Archive for January, 2009
Compensating for the Recession
Friday, January 30th, 2009 | Compensation Plans, EIM, SPM | 1 Comment
The economy is in a state we haven’t seen for a very long time. Every segment is affected; every number is down. Imports, exports, manufacturing, retail, finance, and housing are all feeling the pain. This probably isn’t the greatest time to be a sales person on a commission plan. People and businesses just aren’t buying. So, of course, this got us thinking about compensation plans. This downturn really started to get everyone’s attention the last half of 2008, so it’s reasonable to assume that managers have had enough time to adjust their expectations for 2009. We’re seeing that as well; the forecasts are bleak, but sales and compensating for those sales must go on.
So what happens to compensation plans when expectations are lowered? What should happen? Should you invest more in sales to boost production? Should companies expect to spend more per sale in this climate? Or should sales take a hit like everyone else and work for less?
We can’t answer all these questions so we decided to ask around. Here are some interesting comments made by people in the field faced with these decisions on a regular basis.
“We’re not modifying our plan in any way relative to the economy.”
- Cable Business Services.
This business unit works on long cycle sales, so the expectation is to rarely make changes. Some might say this company believes variable plans should in fact be variable. Sales people know what they’re getting into when they pursue this line of work. They reap the rewards during the good times and share the pain during the not so good times.
“The plans are not changing; we’re handling it through operations.”
– Cable Residential Services.
This unit sells primarily through a call center, i.e. with a very short cycle. They are seeing a decrease in calls and consequently a decrease in sales. Sales management can simply reduce the headcount whenever they need to boost individual performance. So they’ve decided to handle the situation that way. Usually this is done by moving reps to part time or letting attrition take place. The management here can feel confident about doing this knowing that it will be easy to increase headcount when things turn around; the sales positions don’t require extensive amounts of training. On the other hand, if the positions required years of experience, they might not have gone this way.
“We’re letting a few people go who we wanted to let go anyway. For the remaining reps we want to keep them happy and loyal, so we’re lowering quotas based on the new forecasts. Also, we’re raising the commission rates so they should end up making close to what they were making.”
– Financial Management Company.
Obviously this industry has been hammered and this company has decided to keep most of the sales organization “whole” while the rest of the financial industry crumbles around them. Obviously it requires considerably more training and experience to sell financial products to investors and pension fund managers than to sell residential cable TV service. We have to think this was a factor behind making quota adjustments here rather than for example letting attrition take place.
We also received some feedback from a major automotive retailer. That industry has also been hit hard and it has never had a reputation for being especially compassionate toward front line sales staff. Not surprisingly, the response here has been to leave compensation plans mostly intact allowing the plans to pare the lower performing sales personnel via attrition. No quota relief is being given to the remaining reps albeit the deals that are, despite the economy, still closing are divvied among the fewer survivors. This is very similar to the residential cable sales example.
In addition to clients, we posed the question to a colleague with considerable experience consulting on issues like this. We wanted to get his thoughts and also to confirm the relationship we noticed between sales person skill set requirements and company reactions to a downturn.
Here’s a quote from Shawn Rossi, VP of Sales Force Effectiveness at Sibson Consulting:
I have seen a wide range of tactics as well. The changes are typically reflective of / influenced by:
• Industry and the level of impact the economy is having on it.
• The supply of good/proven sales talent for a company and its key competitors.
• Financial stability of the company.
For the most part/the general trend, is companies trying to be fair by adjusting quotas to balance CCOS (Compensation Cost of Sales) with realistic revenue generation expectations given the economy and its pressures. I have not seen people raising rates too often, but have seen keeping people in the game through the use of cost conscious SPIFFs.”
Rossi makes some excellent points here and his second bullet speaks to our observation related to experience and skill sets required for a particular sales role.
One additional observation we made during our very informal survey was that corporate culture in no small way influences how these decisions are made. Different companies, sometimes even within the same industry, look at their issues from widely varying perspectives. Having worked with all the companies we spoke to, we were not surprised by any of the answers we received. Knowing the culture of the organizations and having a good feel for how they generally respond to issues allowed us to anticipate the answers we received.
