Five Imperatives for Designing a Strategic Sales Comp Program

Well, hi, everybody. Thanks for joining us. We're here today to talk about everybody's favorite topic, which is sales compensation.

Yeah, it's exciting.

And we're going to talk about five imperatives for designing strategic sales compensation program, something that links the strategy to the front line.

Right.

I'm Mark Danolo, managing partner of Sales Globe, and with me today is Michelle Seeger. And just to give you a little bit of background on who we are, SalesGlobe is a sales innovation firm. And what that means is we solve problems and in the areas of sales strategy, sales coverage, sales compensation quotas, strategic account planning, things that drive revenue growth and drive profitability. And you can see we've got a few books out. We've got a new book out called Quotas with an exclamation point using design thinking to solve your biggest sales challenge. So check that out when you have a chance.

Yeah, and actually, we're going to do a little sales design thinking today, aren't we?

That's right. That's right. Let's get into the five imperatives, Michelle.

Right, so we're going to first talk about solving your real problem. And we are going to get into some of the basics around design thinking, helping you think about in the sales compensation plan the problem you're trying to solve for a little bit differently. And then we're going to discuss the roles and how you really align the roles to the compensation plan and the importance of that and then connecting pay to performance, something we're asked about all the time by our clients and then how they can nail their quotas and finally communicating your plan.

Right. So kind of end to end here in terms of starting with the problem and then rolling out the answer at the end.

That's right. So let's get right to it, Mark, and we're going to start with solving your real problem. A recent survey that we did with our clients reveals some of the top sales compensation challenges. And we've seen a shift over these from over time. And you'll see that right at the top is setting effective quotas. We do call quota setting, Mark, the next frontier, don't we, in what it is that companies are solving for?

Yeah, it's like we've worked a lot on the sales compensation plan, but then solving the quotas is critical because if you can, you can design a great sales comp plan, but if the quotas are not working correctly, it kind of takes the whole thing down. So it's risen to the top is one of the big issues now.

Right. So now let's look at a few of the other things. Paying competitively in the market. Plan complexity. We always do see that they're just creating a simple plan.

Yeah, I mean complexity is a critical issue because when you think about it, the sales compensation plan is really a communications tool. So we have to have a simple message that people understand. The more we put into the plan, because we tend to have really smart people working on the comp plan, the harder it is for people to understand it.

And then how about that differentiating top performers so your top performers actually should earn better than the rest.

So it's what we call fondly the reverse Robinhood approach, which is basically take from the underperformers and pay the over performers.

That's right. And a new one that we've seen is integrating plans from ma and this is an area that's near and dear to my heart as we look at mergers and acquisition integration of companies and the sales organization.

A lot of that going on in the market right now as companies combine together. And I think, you know, the big challenge there, Michelle, is that it's done strategically. So we have the C level making these big M and A decisions and then it's like, okay, go ahead and make it work. And the integration is not really done well. So that's a big challenge.

A big challenge. Especially when we look at pay across different roles of companies. And then the compensation plans often look very different and drive very different behaviors and finally keeping the organization engaged.

Right. So how do you keep people pulling forward on the comp plan on their performance? Even if they may not be a goal, how do we keep them incrementally improving? So let's talk about the big why, which starts the process of design thinking. And the why is why do we end up creating the same old solutions and doing the same old things over and over again? Well, one of the reasons is it's easy. So we think about what did we do last year? Or somebody on the team will be from another company will say, well here's how we did it over there. And we end up replicating so it's easier to do. But then we're kind of puzzled because we end up coming up with the same old answers. So the why starts with beginning with a new approach to not leave ourselves vulnerable. So that's what we call sales design thinking. And it's basically a five step process that we go into in the book quotas. But we'll just take the first step here, which is just redefining the problem statement into A challenge question which gives you a different starting point to solve from.

Yeah, you know, Mark, people don't tend to also not ask the why because they're always in such a hurry it seems. Right. How many times do we have our clients calling us and they're pressed to get the comp plans done, but if they just step back and go through this process, they will come up with a different result.

