Sales & Marketing Management - January/Februry 2008 - (Page 30) TRAINING TECHNOLOGY INCENTIVES TRAVEL/MEETINGS Q&A Compensation conundrum When sales are sagging, don’t just turn to the usual culprits By Mike McCue now, and when I first started, finance usually just did the final sign-off on comp packages. They weren’t really involved in the design and mechanics. Finance was part of the checks-and-balances system, and of course there was some financial rigor applied to the overall plan, but it really wasn’t very involved in the strategy and design of the plans themselves. S&MM: Why wasn’t finance involved in past years? MATTHEW LUCY: In the years leading up to 2000, I t’s enough to drive any sales manager crazy … the team’s numbers are down and you have no idea why. Your competitors don’t seem to be suffering a similar drop in sales. The overall market hasn’t taken a downturn, nor did you lose out on that big deal you were banking on. Salespeople simply don’t seem to be producing in spite of their best efforts. If this scenario sounds familiar, it might be because you haven’t adequately formulated and articulated the relationship between the behaviors you want from your sales force and the rewards you’ll provide if they perform them. Companies that fail to do this often suffer devastating results to their bottom line. “People sometimes forget how much money is paid out to incentivize the sales force,” says Matthew Lucy, a Los Angeles-based consultant with Towers Perrin. “When you consider base plus bonuses, they equal 2% to 20% of revenue. It’s one of the single largest cost centers in any company.” A second sure indicator of a poorly designed comp plan is that even when incentives are reached and money gets paid out, it doesn’t always appear to go to the right people. Lucy says that situation actually reinforces the very behaviors you’re trying to change, not only making the plan ineffective as a motivational strategy, but a crippling blow to a sales team’s morale. S&MM posed a few more questions to Lucy on this most crucial of topics, and here is what he had to say in response: S&MM: What are the newest developments affecting everyone was doing so well financially and that all of the salespeople were hitting their numbers. No one really had to think too much about motivation because everyone was succeeding. It wasn’t broken, so no one tried to fix it. After the market bust, there was a lot more financial pressure on hitting sales goals, and with Sarbanes-Oxley, the pressure wasn’t just financial—it was regulatory in the form of compliance, auditing and validation. The importance of handling sales compensation appropriately was doubled, and that’s why finance has become less of a watchdog and more of an active participant. S&MM: Why is the involvement of the finance depart- ment such a positive development? MATTHEW LUCY: At most companies, there are two ways people face: outward toward the customers, or inward toward the shareholders and company owners. Salespeople typically face the customers and pay less attention to the needs of owners, but finance leans in the opposite direction. That creates dynamic tension, and that’s a good thing. It forces sales to put more rigor into the impact that their comp plans have on the overall company, and it forces finance to realize the value of keeping those revenue-generating customers happy. S&MM: How and why is it that most compensation plans fail? MATTHEW LUCY: When I’m brought into a company to help them with their compensation planning, there’s often a very basic flaw—a disconnect between the behavior that the employer wants to encourage, www.salesandmarketing.com www.salesandmarketingmanagement.com compensation strategy and planning? MATTHEW LUCY: The much greater involvement of finance departments has been a very positive change recently. I’ve been in this industry for 10 years 30 SALES &MARKETING MANAGEMENT JANUARY/FEBRUARY 2008 http://www.salesandmarketingmanagement.com
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