The reality is external factors affect sales all the time, not just during a global recession. Events such as an earthquake in San Francisco or a power outage in Cleveland might impact the sales of businesses to the point that plan adjustments and quota relief are considered. Prudent companies will consciously consider their corporate culture as well as the other more objective factors mentioned here when shaping their responses. We’d love to hear what your company or clients are doing.
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Reputation as an incentive
Tuesday, January 20th, 2009 | Compensation Plans, Non cash incentive | 2 Comments
Last week a colleague of mine was looking for a way to edit a large XML file; what he needed was to change the value of numbers appearing within a particular tag throughout the file by adding a 0.04 to the existing value. This was required to effect a rate table change within his client’s incentive compensation system. I was not sure of how to make this change so I performed a web search, the results of which directed me to a post on a site called Stack Overflow. I shared the link with my colleague. Though the question and answer did not exactly fit, they seemed like they might help him solve his particular problem.
When I checked back later, my friend informed me that he had posted his exact question on Stack Overflow and almost immediately received four good answers with one that was an exact solution to his problem. Amazing! Wondering what encourages its users to monitor and respond so quickly, I decided to go back and see what makes the site tick. Stack is a collaboratively edited site on which users post computer programming and related questions and answers. Users can perform other actions as well including leaving comments, flagging offensive posts, and leaving comments but users have to earn the right to do more advanced actions. The free (and nearly ad free!) site tracks a concept called Reputation for registered users. Generally when users post good (useful) questions or answers, they earn reputation points. The number and type of actions allowed increases with users’ Reputation point total until users are very much like moderators of the site. Read more about Reputation and the site at its FAQ. Essentially, users are encouraged to help others and make the site better to improve their Reputation which allows them more ability to help and make the site better; it’s a vicious and wonderful cycle that capitalizes on human nature to help one another and to be commended for doing so. Something to think about when formulating incentives for employees and while nurturing your company’s culture.
By the way, due in March is the introduction of an IT focused Stack Overflow site.
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What’s Your Magic Number?
Wednesday, January 14th, 2009 | Compensation Plans, EIM, SPM, Uncategorized, analytics | No Comments
Some time ago I read an article by Inc. columnist, Norm Brodsky, discussing unique indicators or as he dubbed them, magic numbers. Magic numbers are described as particular statistics discovered by business operators to have special correlations that can be used to predict future business performance. Examples in the article include a restaurateur who predicts his nightly receipts by the length of wait for a table at 8:30 p.m. and Mr. Brodsky himself who uses the current number of new boxes to forecast a period’s sales within his records storage business. What makes these magic numbers extremely valuable beyond their correlation with traditional business performance measures is that they are easier to obtain and/or available well before their lagging counterparts. Once identified and monitored, the numbers can allow earlier more accurate business operations decisions. In the referenced article, Mr. Brodsky describes how he, using the afore mentioned indicator, slowed his company’s hiring rate well ahead of when he had the quarterly sales totals which he previously used to drive this decision; this allowed him to not over hire rather than being forced to lay off personnel -nice!
This concept is not unique to business. Doctors use indicators like blood pressure, cholesterol test, blood cell counts that have shown to correlate with certain conditions. Using these statistics they predict and take steps to prevent health issues before other symptoms may present. Car owners and mechanics may watch miles per gallon or RPM values in the same manner. How does any of this relate to EIM / SPM systems?
First, EIM / SPM systems, because of their early access to order and customer account data, are a gold mine for finding magic numbers that correlate with sales or other key business statistics. You may find that the commissions system’s transaction count on a particular day of a pay period correlates with that period’s eventual sales commission payout total or perhaps an increase in the percentage of sales of a particular type of product is a leading indicator of an upswing in your company’s market.