Right. There's usually not a lot of patience for thinking through the problem, which is kind of, kind of tough. So let's take a look at a problem statement and this might be a typical one for sales compensation. So we churn through a bunch of data analysis and we figure out that, you know, we've got pay correlations that don't make sense between pay and performance. And we see the performance distribution is off and we make the statement we need to fix the sales compensation plan because the organization is underperforming. And then we all mobilize and we start trying to solve for that problem statement. Well, the problem statement doesn't tell us a lot. Right. So what we want to do is we want to convert that into a challenge question. So the difference between a problem statement is it's like this. The statement is this heavy thing and it's, you put it on the table and here's our problem statement. But the challenge question by its nature provokes thinking. Questions are more provocative than statements. So we want to convert this into a question with multiple pieces that are going to give us more granularity to solve for. So let's take a look at a process for how we do it. And it's really just a simple three step process. And we start with understanding the story behind the situation. We're looking for root cause. And if you think you know the story, you probably don't because you're one person in an organization. And until you investigate and get all the multiple, multiple facets of it, you're really not going to have enough to solve for. So understanding the story, we ask some simple questions. What are the pain points? Well, we know a little bit about the pain points so far, but there may be other pain points that are beyond sales compensation. Because sales compensation issues are not always sales compensation issues proper. They're not always happening just within the sales comp plan. It could be other parts or other disciplines within the organization. How and when did it happen over time? Who was involved in terms of executives or different groups? Where was it happening? Globally, regionally, within certain parts of the sales population. And why was it done? That way. So you're not going to be able to answer the question about the story in one sitting. You usually have to do some investigation, talk to a few different people, probably do some analysis. Right. Because when you do data analysis, you're probably doing it to understand something rather than just to crank through the data.

So what you're recommending, Mark, is that you go through the process of and that will help you understand what data you need.

Right? Right. Yeah. It should be data with a purpose. Right. It shouldn't be data because we need to do data analysis. So let's take the first step here. So we took the story and we blew it out here. And this is an example from a company that does automotive electronics. They do antennas and GPS for car manufacturers and also aftermarket automobile companies and installation. And so what you'll see is under the what we had too many reps that were below quota. We had about 20% of people that were attaining quota. They were dragging performance down. Well, how and when did it happen? Well, the company started out with core electronics and they started to grow through acquisitions. So they added on a few more companies, antenna companies, GPS companies. And while they were doing that, they had varied integration of those acquisitions. So they just kind of let them operate the way they had operated before because they didn't want to disturb things too much. And that was okay while the market was strong and the market was healthy. But when competition increased over time, we had higher sales expectations. And those non integrated organizations didn't work as well together because they weren't cross selling, they weren't penetrating customers, they weren't fulfilling the vision that the sea level had for those acquisitions. Well, who was involved in that? Well, senior leadership. They were, they were doing the opportunistic M and A. And then finance came along and, and became the pit bull for the sea level and started to put pressure on the organization when they weren't performing. So that started to turn up the heat. Where was it happening? Well, they had sporadic performance across global markets. That was happening everywhere. It wasn't just happening in one geography. In terms of people, the turnover was high on their top performers, 75th percentile performers, and also on the new people. So new people weren't getting up to speed, they weren't ramping up as they needed to and it was hurting talent, flow of new talent. And the big why was, well, they were doing aggressive M and A. So what was happening is that as the market pressure started to increase, it became tougher and tougher to continue to perform under that Scenario.

Wow. So that's very different than the organization is just simply underperforming, right?

Exactly. So then if you take all that and you spin it around in the other direction, you say, well, what does great look like? This idea of what we call a solution vision. And we ask some of the same questions. So what would a successful outcome be? How and when would that happen? Who would be involved, where would it happen, and then why would it be that way? And this why, Michelle, is really important because when we get into communications and change management, the why becomes the starting point for why the organization should follow, why the organization should do this. So if we take this story and we talk about the solution vision and we look at the details of that, well, what would happen? Well, we'd want to raise sales organization quota performance. We'd want to raise goal attainment for the organization overall. We'd want to be doing something that's opportunity based around quotas and also building a compensation plan that responds to that as well. How and when would it happen? What's a big organization? They discovered they couldn't just roll it all in one shot. They'd probably have to stage the introduction across the organization over time. And then when we talked about who would be involved? Well, part of the who is the organization itself. They want to lower turnover among those top performers and the new hires and part of the who is the organization? So they want more consistent sales, organization design, more consistent roles. Part of the who is involved in who does it? Well, finance. We needed to get finance and sales to work together as a unified team and not just have finance putting pressure on the organization. And then where would it happen? It would happen across all markets. But those with the greatest competition would probably be the ones that they would deal with first. And then why? Well, this is the big why. As I mentioned, it's a benefit to shareholders if they can have more increased predictable growth. That's supported by a great sales compensation plan and a great quota setting system. What we did here with them is we highlighted some things in red and, and literally what we're going to do is take all those red points and convert it over to our redefined challenge question. This is giving us a more expanded picture that problem statement that we had before. Well, how can we develop a more market opportunity based compensation and quota solution that drives revenue and goal attainment, it raises sales organization performance and it happens across all markets, especially the most competitive markets. We've got year to year consistency in terms of performance and it lowers turnover in those top performers. And new hires and it responds to an improved sales organization design. So it's an integrated sales organization and we're engaging finance and sales as a unified team to work together on this. So all of a sudden you've got a lot more that you could dig into and solve for than just the problem statement of we need to fix our sales compensation plan.

