Incentive Compensation and Sales Performance Management Survey

Tag Archive for 'David Cichelli'

Quota Performance Distribution

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Julien Dionne
on February 11, 2010
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Last week I wrote that the percentage of reps making quota in 2009 dropped to 51.8% from 58.8% in 2008, according to a large survey. One of my readers made the comment that it would be interesting to find out how many companies expect/want their sales people to make quota.

I reached out to two experts in the incentive compensation field to get their opinion.

Donya Rose from the Cygnal Group replied on her blog that ‘most people should achieve or exceed quota’. More specifically, she says, more than half of the people should hit or exceed their goal.   She notes that the ideal performance distribution should be as follows:

  • Not more than 5% of the sales people “out of the money” (earning no variable pay), and the these people should generally not be “keepers”
  • About 40% of the sales people earning some variable pay, but less than the target amount
  • About 45% of the sales people earning more than the target amount, but less than the fully leveraged upside (fully leveraged upside is generally 2 to 3 times the target incentive)
  • About 10% of the sales people earning the fully leveraged upside or more.

So the 51.8% of people making quota in 2008 is low, but still acceptable according to Donya’s point of view.

I also asked the question to David Cichelli from the Alexander Group. His answer was that companies should shoot for 65 to 70 percent of all sales people to achieve quota. He notes that this performance distribution should create an on-goal performance of at least 100% of company sales goal. Through their own survey, the Alexander Group also noticed a significant reduction in quota attainment in 2009, with a median quota performance of 85%… a historically low number.

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2009 Sales Compensation Trends Survey

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on January 20, 2009
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I recently talked about a few salary and incentive compensation surveys, but here is another one from the Alexander Group that focuses on Sales Compensation.

The 2009 Sales Compensation Trends Survey found that 40.34% of the 180 participating companies use a desktop solution such as a spread sheet or data base and that 29% use a custom in-house solution to administer their sales compensation program. Outside solutions represent 27.27% of the respondents: Custom Purchase (9.66%), ERP/Data Base Component (5.68%), Dedicated Commercial Hosted Solution (5.68%), Dedicated Commercial Enterprise Package (4.55%), and Outsourced to a Third Party (1.7%). The remaining participants selected “Other” (3.41%).

The survey included many large companies like American Express, Microsoft, General Electric, DuPont, and Kraft Foods, but it also included many smaller companies with only 20 sales personnel (or more). I think that this is why 40% of the companies surveyed still use a spreadsheet / desktop solution.

What I think is particularly interesting is to compare the on-demand and on-premise solution usage; 5.68% of the companies used an on-demand solution, while 4.55% of the companies used an on-premise solution. In other words, only about 10% of the respondents use a dedicated commercial sales performance management solution. Over the next few years, I believe we will see many of the companies moving away from spreadsheets or custom solutions to move to a commercial application.

I’m also very curious about what “Other” solutions 3.41% of the respondents are using… hand-written incentive compensation statements? I’m assuming that these companies probably use some sort of application to manage this; maybe a payroll system or a talent management application with an incentive compensation module.

The survey also provides several other interesting results:

  • 3.0% was the average incentive payout increase in 2008.
  • 4.4% is the average incentive pay increase planned for 2009.
  • 5.6% is the expected median revenue growth for 2009; 6.0% occurred in 2008.
  • 30.72% will increase staff in 2009; 44.69% will not change staffing levels; 24.58% expect a decline.
  • 93.44% of the reporting companies will make changes to the 2009 sales compensation plan.
  • 53.30% made some type of mid-year change to their sales compensation plan design in 2008.
  • 78.14% of all companies use sales revenue as the primary performance measure.
  • 55.19% say correct goal setting is the toughest part of sales compensation.
  • 32.95% say the sales department is solely responsible for the sales compensation plan design.
  • 90.0% was the median of the average quota performance reported in 2008.
  • 45.39% of all companies made some mid-year quota changes during 2008.

I discussed how many organizations reacted to a recession by adjusting their sales compensation plans, but these results help back up this claim. About 50% of the respondents adjusted their compensation plan design and quota values during 2008, and more than 93% are planning to modify their plan for 2009!

As a side note, I recently contributed to the creation of OpenSymmetry’s Sales Performance Management survey, which will provide more insight about comp plan administration, SPM solutions, and challenges. Let me know if you would like to participate and I will let you know when it’s ready.

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ICM Solution Return on Investment - Ask the Expert #4

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Julien Dionne
on May 6, 2008
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Many companies often wonder what the Return on Investment (ROI) of incentive compensation system is. Most articles and research on the Internet are either sponsored or written by vendors and it is hard in most cases to truly measure the savings and improved performance as a result of that new system. I asked David Cichelli about his thoughts on the return expectations of a well designed and well implemented compensation system.

David’s Answer:

It’s a mystery. Since no one can conduct a double-blind test to confirm the value of sales compensation, we live in the world of anecdotes and observable behavior changes. My test of program effectiveness is the degree of “alignment” between product divisions and buyer/sales segments. The sales compensation program should ensure alignment of field efforts between these two moving parties.

