Establishing Design Principles David Cichelli 47

Your Policy Document

24

Crafting A Policy Document

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 49

David J. Cichelli, Senior Vice President


David Cichelli, a Senior Vice President with The Alexander Group, Inc., a sales effectiveness
consulting firm, contributes his knowledge and experience to a wide array of sales
organizations. His clients include leading companies in technology, telecommunications,
wholesale/distribution, financial services and healthcare. David helps clients redefine and
deploy sales coverage to ensure optimal sales performance. By applying the Alexander
Group's Sales Management System, he helps companies achieve their sales objectives
through a variety of techniques,
techniques including improved channel design,
design sales ROI,
ROI sales metrics,
metrics
sales forecasting, quota allocation, sales force automation solutions and sales compensation.
Widely recognized by national professional associations and trade publications for his work in
linking sales compensation to management's objectives, David is a frequent speaker on sales
compensation topics. He is author of McGraw Hills Compensating the Sales Force (2nd
edition). He is also the author of The Sales Growth Imperative, published by McGraw Hill. He
serves a leadership role in the design of the firm's sales effectiveness conceptual models.
David is an officer of the company.

Business Experience
Prior to joining the Alexander Group in 1985, David served for five years as
a national practice manager in sales compensation for a leading
compensation consulting firm. Previously, he had spent seven years
providing support to the field sales organization of a multinational Fortune
200 chemical company.

Academic Credentials
M.S., Michigan State University
B.S., Pennsylvania State University
Faculty Experience: Merage Foundation University California, Irvine;
WorldatWork; Columbia University

2012 The Alexander Group, Inc.

SC Establishing Design Principles David Cichelli 50

25

omp

2012 The Alexander Group, Inc.

Atlanta | Chicago | San Francisco | Scottsdale | Stamford


SC Establishing Design Principles David Cichelli

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