Okay. So Mark, this is a great process to go through and as a sales comp professional, it can be overwhelming. We know that. One point, you want to get the engagement of the organization who should be involved and how do you get that engagement to come up with this new challenge, question and solution vision?

Well, you've got to get beyond yourself. So you're going to do it across multiple functions. So you're most likely going to have sales involved, not just sales leadership, but also field sales, the sales frontline sales organization. Because you have to understand what's happened from their perspective. Probably also need to get some input from finance and possibly marketing, hr. So it's really whoever was involved in that whole story. But you kind of learn that along the way. You may not know in the beginning everybody you need to talk to until you get a few steps down the road on it.

Great. So we're saying, guys, you don't have to go it alone.

Do not go it alone. That's right. In the book, we introduce this idea of the outsider in design thinking. And I'll just make one quick point on that, which is it's important to get others involved as you start to work on your design solution because you need an outside perspective. If you try to solve it all internally, you're probably going to miss some things because you get too deep in the problem yourself. Just with you and your team.

All right, now we're going to step back and get a little more strategic and look at the context in which we can solve for our sales complex compensation challenges. What we know is that there are four things that companies, high performing companies do very well and we call that the revenue roadmap. So what they have and what they do really well is they've got great insights as to their customers, competitors and the environment, what's going on and that informs their sales strategy. And that's looking at things like your segmentation and targeting approach to market and the product and services that you're going to put out into the market. That of course informs your coverage model. And this is getting us closer to that comp plan because this is where we're talking about the roles, the process and really what it is that you expect people to do. And finally that will inform the enablement which is the compensation plan. And of course quotas fall into that training development, other things like tools and technology that the team can use to get to their goal. But it's really important as we think about the incentive compensation plan, not to just immediately look at the mechanics in the plan or adding a spiff other things to drive performance, but look at the upstream disciplines that should inform the incentive compensation plan. And this can really be used well as you look at your design thinking.

Right. So when you think about that problem we just gave an example of, it wasn't just a sales compensation or a quota problem. It actually was a problem with role definition. Probably some bigger go to market questions. And so you're getting far outside of the sales compensation discipline. But you have to solve for those things because the comp plan itself may not solve the whole problem.

That's right. And at the center of everything if you have not aligned your incentive compensation plan to the goals of the organization clearly. And what's important, it's really all for not right.

So let's talk about this idea on goals. As you mentioned, C level goals is what we call them when we start the comp plan. And this came from a project we worked on years ago with a compensation team and a sales team and their CEO and he was notorious for tearing up sales compensation plans. So we came in and we were warned and they said this is what's going to happen. And we thought, well, how do we take this idea like you just described, the revenue roadmap, Michelle, how do we take this idea and simplify it down into the things that really have to be reflected in the sales compensation plan? So we went and talked to the CEO and we boil it down to five areas. We asked him, tell us the answer to five questions. What's important to you as we look out over the next year or the next few years in terms of customer priorities, in terms of segments or where we want to focus, what's important in terms of offers or products and where you want to focus there and where you want to grow. Getting to the people side, how should the coverage model work and what are the big priorities there? And then the talent that supports the coverage model, what are your big goals there? And then finally financially, what are you trying to accomplish? And we thought if we could understand these things, we could understand what's going to be important in the sales compensation plan. You can see his answers here from the customer perspective. He said we need to sell higher into the organization, and we need to sell into more lucrative segments. So basically, we need to get beyond the people that are just making purchasing decisions, but we need to get to a more strategic level within the customer. Okay, that told us something in terms of focus around product, they wanted to sell the full offering their full portfolio of solutions. So they basically had different product lines and they weren't cross selling and they weren't selling deep into the organization. And from a coverage model standpoint, they really needed one face to the customer. So when you think about those different products, they had different salespeople. This had coverage model implications. So they wanted one face to the customer to represent everything. And they also wanted managers to manage and not sell because they had managers that were basically big salespeople and they were trying to actually close the sales instead of teaching people how to do that. And then from a talent standpoint, he said, we've got a culture of complacency and we need to put beyond that because they had a large part of their revenue that was coming from annuity products that over time would be attacked by competition. But what it was doing is it was making the sales organization just way too comfortable, Just kind of riding on the annuities. And then finally, from a financial perspective, he said, we need to drive two times the productivity three years down the road. So this gave us something to start with on the compensation plan. We went back and worked with the team, and when we came back to the CEO, we were able to say, okay, here's what you told us in these five areas, and here's how the plan addresses each of those five areas. And it worked. And we've used it ever since. So a lot of our clients use that now just because it just provides clarity. The North Star for the sales compensation.

