Growth by Acquisition - Sales Compensation Harmonization

So now we're sales comp harmonization.

Yes, sales comp harmonization. So here's what we hear about sales comp. Again, every single day we hear things like we're not getting the right behaviors. The integrated company, the company that we bought, it doesn't align with our own strategy. We're not getting the ROI we expected from the team. And again, you know, the first question is, is it back on the comp plan? And it could be driving turnover and we do find that it does drive turnover because of pay and equity or perceived pay inequity or they've made some sort of change to the plan that people just don't understand. And it does create some conflict within the organization, particularly when you just do nothing. So what's the approach? We use a method again to align comp to the strategy. And we're going to ask you to take a step back and first look at the C level goals, which Mark will be getting some of that with me. And then you're going to put what we call the sales compensation diamond. We're going to put that thing to work.

All right, let's check it out. All right, so C level goals. Michelle, I think the first thing to mention on C level goals is this gets way above the compensation plan.

Yes.

And where we started to work on this was, was years ago with a little company, little Fortune 500 company up in Boston, which will go unnamed for the moment. But there was this guy, Bob, who was a CEO and he was notorious for tearing up sales comp plans and they could never get comp plans to work with Bob. And what we figured out with Bob and other CEOs is if you could ask him five questions, you could get enough to be able to design a plan that was really going to work. So we asked these five big questions here.

Yeah. So we start with the customer. So what are the customer priorities and what's important? Are you looking at getting new logo business, for example, or retaining and growing the base that you have?

Yep. And it could be even the type of customer within the customer. So yeah, you know, I remember old Bob said, well, we want to sell at a more senior level in the organization. So we're kind of selling to procurement. We need to get to the C level product. I remember one thing Bob said was we we need to actually sell our full portfolio of services. So that was an M and A situation. They had acquired a digital company that expanded onto their premise based physical company. And they said we need to sell the whole portfolio. Problem was always People didn't know how to sell everything.

Yeah, that's a big challenge, isn't it? So taking a look at the product priorities and then how you enable them and that leads to coverage. We just discussed that some companies have a very different go to market strategy. I, I'm thinking about a global technology company that they did most of their, well, all of their sales through an inside sales team, very highly tenured, very highly skilled, with a lot of certifications and the company that acquired them, inside sales team that they had, which was several hundred people, it was an entry level role to a field sales role or they had to manage that one. You know, because of, of assumed assumptions around that inside sales role was now suddenly going to be a role that wasn't quite as, as important as it was before. So anyway, you need to look at what those, the coverage model is and the channels that are the priorities and that leads to the talent that you need. So I just described entry level versus highly experienced. What are the priorities there? What do you need to, to actually go to market and meet those other C level goals?

Right. And then finally your, your financials.

Right? Yes.

And what's important to the cfo? So you've got to make sure that you can line up to what you're looking for for productivity, what you're looking for for revenue, what you're looking for for profit.

Yep.

Okay, so if so when you ask those questions, it might be, well, why do you need to know those things for compensation? Well, it's not that you just want to know the answer to those questions for the business. You want to know what does that mean for the compensation program in this particular situation. So what does that mean? If you want to get, you know, to a certain level in terms of the product portfolio or certain place in the customer, what does that mean for the comp plan? How does that translate?

Yes, that's right.

Okay, so let's dig into the details then of what you might look at around the compensation plan. So if you're going to go into the specifics of how to look at compensation, this is where you would start. This is what we call our sales compensation diamond. And you'll see, Michelle, it does not start with the first thing that comes up in every comp conversation, which is the mechanics of the commission rates. That's actually step number seven here. It starts in the middle with those C level goals. So if we know what the priorities are, and you talked about the roles before, if we have the roles established, those roles become the foundation or the Platforms upon which we design the compensation program. Right. And so then we can look at these big areas that you see on the upper right, the framing of the plan. So your target pay levels, your pay mix your upside potential, which is for your top performers, your threshold or entry points into the plan. We can then also look at the lower right, how you link pay and performance together. So what kind of measures are we using? What are the weights of those measures or priorities of those measures? Are we paying at an individual level or are we paying at a team level? We know there's a lot more focus on individual level measures now. And then how do the mechanics work? So how do you connect pay and performance together in terms of commission rates or goal based scales, that kind of thing. And then how do you align the team and financials? So how do we set goals? How do we make sure the plans are congruent on the plan congruence, when you talk about your sales roles, you need to make sure those roles are going to work together the right way in the sales process. So once you've done your integration of the sales roles, you have to make sure the comp plan is going to motivate them to do the right things. And then finally, how you operate the plan on the upper left, your, your governance, your policies, and how you evaluate the plan. So when you're evaluating the plan, you're going to take one spin around on this and then when you're designing, you're going to take another spin around this. So this is pretty exhaustive in terms of all the major areas to look at. But within M and A there are some specific areas we want to.

