Sales Comp(lications) Episode #1

Episode #2 @ Episode #2

Vendor Selection – The RIGHT way

Photo by Krzysztof Poltorak

As organizations look to technology vendors for products and services to drive revenue and cut costs to compete in a global hyper-competitive marketplace, the selection of an enterprise software vendor is a critical component to companies’ long term success.  Chose the right vendor and reap tremendous economic value-add.   Chose poorly and suffer the financial, motivational, and individual career repercussions.     

As a consultant I’ve helped over 50 clients with their ICM / SPM software vendor selection projects and on the software vendor side at beqom (www.beqom.com)  I’ve seen a dozen or so in the past few months, but I don’t currently do this type of project and there is a very small list of firms who I would recommend to lead an ICM / SPM vendor selection.   In general, there is a lack of overall industry knowledge, strong system integrator bias, and a rise in vendor resistance to third-parties helping clients out with the vendor selection process. (which I shared some thoughts about years ago – would you allow the buyer to pressure you into a real estate sale without a Realtor?  How is software any different?).      

But companies still have a need for help (I know as I continue to field emails and phone calls on the subject).  In response I’ve decided to put some thoughts to paper based on my experience.  I want to share best practices, insider tips, and a few tools to help you make the best decision possible for your organization and limit the downside risk to you and your company.  The RIGHT way methodology will work for any category of software purchase but the specific information I’m going to share pertain to the Incentive Compensation Management (ICM) and Sales Performance Management (SPM) space.   Anyone who chooses to follow the RIGHT way methodology is going to get the latest and greatest approach to vendor selection as the market had changed somewhat and my opinion and perspective towards selection has changed dramatically since the last time I managed a vendor selection process.     

Future posts will cover the details for each step of the process as well as the classic mistakes that companies who don’t know the RIGHT way will make.  The most common mistake is following the traditional way of looking at a software selection and to focus on features and functionality.   This mistake will lead to all of the top vendors in the space looking exactly the same.  Organizations will then add unnecessary steps to the selection process forcing the vendors to go through hoop after hoop and more likely than not will make a final selection based on cost.   The mistake of focusing on features and functionality leads to a selection that is not much better than throwing a dart at a wall filled with vendor handouts.   So what do you need to focus on to get the best solution for your company? 

The RIGHT way selection methodology

1. Capabilities Assessment – This step is crucial to determine if you need to acquire technology or focus on building new processes or perhaps spend time on your data sources.   Technology isn’t a silver bullet – technology allows for process and decision enablement and where appropriate process automation.  
2. Vendor Landscape & Shortlist – If you find a technology shortcoming or aspirational opportunity from the assessment, determine what offerings might make sense and then narrow the choices to request and assess offers. I’ll offer up thoughts on best practices to get to a short list, why your short list might be different from the next, and the value of analysts covering the space.
3. Business Case for Change and Project Framework – How to build an internal business case, a stakeholder team and structure the overall internal project.   
4. RFx – RFI, RFQ, RFP, Optional (surprising? Many companies find little value from RFx responses in the decision making process)-  Somewhat self-explanatory but I’ll offer up some ideas on how to best construct a RFx to try and create differentiation and perhaps a better way to find a vendor that is business partner you are looking for. 
5. Vendor Interviews:  This is a new step that I haven’t recommended in the past, but to make the right decision you need to spend time with the potential vendors to determine cultural fit and commitment and to build rapport and trust.  
6. Demonstration – Have the vendors show their wares in the context of your organization.  At one point in time I was a big advocate of the “Custom Demonstration” but my opinion has changed and I’ll tell you how I recommend to do it now. The common approach to selection uses the RFx and the Custom Demonstration to create an "apples to apples" comparison where you might not know that you want and need an orange or maybe even a banana!   
7. References, Optional (surprising?  Not many software organizations are going to schedule a reference that isn’t going to speak about them in a glowing fashion).  If you chose to do the traditional reference call I’ll cover how to use the time wisely.   
8. Negotiations and Contracting – How to get a win/win deal.  The traditional model and the SaaS model of pricing is outdated and not to your advantage.  I’ll cover a new way to guarantee Success is included in the pricing.  

      As a final piece of advice, keep the selection process as simple as possible and at each step take the time to validate that the solution and the more importantly the vendor is meeting the original need(s) and aspiration goals found in the assessment and outlined in your business case.  Please contact me with any questions at jlane98@yahoo.com, follow me on twitter @SPMconsulting. 