Plan, a really simple tool. Okay, to summarize our takeaways in this section, do some basic investigation and forensics to uncover the real problem that who, what, when, where, why? Using the revenue roadmap helps guide that discovery process and then making sure that there is alignment with the C level goals, because they do change. All right, let's talk about sharpening your roles.

Right. These are the foundations really for the sales compensation plan. So unless you clarify the roles, you can't really design a great plan.

That's right. And before we even talk about the roles, we talk about aligning them to the sources of revenue. Now, we do know that revenue only comes from three places. You can have your retained revenue, which is that which you had last year. And you start the year with that revenue. And then there is penetration of existing customers. That can be by selling new products into that customer or getting into different buyers. You talked about selling higher into the organization or into different areas for different products and services. And then finally you. There is new market growth. So going into new markets, new competitive wins, or what we call the new logo business. And really, that's it. There's three sources.

That's what I love about this idea. It's so simple. It says it comes down to three things in the end that drive your strategy, drive your role design, drive your sales compensation plan.

That's right. And these are aligned very specifically to roles.

Right. So when you think about roles, I know a lot of people that are listening probably use the hunter farmer model. We're okay with the hunter farmer model, but it tends to be a little too black and white. You could have maybe a rancher in between, maybe that was a hunter that got tired and retired and went into ranching. But it doesn't give you a lot of granularity to describe sales roles and how they fit to all these different types of growth opportunities. We sat back and we thought really hard and we thought, what is it that represents salespeople? That would be maybe more specific. And the idea of dogs came up. And I know when everybody heard that they had somebody that popped into their mind. There was a picture of somebody that popped in their mind, and they're like, that's right. I know what he's talking about. So when you think about it, play along on this. You look at these different types of revenue opportunities. You've got your collies or your dogs that are building strong relationships, service delivery. So they're retaining the base. Right. They're getting so close to the customer that they may actually get lost and not understand what organization they work with. But they're great relationship builders. So there's a particular role there. There's a compensation plan for that. Around account management. You've got your retriever, so they're looking out over their own backyard and they're going after opportunities within their current accounts. Great relationship builders as well, but a little bit more oriented toward growth. And then when you look further out, you've got your Doberman. So these are the ones that will literally take an arm off in order to get a new opportunity. And there's a role for that. There's a compensation plan for that. And so when you look at these basic roles, what you realize is that these are really different DNA pools. Right. So you can't mix a Doberman with a Colley or a retriever. And you don't also want to mix the sales compensation type. So you don't want to use a sales compensation plan that's designed for a Doberman and use that for a retriever, because you're going to get a behavior that's way too aggressive within the current customer. So it describes a good alignment point. And you could take the idea even further. So you might look at specialized roles like product or market specialist here. You can see somebody's pup walking across the street here with a load of groceries, but they're focused on specific areas of the business. You could have pointers that are finding new opportunities. But the one you want to watch out for here is the one that's trying to do too much. So when we look at all these different revenue opportunities, Michelle, you pointed out the worst thing you can do is have a role that tries to cover everything. And this is really kind of the dog that's multifaceted. We love this dog when we started the business because it would go out and it would sell new business, and those new customers would become current customers, and they'd have to manage the current customers and all the operational and service issues that went along with that as well as sell new customers, and they became eventually less and less effective. So you really want to not have dogs or canines or pups that are confused. We really want them to be focused. So focus increases effectiveness with the sales roles and with the sales compensation plan.