Additionally, there are likely magic numbers that can help assess the health of your incentive compensation plans or the EIM / SPM system. These can help IT, administrators, and compensation analysts make EIM / SPM related decisions and adjustments earlier than they might otherwise. The number of sales representative disputes per week might correlate to sales plan health or the number of credits awarded per sale may help administrators detect system inaccuracies before your sales reps or auditors find them.
So how do you go about finding the appropriate magic numbers? Well obviously they should be easier to obtain and available earlier than what you hope they will predict (otherwise what would be the point?). Beyond that, you will need to become very familiar with your system and / or business and watch candidate numbers over time, sometimes a lot of time; you shouldn’t hope to find valuable indicators until you have adequate history to test correlations. Brodsky describes a process of understanding “the relationships between the numbers” which sounds to me like relying on your gut. The statisticians among you might suggest ANOVA or other tests of correlation as magic number discovery techniques; unfortunately (or is it fortunately?) it’s been far too long since my last stats class to address these. Whether it’s via gut feel or a more scientific approach, hope you find some magic!
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Analytics: You absolutely must have it, now tell me what it is
Friday, January 9th, 2009 | Compensation Plans, EIM, SPM, analytics | No Comments
Analytics can save the world. More specifically it can revolutionize the way you do business, which could at least save your world. Analytics is the Holy Grail of Sales Performance Management. If you work with SPM you already know that because the term “analytics” has been a buzzword within SPM solutions since I can remember. It’s amazing how the latest and greatest concept can stay “latest and greatest” for a decade or more. The sad fact is analytics is re-revealed as a new milestone every couple of years. I suppose that means nobody is ever getting there. It’s right up there with El Dorado and Atlantis.
So what is “Analytics”?
Analytics
An`a*lyt”ics\, n. The science of analysis.
Does that clear it up? I doubt it. It turns out that the term analytics is more a guide post than a destination. It’s like saying you are going to “the city”. If you live in Long Island “the city” is Manhattan. But if you live in Pullman, WA, New York probably never enters the brain. In my opinion the reason we never seem to get to this mythical land of analytics is simple. Nobody knows where it is. Or to put a different way, we don’t all necessarily agree on what it looks like and what it does for us.
It makes sense to say that analytics are going to depend on the organization. What’s less obvious is something that I’ve seen many times at different clients. Definitions of analytics within the organization will vary depending on the role of the individual doing the defining
Macro-Analytics vs. Micro-Analytics
The most common divide is a concept I like to call macro vs. micro. When putting together an analytics tool the most important element is the data and how it’s structured. Often times you need to tweak your source systems in order to produce data at the level desired for your analyzers. Here’s where the conflict occurs.
Let’s take a Global Compensation Director. She would like to look at her data at a summary level based on role, country, etc. She wants to reconcile compensation data from the SPM system with data from the accounting system and the sales reporting system. Global Directors want to view metrics like a captain of a cruise ship. Cruise ships can drift a few feet off course as long as the captain can avoid the ice burgs.
Now let’s take the Compensation Analyst assigned to the Northeast New Jersey territory in the retail business unit. He wants account level and product level metrics. Analysts need to know the specific rate paid on specific orders. They are looking to find deviations at a micro-level. They need to answer questions related to the setting of quotas and the effect of vacation time. Analysts deal with individuals and their paychecks, there is no place for estimations, averages and summaries when it comes to paychecks.
So where is the “analytics” City of Gold? Every company needs to draw their own map. Certainly there are many ideas out there that can be reused as starting points or templates. However, when it comes down to it every stake holder needs to identify what they want to see. This isn’t a case where you buy a tool and it triggers a wave of game changing analytical analysis that you’ve never heard of. What a nice analytics tool gives you is built-in adaptability. You might start with one vision and change it later after a period of use.
However, if you don’t start with some sort of a vision and/or goal you will probably be dissatisfied with the results conversely, a common mistake is to try and have too many goals. As the saying goes, “a tool that does everything does nothing well.” Then three years from now you will learn again about this latest and greatest concept named “Analytics” and get all excited yet again.
Later we can create a roadmap to successfully building an analytics tool. Stay tuned…
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