The Future of Compensation Part 1

You only have to look at some of the leading news stories to know that compensation is important – Pay inequity, pay equality, raising the minimum wage, and executive bonuses are all hot topics.    At beqom the future of compensation is near and dear to our hearts.  We attend conferences, speak with consultants, read surveys, articles and blogs and most importantly listen to our clients to keep our finger on the pulse of what’s next.   This active listening allows us the luxury of adding new features and functionality to our software, enriching out services offering and positioning us to continue to provide tremendous value to exist existing customers and hopefully demonstrate enough value to our potential clients that they want to partner with us in lieu of our competition.  

One of the important considerations when thinking about the future of compensation is that the basics will remain the same.  The trends that have led us to today will continue into the future, including the long term theme of the rise and recognition of the importance of human capital hand in hand with the rise of human resources and right to be heard at the executive level.

 

Compensation will continue to be used to attract, retain, and motivate talent.   The other day I came across a fascinating survey finding challenging some of the commonly held beliefs of different generations’ core motivations.  Every age group of employees listed base pay as their number one reason that they joined their current organization and the number one reason that they were planning on staying.  In the same Towers Watson¹ survey 27% of employees responded that they would be looking for a job in the next 12 months.    That is more than one out of every four people, base pay if well managed is a key component of a recruitment and retention strategy as the war for talent heats up.

Compensation of all forms will continue to be used as a motivational tool to drive behavior and sustained employee engagement.   To optimize return on compensation spend organizations will continue to set goals and incentives, but only a handful of companies have deployed the process, tools and training to do so effectively and efficiently. 

Compensation, especially in the financial services vertical, will continue to be shaped by a regulatory environment.  Sarbanes Oxley, Frank-Dodd (and the federal guidance of the quarter) Solvency II, Basel III and individual state and country laws all have direct or indirect impact to compensation.  Regulations aren’t going away and will continue to drive current and future complexity around compensation

The future of Compensation is a huge topic and I’m going focus on a few key items that I have the most impact.  

   

Over the course of this multi-part blog post I will cover:

•        The most important trends in Compensation (and how companies are reacting)
•        Why a Total view of Compensation including HR and Sales Compensation is a winning strategy
•        What role Technology is playing in Compensation Management at leading companies
•       A primer in Motivational Theory and Behavioral Economics and how the latest research fits into a compensation strategy. 
•        What’s to come – a far reaching look at how multiple dynamic forces will shape compensation of the future and what your organization needs to be doing today to remain competitive. 

Stay tuned!

 Please follow me on twitter at @SPMConsulting and if you like what you've read check out more blog posts on how to attract, retrain, and motivate your entire workforce at SPM News  

References:

1.            The 2014 Global Workforce Study http://bit.ly/WlhtoB
2.         beqom

JFK and the Janitor

At beqom we provide a solution to make your people happy.   We firmly believe that 3 of the key tenets in employee happiness are:

• Clear Direction - Understanding the corporate vision
• Alignment - Knowing your part
• Motivate - Understanding how you will be compensated

At a company meeting I overheard someone describing the JFK and the Janitor story to a colleague.   I had never heard the story of JFK and the Janitor before, but immediately after reading the story for myself a couple of ideas clicked together.   The idea of understanding the vision of the company linked in my head with Motivation 3.0 theory of purpose the desire of people to be part of something that is bigger than they are.   Total Compensation, Motivation & Productivity are all tightly linked.  

If you don’t know the story here it is:

President John F. Kennedy was visiting NASA headquarters for the first time, in 1961. While touring the facility, he introduced himself to a janitor who was mopping the floor and asked him what he did at NASA. The janitor replied, “I’m helping put a man on the moon!”