All right, so focus increases effectiveness, and you're talking about aligning the role to the sources of revenue. Now let's see. And we'll talk about how that goes into pay.

Right.

So we can start by just discussing the sales compensation diamond.

Right? So if you virtually double clicked on the lower left hand corner of the revenue roadmap, Michelle, that you talked about before, on that sales compensation and quotas box, you would see something like this, which is a process for evaluating and designing the sales compensation plan. And when you think about what happens, the first thing that happens when you get in a conference room to work on the sales compensation program with your team is very often people pull out what they pull out their calculators, right. And they start working on the numbers, and those are the mechanics. That's actually step number seven in the process down here. Where we really want to start is what you described before, Michelle, is we want to start with the C level goals and your sales roles. So if you can establish those, those become the foundation for designing the plan. And then we're moving around into four major areas. Going clockwise, you're moving from plan framing, which includes the target pay and the pay mix and the upside potential for high performers, into linking pay and performance. That lower right hand side where you're defining what your measures and priorities are going to be and the level of measurement are we going to measure at a company level or an individual level as an example. And you're getting into the specific mechanics that connect pay and performance together. And then you're going to the lower left, which is aligning your team and financials. So you have to make sure that all the plans align and they're congruent and they work together well. You're setting quotas effectively and then you move to the upper left, which is operating for results. So how do we put together the governance, roll out the plan and continue to evaluate the plan. So you're literally taking one spin around the diamond to evaluate the plan and then another spin around the diamond to design the plan. So this is pretty comprehensive in that if you follow these steps, you will have covered most of the areas that you need to in terms of effective sales compensation design. So we'll highlight just a few of these today.

Okay, so let's discuss payment.

Right, so that's highly related to the sales role. And if we think about the biggest motivator in the sales compensation plan, it probably is pay mix. How you behave or how you feel. If you have half of your Pay at risk versus you have 30% of your pay at risk, it's a very different feel. Half your pay at risk. I don't have time to talk to anybody. I'm getting out on the street, I got to make some calls. 30% of my pay at risk. I'm a little more willing to have a conversation, have a meeting and talk about strategy. Right? So it's a big, big behavior driver. And you can see our canine friends here. Again, we're trying to come out with a line of PEZ dispensers here, by the way, that look something like this as reminders for everybody. But you can see if you go from the Doberman to the retriever to the collie, you're going to have different types of paymix. And if you take that line on the left hand side, TTC target total compensation. And if you just make an assumption, just for an example here, that every roll is paid the same. So say they're all paid €100,000 or €100,000. And then you look at how the pay mix should play out. These are relative examples. So your Doberman is probably going to have a lot more pay at risk. It might be something like a 50, 50 mix versus an account manager, which is your retriever, might be more of a 7030 mix versus say a 9010 mix for a role that might be in service delivery. It's really driven by about eight different factors that we go into. And actually we go into it in the book what your CEO needs to know about sales compensation to calculate relative pay mix. But this is going to be a big behavioral driver. And then on the upside, you'll have a proportionate amount of upside available to the top performers. We usually think of those as the 90th percentile performers. If a Doberman has 50% of his or her pay at risk, they're probably going to have another 50% or even another 100% on top of that, depending on the industry. If they're a top performer and the account manager would have less. So another 30 or another 60 on the upside. And the reason is it's just a risk and reward equation. If you put more pay at risk, you're going to have a bigger reward. That's why people take those Doberman jobs, because they have the big upside.

Yep, that makes a lot of sense, Mark. Now let's discuss a little bit about simplifying the measures that are in the plan. I'll just make a few key points here. We already discussed that measures are to be linked to your C level goals. We discussed what that means. And then the level of the measure should be tied to the influence or control of the individual. So me as a Doberman, if I'm out there getting new logo business and I'm out there working hard and I'm capturing that sale, I don't want half of my incentive to be based off of a corporate number, for example. So you want to make sure that you tie it to the influence of the individual. We also want to make sure that we pay as close to the event as possible. What does that mean? That means if you're paying on bookings on the plan as close to when those bookings occur, you want to pay at least a portion of that incentive at that time. We always recommend also that there are three or fewer measures in the plan and that's optimal. And why do we do that? We've discovered that a lot of measures are confusing, right? No one really knows exactly where you want them to focus. And then any measure that's really less than 20% in the plan, it's not going to get the focus that you're really looking for. So really if you can keep it to those top three or less, you're going to get the best results.