What I have to say:
I talked about ICM ROI for the first time here, and discussed another story here. I agree with David that it is hard to assess if the new system is responsible for new behaviors. Taking this further, it is hard to assess whether a compensation program improves behaviors period.

However, assuming that a company does see benefits in an incentive program, the question is, will an ICM/SPM solution pay for itself. Presumably, positive behaviors are already encouraged by more labour incentive variable compensation. Real-time information, dashboards, accurate reporting and advanced analytics may help out sales people and management, but other factors are easier to quantify.

These factors are likely to depend a lot from one company to another. As I pointed out in the previous posts, some of the factors to consider are the implementation, licensing and upkeep costs, the quality of the existing system (how accurate it is), and the potential time saving to be realized with a new system (time spent calculating commissions, reviewing data, resolving issues, etc).

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Spiffs, Bonuses and Contests - Ask the Expert #3

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Julien Dionne
on April 17, 2008
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In this 3rd installment of David Cichelli’s “Ask the Expert” series on this blog, I asked David about his thoughts on spiffs. I asked him if it was possible to use spiffs while avoiding encouraging employees to push a certain product upon a customer at his or her expenses. I also asked David if there was such a thing as too many spiffs. Previous posts of this series are here and here.

Before going into David’s answer, I want to give a bit of background regarding what is a spiff.

SPIF (or SPIFF) may stand for “Sales Performance Incentive Fund”, “Special Performance Incentive Fund” or ” Special Performance Incentives for Field Force”. The exact origin of the term is open for debate. Wikipedia defines a spiff as a small, immediate bonus for a sale. They can be paid by a munufacturer or the employer, to the salesperson who sold a specific product.

I have seen spiffs used in several scenarios such as when a manufacturer wants to gain market adoption with a new product, when a retailer wants to liquidate some of its inventory, to incent sales people to sale certain combinations of widgets, etc. The goal is always to have an immediate impact on sales force behavior. Of course, spiffs are not without their own pros and cons, but they can fit nicely within a compensation strategy.

Here is what David had to say about spiffs:

Julien, you might want to check the spelling of “spiff.” I spell it with one “f.” It means Special Performance Incentive Fund. Check Wikipedia for a nice discussion on the spelling. [Sorry David - I'm sticking to spiff for now, so far I've seen it spelled this way more often than "spif"].

First of all, I consider spifs, contests and campaigns an integral part of the sales management’s tool kit. Here are the rules for appropriate use of these programs:

  1. Budget of all programs should not exceed the total earnings of the sales force by 3% .
  2. Spifs should be used for “doing something new for the first time.”
  3. They should not be used to spike performance during a period.
  4. They are narcotic in nature: the more you use them the more you need to use them. Moderation of use with healthy hoopla is the best prescription for success.
  5. Avoid the use of “chance” to determine winners and payouts–it ’s unethical to do so: this is an employment relationship, not Las Vegas.

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Ask the Expert - Biggest Challenges in Sales Compensation

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Julien Dionne
on March 21, 2008
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Here is the second installment in David Cichelli’s “Ask the Expert” series on this blog. The first post and David’s background information are here.

Question: What are in your opinion the biggest challenges in sales compensation. Is there a key to success?

Answer: Well, I could write a book on this subject. Sales compensation is a very noisy device. It is hard to establish, keep current and administer effectively. We find that sales compensation programs tend to fail due to:

1) Obsolescence. Sales compensation plans must be continually updated to help maintain strategic alignment with the company’s goals. Most sales compensation specialists consider an unchanging sales compensation plan as a failure of sales management.

2) Complexity. The sales compensation plans are an easy “mark” when sales management is looking to get the attention of the sales force. However, too many measures—more than 3—doom a sales compensation program as it becomes overly complex.

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Ask the Expert - Pros and Cons of Variable Compensation

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Julien Dionne
on March 14, 2008
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I recently asked several sales performance related questions to David Cichelli, author of the popular book “Compensating the Sales Force“, a national expert in sales compensation and the sales compensation practice manager at The Alexander Group. He was kind enough to share his expertise with me, and to allow me to share his insight on this blog. Thanks again David for your time.

Question: Several readers end up on my blog by trying to find an answer to the pros and cons of variable compensation. You begin your book with an affirmation that ’sales compensation works’. What are your thoughts on the pros and cons - the rewards and benefits versus the risks. If it is a fact that pay for performance works, why are not all companies adopting such a system.

Answer: Companies use a wide variety of incentive compensation programs for a diverse array of jobs. Incentive compensation continues to be a mainstay of contemporary management practices. Sales compensation holds an almost legendary status as an expected part of the employment equation. However, sales compensation is a management choice. It’s neither a birthright nor a requirement. In fact, in my view, sales compensation programs are cross elastic with supervisory practices. Frankly, a well-supervised work force does not need an incentive program to be effective, and that observation is true of sales compensation. But, its use is widespread and prevalent. Almost 85% of all companies with sales personnel provide a reward program tied to sales results. A famous—if somewhat inelegant—argument was made against incentives by the author Alfie Kohn in his book “Punishment By Rewards.” But, generally, most sales management teams believe that incentives help bring focus to the efforts of a dispersed workforce…the sellers of the company.

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