The janitor got it.   He understood the vision, and his part in it, and he had purpose.     While looking for the JFK and the Janitor story I found another similar story:

“Perhaps you have heard the story of Christopher Wren, one of the greatest of English architects, who walked one day unrecognized among the men who were at work upon the building of St. Paul’s cathedral in London which he had designed. ”What are you doing?" he inquired of one of the workmen, and the man replied, "I am cutting a piece of stone." As he went on he put the same question to another man, and the man replied, "I am earning five shillings twopence a day." And to a third man he addressed the same inquiry and the man answered, "I am helping Sir Christopher Wren build a beautiful cathedral." That man had vision. He could see beyond the cutting of the stone, beyond the earning of his daily wage, to the creation of a work of art—the building of a great cathedral. And in your life it is important for you to strive to attain a vision of the larger whole.”   Louise Bush-Brown http://www.bartleby.com/73/458.html

St. Paul's Cathedral

I like this story as well.  One by one it touches on all of beqom tenets of employee happiness – what’s your part, how will you be compensated, and what is the corporate vision.  Two of the men only understand one of the three tenets but the 3^rd workman that gets the whole picture.    Both the JFK and the Janitor story and the story of Sir Christopher Wren are illustrative of our ideas around employee happiness and personally both stories brought a smile to my face.  A quick injection of happiness! I hope you enjoy them as well.   

 Please follow me on twitter at @spmconsulting

 To learn more about beqom, please visit www.beqom.com

Global Sales Compensation Plan Design Considerations

In the course of business I get asked a lot of questions about sales compensation and the following I thought was interesting enough to share.  Feedback and questions always appreciated.

Question:  How to motivate people in different countries? We are really interested in getting some ideas about ICM examples and best practices.

Response: I will start off by saying that the sales plan is just one component of sales effectiveness and while a powerful motivation tool, the plan itself may or may not be the root problem to address.   I would start off with an analysis of the sales and go-to-market strategy, the competitive landscape, sales force design, sales operations capabilities and corporate culture before I would look straight to the sales compensation plan for fixes.   A holistic understanding of the organizational strategy and structure allows for a greater understanding of what can and needs to be addressed in the sales compensation plan and what the potential expected and unexpected consequences of any change might be.   That being said, here are some general guidelines for consideration when about designing a sales incentive compensation plan for a multi-national company.

Laws & Regulations:   You have to take into consideration local laws and industry regulations For example if you would like to have a clawback component to your sales compensation plan the enforcement of a pay-deduction for monies owed to the company due to a clawback in counties such as Denmark, France, Japan, Korea, Sweden, Latin America or the state of California will range from difficult to impossible under local laws.  Another example from the state of California prohibits any retroactive changes to a sales compensation plan, organizations cannot rewriting the terms of the commission agreement once the sale or performance has occurred.   From a regulatory perspective certain industries such as pharmaceutical, insurance, and financial services have rules that will designate what you can and cannot do in a sales incentive compensation plan.   These industry regulations can vary by country or by region.   The penalties for not following regulations can results in extremely large fines.   Some great examples of this from the Pharmaceutical Industry can be found here; http://projects.propublica.org/graphics/bigpharma

Cultural Differences:  Different countries can have vastly different cultures and the main impact to sales compensation plan design is how much pay to put at risk.   An example compensation plan may by 70/30 where 70 of the total target compensation (TTC) is base pay and 30% of TTC is at risk and dependent on performance.   In a well-designed plan he greater the % of pay at risk, the great the potential upside for the sales representative to earn.    The guiding principle of how much pay to put at risk for a particular sales role is how much control does the sales representative have over the deal.   High control = higher at risk pay, Low control = lower at risk pay.   But, cultural differences towards risk and reward must be taken into consideration as well.   For example, the mix for a sales role in America would be different for the same sales role in Japan.   A very nice article around the topic of cultural differences can be found here; http://www.worldatwork.org/waw/adimLink?id=26136 The article describes four dimensions of culture, Power Distance, Collectivism/Individualism, Uncertainty Avoidance and Femininity/Masculinity.  Each of these four cultural dynamics has a relationship to risk / reward and helps to determine the amount of pay at risk.

Market Pay:  Different markets will obviously have different total target compensation based on cost of living and the competitive market for talent.   When thinking about the sales structure and roles also consider the pay philosophy needed to recruit, motivate and retain the level of talent that you need.  A good summation of things to consider around market pay is summarized by Jeff Haden in his article, The 7 undeniable truths of employee pay, “Employees are smart. They understand market conditions, financial constraints, revenue shortfalls, and increased competition. They understand when you can’t pay top-of-market salaries. What they don’t understand is when they don’t feel fairly compensated compared to other employees in similar positions, both inside and outside your company.”   Do the research to see what the competitive landscape is for like jobs in different markets that you want to compete and set your pay levels accordingly. 