Right. And if you kind of break it down visually as you have here on the right hand side, you've got your measures themselves. So your financial measures are the ones that you really want to emphasize, the ones that are going to be closest to results. Customer measures are more about how we get there in terms of customer mix or product mix. Forecast measures are more of your leading indicators. And then you've got your swamp of performance measures, your qualitative measures. So really want to push toward the top there. And the other two dimensions, as you mentioned, Michelle, frequency as frequent as possible, that aligns with the sales process and sales cycle and also level as low down as possible that aligns to your level of responsibility. So you got to really consider those three dimensions.

I'd like to just make one note about measures in the plan. We have a lot of our clients that are coming to us with that typical dilemma, onboarding new salespeople and we've got a guarantee in place or we're ramping them up. And many times the companies feel at the end of the day, period, that they have overpaid, they've overpaid these new reps. That's the one place that we believe that the qualitative measures can actually help. So key MBOs that you know will drive performance and results, if that's part of their incentive compensation plan, that actually can help drive performance where you don't feel you're overpaying.

So better than just giving a flat guarantee but saying we want you to do something for it and then better preparing them for when that guarantee goes away.

That's exactly right. All right, let's move on to nailing your quotas. Let's talk about some of the top quota challenges that clients are saying they're facing today. The first one is history, which basically says that quota setting is based on history and not opportunity. Makes a big assumption that what's going to happen next year is the same as last year. And that doesn't necessarily work.

Yeah. So over the half of the companies that responded to this said this is one of their top three issues. And if you dig a bit deeper, you find that about 40% of companies are actually using historical quota setting methods, which is kind of scary.

Yeah, that really is. And then this reconciling the bottom up input with top down goals, the whole bottom up approach, over half a company has also said that that is one of their top challenges.

So they're doing too much of the top down, not enough of the bottom up.

Yeah. And then sales capacity, that this is a big one that often gets overlooked. And really sales capacity is very important. You can't just keep adding quota numbers and not consider how much the salesperson can actually sell.

Right. So capacity, I think is interesting. This is one of those big missing areas we'll talk about in a couple minutes here. But too much based on history, too much based on not considering what are real ability is to hit that goal.

And then finance driven, we know that a lot of times finance is in the driver's seat. We are seeing that go down a little bit more though, as we're starting to begin to see more collaboration between sales and finance.

Well, right, the dynamic here, when you think about sales compensation more broadly, you think about who's involved. You've got sales, you've got sales, operations, marketing, hr. And then finance comes in to check the numbers and let's make sure all the costs are right. And then when we get into quota setting, the dynamic changes. And finance gets into the front seat and they might be driving or they might be in the passenger seat, but all of a sudden it's like finance just lights up the room by leaving. The dynamic really shifts. That makes it harder, apologies to any finance people, because we do have a lot of great finance people that do get involved in quota setting. But this has been a traditional challenge.

Yeah, that's right. And then of course, data gaps, not having accurate or enough data.

Not as big as it used to be though. Yeah. So I think the abundance of data is much better than it used to be, say even 10 years ago.

Yeah, yep. And then market opportunity not being factored into quota setting. And finally that reps just don't believe in the quota setting process.

Yeah. And this last one is interesting in that if you think about the psychology of this, that if, Michelle, you just gave me a goal, I may not receive it as well or achieve it as well as if I knew how you put that goal together and I believed in that process or I had some input even to it bottom up. So very powerful in terms of that belief. So there's a pattern here for people that are looking at this right now as they're describing it. And if you can pick this pattern out, tell us what it is, just tell us in your own mind. And the hint is it's on the bottom of the slide. Many of these challenges are People and they're process related. It's not all about the numbers. So it has to do with understanding the process and being engaged in the process, believing in the process and that makes a big difference. So a lot of times in quota setting we're trying to fix those people in process challenges, not just fix the numbers.

Okay, Mark, I'd like to get right into how we look our view on quota.

