EIM
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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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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- What’s in a name? - JasonKearns
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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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There’s Value in the Journey
Tuesday, December 16th, 2008 | Compensation Plans, Project Direction, large projects, requirements | No Comments
We’ve all the heard of the Law of Unintended Consequences, that is that actions of people always have effects that are unanticipated or unintended. Although this term is typically used to describe government, I’m sure most of us have experienced it. Those of us in the realm of sales compensation know all about this Law. A move that seems beneficial one day can expose massive consequences the next. Conditions are always changing and you can debate decisions for weeks without truly understanding the impacts. But let’s not get too negative here. Why do all Unintended Consequences have to be “Consequences”? Many benefits can also come without warning. The world of R&D is teeming with examples of projects gone wrong leading to breakthroughs in unexpected areas. This kind of serendipity need not be reserved for those in white coats. We should all keep an eye out for the “good” in all this uncertainty. Most of us already agree that all decisions are temporary. That’s why a push to having more system flexibility is vital to having up to date and effective incentive plans.
The need for more flexibility usually leads to a new system altogether. This brings about the most critical decision of all… what do we build and how? So let’s do assessments, let’s do vendor selections, let’s diagram and hypothesize to our hearts content. ROI analysis needs to be done and the numbers have to work. Can we drop headcount? Can we reduce overpayment? What’s the value in turning around plan changes faster? How many hours per day will our sales force rededicate to selling when their reporting is better?
I love the early theorizing about a new system. There is always such optimism. Compensation Managers and Compensation Administrators are usually dying for some sort of relief from their current predicament. I love bringing that relief. I’ve been there and feel for them. That being said, it is rare that the final delivery of a system lives up to these initial dreams. No matter how “realistic” we try to be, the road to get a system up and running always takes a toll on scope and budget.
This is where I offer some encouragement. The Journey brings its own rewards. Often times, we focus so hard on the finish line and lose sight of what we’re learning every day. Take this list of tasks:
· Processes
o Document system workflow for compensation calculations.
o Document business operations workflow for compensation calculations.
o Define ideal skill sets and headcount for IT and business operations.
· Comp Plans
o Obtain catalog of current plan documentation.
o Devise method for managing plan change version control.
o Agree to SLA for turnaround on plan changes.
o Define all key data sources and data elements needed for current and future plan calculations.
· Reporting
o Discover true business critical end user reports and their requirements.
o Investigate need for ad-hoc analysis reporting.
o Define all key data sources and data elements needed for current and future compensation reporting.
· Testing
o Create test cases and methodically test calculation scenarios.
o Identify gaps in automated functionality and devise adjustment procedures that satisfy SOX.
All of these tasks are part of a typical systems implementation. Notice that none of them actually require the building of a new system. Yet, not many organizations can afford to spend time doing all of these tasks without the pretense of a large new system development. What is the value in doing all of these things? In many organizations these would be monumentally valuable especially if you start uncovering gross errors or if your lack of documentation is hurting your ability to handle turnover.
My point is to appreciate the Unintended Benefits of your project—not all unintended consequences need be negative. If you can find a way to predict these benefits, then an ROI case can be made; regardless, at the end of the day going through this process can improve your organization if you take proper advantage.
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