Motivation 2.0 v. 3.0:  Motivation is tricky and only so much can be accomplished by a sales compensation plan.   Not a lot of research has been done directed culture differences and sales motivation but there has been a lot of research done around motivation in general that may be applicable to sales compensation.  In Daniel Pink’s book Drive he outlines the concepts of Motivation 2.0 and Motivation 3.0.  Motivation 2.0, is what business management has used to drive operations in the modern era.   The basic principle of Motivation 2.0 is that we as humans will seek reward and avoid punishment. The classic sales compensation analogy of carrots and sticks.  Motivation 2.0 is found in compensation plans as If-then rewards, “If you do this (sell product), then you'll get that (commissions and bonuses)."  Motivation 3.0 theory is where Daniel Pink states that people would prefer activities where they can pursue three things:

•  Autonomy: People want to have control over their work and activities
• Mastery: People want to get better (be the best) at what they do
• Purpose: People desire  to be part of something that is bigger than they are    

My short term advice is to keep the sales compensation plan focused on the Motivation 2.0 aspects, pay for performance and create an environment where the Motivation 3.0 dynamics can come into play.  Pay for performance and manage behaviors.   A flowchart from the book that describes what types of job roles are more applicable to each theory can be found here; http://ow.ly/EdGN9  A TED talk by the author Daniel Pink can be found here; http://www.ted.com/talks/dan_pink_on_motivation?language=en  

Keep it simple:  This is a rule that applies to any country that a business may operate in, each sales compensation plan must be simple enough to understand with a small number of measures that link to sales strategy.    For a plan to be effective there must be a linkage between overall sales strategy and the compensation plan measures.   An easy example is revenue, if the company is in an early growth stage and any dollar of revenue is good revenue then you would expect a compensation plan to have a corresponding revenue metric.   As the business matures and grows more complex you would expect additional metrics to get added to the plan such as profit margin.   The conventional wisdom is no more than 3 measure per plan.  If you have more than three measures in a single plan you probably have the need to create an additional sales role to focus on the new measures.   The downside to having too many measures in a single plan is the inability to drive behavior.   You cannot sufficiently fund all the measures to give them the attention that they need. 

Hyperbolic Discounting

Wow.  Has it really been 7 months since I last posted?   Time flies!   Just recently I posted a new blog at The Carrot for my new company ZS Associates about hyperbolic discounting and I thought I would share a few additional thoughts here and link over to it. 

Hyperbolic discounting is an idea from from economics research that people value rewards now over bigger rewards later and has some interesting implications when it comes to variable pay. The key issue is timing.  The closer the timing of the reward to the behavior the greater the percieved value of the reward.  Assuming your compensation plans are in good shape, the problem falls to the administration of the compensation.  How long from close of period to payroll is your cycle?  Up until very recently I thought two weeks was a good benchmark, but now my thought process has completed changed.  One week is as long as it should take and to maximise the value of your variable compensation spend one day should be the goal.  The compensation administration cycle time is a large destructor of value.  The key issue of timing is one of 6 motivational dimensions that greatly impact how you should be paying people and how the effeciency of the administration is key to getting the most bang for your buck.  

1.       Availability - right quality and quantity

2.       Timeliness - decreasing value v. time

3.       Performance Contingency - linkage

4.       Durability - how to make it stick, intrinsic can be better than extrinsic – Gamification; achievement, accomplishment, challenge, accountability   

5.       Equity - sense of fair play

6.       Visibility - reporting

I'll be writing more on the model and the other dimensions in the months to come. 

 Go check out the post and let me know what you think.      

Blog Post can be found here:
The Carrot Blog

How long does it take to process Sales Compensation?

Recently, in the Sales Ops Group forum on Linkedin, the following question was asked - "Sales Ops Gurus - How long is the lag in your commission payout cycle?"

Below is our latest Survey Data regarding this question.   We've found that high performance compensation administration teams will complete the end to end cycle for the first payroll after month close - approx. 2 weeks.  To reach and maintain this level of effectiveness and efficiency requires the right people, a mature process, and supporting technology.

As always, please let me know if you have any questions, would like to see a slice of the survey data by your particular company demographics, or you want keep the discussion going in the Sales Operations Group Linkedin forum.  I can be reached at justin.lane@beqom.com