Right? So what you'll see here is at the very top you'll see the corporate goal and then it cascades down a few levels to the first level of allocation at senior leadership, which might be the market level and business unit level. And then at the next level of allocation down into the regions and then finally to the front line. And what you'll see here, Michelle, is this is what we call the cram down process, right? So we have a big goal and the objective is to allocate the pain in the most equitable way. This is not the best way to set quotas. So what we want to do is share with you three pieces and this is described in detail in the book Quotas, three pieces that will make your life easier around this process. And the first piece at the top is around people. And people refers to the people involved in doing the quota setting from the board level to the C level, to senior sales leadership and finance to sales operations to the to field sales leadership. And it also refers to the people that are receiving the quota. So we have to have people working together in a team format and it has to do with what roles they're playing and the rules of engagement. So we go into this in the book just in terms of how you get this team to work together. That's point number one, that if you're trying to avoid working together and sales doesn't like finance and etc. You're going to have a much tougher time. So that's point number one. Point number two is on the right hand side, market opportunity. So we want to get off of the history and we want to get to the market opportunity what's actually available out there. And it has to do with the segments that we're focusing on and what we're offering to those segments in terms of our products and services and also the macro environment. We use an example in the book of selling dog leashes, right? This is a very simple example. He said, well, if the regulatory environment in India changed such that India required all dogs to wear a leash, that would dramatically increase your market opportunity. So it's a very simple example. So market opportunity doesn't have to be this mystical thing. You can actually take history and build upon that. We'll talk about that in a second. So market opportunity and then the third side is sales capacity. As you mentioned, one of the big issues before Michelle, sales capacity basically says you can have all the market opportunity in the world on the right hand side, but if you don't have the capacity to go after it, then you're not going to get it. And you just can't cram down quotas that are going to require that. What we see in organizations that are doing it well is they're balancing the market opportunity with sales capacity, which has to do with things like headcount, the time allocation that people have. The sales organization spends on average about half its time selling. So a big opportunity to increase capacity there, the workload it takes to manage an account or to sell a new customer, and the talent level that we have. So the negotiation between the sales capacity and the market opportunity can make a big difference in your ability to achieve your goal. So if you think about these three underpinning points, they're very, very important. And then if we take a look at methodologies, and I'll just talk about these very briefly, you can see that there are a range of methodologies that range from the lower left, which tend to be more historically based and more general. So for example, flat quotas, everybody gets the same quota. Kind of the Neanderthal method of, you know, here's your quota, it's $5 million, but it's actually not a bad way to do it. If you have Dobermans that are going out after new market opportunity and they all have relatively the same size market and the same capability as salespeople, you could use a flat quota or you could have a flat quota for maybe a new product that account managers are selling. But you don't want to have flat quotas if you have territories that have existing business. So you'll move up to historical quotas, which I mentioned. About 40% of companies are using historical market factors, which looks at differences in potential in markets on top of historical quotas. Kind of like historical quotas on training wheels. This is a great place to start if you want to get into market opportunity. And then you get into areas like account potential. So you're looking at predictors of potential. So how many white collar workers does it take to create a certain amount of potential within an account and how do we cascade that over to the market opportunity forecast? So looking at components like pipeline and even to account planning specific major strategic accounts and getting into their information and being able to set better goals that way. So there's a whole range of methodologies that may fit for different types of markets that you have or different types of sales roles. So we go into these in the book as well.

Okay, now let's talk about communicating your plan. I want to start by just reflecting on what companies typically do. There is usually that mad dash to get the compensation plans done by year end. So you can get these signed off right by the frontline salespeople and the managers. And. And there's typically a drive to make an announcement at the national sales meeting. So everybody has all the houplan, everyone's very excited and the comp plans go out and we're on time. And then what happens?

Nothing. Right. Three months later, you know, the plan isn't delivering the results and you're wondering why.

That's right.

And nobody understood it.

Nobody understood it to begin with. So what we did is we actually stole an idea from the advertising industry. And it's this idea of creating a campaign. And what do campaigns really do? Well, they're intended to have you understand and make you remember what it is that they first communicated. And this starts at the very beginning, which is what are the messages that you want to convey? So what are the most important things that are changing about the incentive compensation plan? What are the most important, important things that you want people to do? That's what you want to make sure that they understand and then of course, how they're going to do it.

So you might say, you know, the compensation plan is actually very competitive.

That's right.

That might be one of your big messages. Or you know, we want to make sure that people are focused on profitable bookings. Right. So there's some, you know, big message areas.

That's exactly right. And then we've got to tailor this to the different audiences. So this isn't a one size fits all. What your sales management needs to understand is very different from what the front line needs to understand. For example. So identify all the audiences who need to hear the message and then what it is that they need to hear. And then this next point about creating content and proof sources is probably one of the most important things to drive belief that the incentive compensation plan really is competitive. If that's one of your messages or whatever it is, the messages that you want to convey by providing a proof source through data, typically and showing them how the plan really works, that's how you get the buy in and understanding that you need.