But first I just want to say, and this really works. So we have this diamond. You know, again, it'll be in the deck. There's a little bit more detail that goes behind it. But we highly encourage you instead of jumping down to the mechanics or instead of saying, gosh, we just need them to be on our plan. Right. This acquired organization, kind of take a look at these different components and then figure out how you get that stepwise approach there. So now to make this practical, let's talk about and get into some of the things that we definitely see within M and A and not solely with an M and A, but we see this all the time. And it starts with the biggest point at the top, which is pay philosophy differences.

Right.

And we run into that a lot. And that can be anything from I want to, you know, me as a, or us as a company. We want to be a top Payer in our industry because we want to attract and retain the best talent to others that may say, you know what, we're okay being middle of the road because. Middle of the road or an average payer because of the value proposition that we offer. And there's a whole lot of other things that go around pay philosophy as well.

Yeah. And think back to the culture question to Michelle, which is if we have a sales culture, we might have a different pay philosophy than if we have more of an engineering or operations culture. You bring those two together, you're going to have a clash right there.

Yep. The next thing that we see, and this is the. The next two create a lot of consternation. The first one is that whole pay level variation. Now, remember, we covered a lot earlier this role mapping matrix and what we have found is if you do that properly and you align the roles properly, if people understand that, you'll find out in many cases that the pay level variations may not be as great as you expected or as they appear on the surface only because what hasn't happened is the jobs haven't been aligned. Now, that's not to say that there aren't differences. We go into a lot of organizations where there are and then there's a method for how you can help get them there. The next thing would be around the pay mix inconsistency now. And again, this goes back to the pay philosophy. So do I want people to have more of a pay for performance plan where I might have greater incentive compensation? And that just means that based on what I sell, that's how I earn. Or in other companies, there are some companies that just pay a complete base salary and a bonus based on corporate meeting corporate objectives. So, you know, that also can pay and fall into that pay philosophy, but it really is inconsistent pay mix. And then on upside potential. So upside potential, what is that? That is basically. Are you looking at that? Thank you, Mark. Anyway, what we'll have is different views on that. So you know, Mark, you always like to take this back to a question. And the question on upside, it goes into that pay philosophy. But it says something like this.

Yeah, I mean, if you. Okay, so could your. And you could ask this to each organization.

Yes.

Should your top performing rapper, could your top performing rep earn more than the president of the company? And Right. So you get a visceral reaction there. Which when you ask that question and somebody might say, well, of course that we'd love to see that. Or the other organization might go, well, no, that would kind of violate Our pay bans and our pay policies. Right?

Yeah.

Well, right there you have a big cultural difference in terms of how they think you might have a pay philosophy difference. And that's something you got to watch out for. So that hits on your pay philosophy and your upside.

It does. And then just to you know, be clear, upside is what that anything above what the target incentive is that you would expect expect out of those that meet their goals. So 90th percentile, your top performers typically would be the earners of that upside. And then we get into measures and priorities. Gosh, that's a whole nother thing. Misalignment on that. Let's think about a mature company, right. That, that buys a cutting edge smaller company that's out there just wanting to grow market share. Right. So it could be all about just as many accounts as you can get, as much revenue as you can get. Profit may not be very important for that company, that up and comer.

Right, right. Or even the question of we pay account managers on bookings or we pay account managers on invoice revenue. Very different. Right. And you put those two together and you've got a big delta between them. Yeah.

So taking a look at not just what the measures and priorities are, but then the why behind that. Because there's usually a rationale and there's a way to get where you need to go. And then of course we have the mechanics. Right. They're not well understood. That happens a lot, right?

Yeah. So one company might pay on a commission, the other company might pay on a goal based plan. And they have almost kind of like, you know, philosophical views on why that is the most important thing to do and you can't bring them together.

Yeah, we've got really great tools. When we think about things like the plan calculator. There are tools and things that you can do as proof sources to help people understand as you do change those mechanics that that ends to take that, that fear away. And then there can be a whole misalignment on quota setting. Not only how they're set, but what the quotas need to be, what they look like for each person. In some companies they're a hard target to incentive. In others, it's a guideline.

Yeah. So I'm thinking of a difference between two companies that was, you know, one company's quotas were twice the size of the other company's quotas. But then there were different assumptions that went in there in terms of what they were selling because the product portfolio was different. But you put two account managers together from the different companies and one's got double the quota than the other and they're paid roughly the same that could be an issue.

It's a real problem. And then of course the lack of governance or administration this extends well past M and A. Governance just means that you've got a very clear policy for oh gosh, let's say a bluebird deal. So a really big deal what we call them whale deals. Right? So just having the right governance and administration that's very consistent that's what you want to be looking at. So again these are the top eight things it seems like a lot right the top eight but the eight things that we see across M and A that is an issue, some greater issues than others but all that need to be looked at and what our our purpose today is to provide you a framework to begin to solve for those challenges so you get the outcomes that you.