Right. Because you could, you could say, like you mentioned, Michelle, the plan is competitive, but you know, the words don't really play until you can actually prove that to the organization. And, and on proof sources, you have the data. But then you also need to influence people that are going to be influential in the organization to drive that message along as well.

That's right. And that leads us into the different modes or the way that we will communicate the plan. People tend to absorb things differently. Some people are more receptive to actually looking at the math. Others are more receptive and understand by reading something or others are more visual and, or they want to hear something. So we recommend that you actually mix up the approach and you implement more than one way of communicating.

Right, right. So you've got your visual learners, you've got your mathematical learners, you've got your kinesthetic learners. So think about things like income planners. And then when you're talking about vehicles, Michelle, you mentioned the sales meeting. Well, that's one vehicle. Another vehicle might be that you have a video. Another vehicle might be some type of social media that just the organization has access to. Another vehicle might be a webinar. Right. And by the way, for everybody using webinars, here's one clue. It is the least effective method of communication. In all the surveys we've done, that one comes up at the bottom. So everybody's doing other stuff. The most effective, by the way, because you're probably wondering what that is is face to face or small group communication because people are interactive.

That's right, Yep. And then finally, when we discuss this structuring and scheduling the campaign again, getting back to the advertising industry, if you think about that commercial on TV that you see again and again, and then you maybe hear it on a radio or you hear it in a different way, that's because it's scheduled and planned very carefully on a campaign calendar. And that's what we recommend, that you just sequence it and you stick to that schedule.

So we're not going to just do it at the sales meeting. We're going to have reinforcers that happen throughout the year. And it's. Michelle, you hear that you have to tell people something seven times before they get it. At least that's what people tell me that, you know, I don't get it till I hear it seven times. But. But you have to do that with your sales organization. Maybe 12. Yeah, but it's repetition. Right. So think about how to repeat those messages in different ways to make sure it's getting across.

That's right. And we just thought we would give everyone here just some five communication takeaways. And this isn't just for your incentive compensation plan, but just five really good practices. And one, creating a common sales incentive language. You know, things change, new sales leader comes in, maybe came from, from a different organization and he or she communicates differently than the rest of the organization. So you as a SASCOM professional really need to be listening to the language that's being used and make sure that everyone understands the terminology that is being used.

Yeah. So good example is some people may refer to a commission or a bonus or an incentive or pay for performance or eip. And so these terms get tossed around loosely, but they actually have different meanings to different people. Right. So we've got to establish common language.

That's right. And then we want very simple and targeted messages. Simple is smart. We want to make sure the plan is really exciting and that you're also keeping it real. So don't oversell the plan. Let it be just the reality of what the plan is, but you keep it very exciting. So if you really have a competitive plan, talk to them about why and then how they're going to get there. And then this proof source that we got to leveraging analytics to support the story, nothing really tells it better than just showing them how they can really get there. And showing them through the analytics is the best way to do that. And finally building relationship and trust. And how do you do that? Again, don't oversell the plan. Keep it real and be transparent and very clear about what it is that is expected out of each individual. All right, so with that we have gone through five imperatives. One, solving your real problem. So remember those key points around sales design thinking, sharpening your roles and think about that canine model we discussed and make sure that your pay is connected to that. We went through some very simple principles about quota setting and how you can get closer to a quota setting process that works for your organization. And finally the importance of communicating your plan. So now your to do list. We actually have a very exciting webcast that's coming up in about two weeks and we're going to answer live your sales compensation challenges. So we're going to ask you to please submit questions in advance to salesglobe.com compquestion or infoalesglobe.com we are going to cover anything that you want to talk about. We'll talk about best practices, but bring us your toughest sales comp challenges and our team here at Sales Globe will be here to answer your questions.

Yeah. And this will give you some time here in order to have some extended discussion, which I think is good. So we'll be able to get a little bit deeper into some of those questions that you might have. So think about it as stump the chumps. Right. But, yeah, we want to give you some good ideas here. So think about your toughest questions.

Yeah. Thank you so much for joining us today. You can see where you can find Mark or me and then Sales Globe, of course. Please feel free to reach out to us. And thank you so much for spending your time with us today.

Thanks, everybody.