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Conversations on
Sales PerformanceManagementINVESTING IN THE RIGHT PARTNER
8/11/2019 CFO Research: Conversations on Sales Performance Management
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Conversations on SalesPerformance ManagementINVESTING IN THE RIGHT PARTNER
Conversations on Sales Performance Management: Investing in the Right Partner ispublished by CFO Publishing LLC, 51 Sleeper Street, Boston, MA 02210.Please direct inquiries to Matt Surka at (617) 790 3211 or mattsurka@cfo.com.
CFO Research and Varicent, an IBM company, developed hypotheses for thisresearch jointly. Varicent, an IBM company, funded the research and publication ofour findings.
At CFO Research, Josh Hyatt, Celina Rogers, and Matt Surka directed the research,and Josh Hyatt wrote the report.
November 2012
Copyright 2012 CFO Publishing LLC, which is solely responsible for its content.All rights reserved. No part of this report may be reproduced, stored in a retrievalsystem, or transmitted in any form, by any means, without written permission.
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Contents
Connecting Corporate Goals with Sales Performance 2
SPM under the Finance Lens 3
CalibratingandRecalibratingIncentives at the Speed of Business 5
Recognizing the Need for a System that Grows with You 7
Choosing the Right SPM Vendor 9
Gathering the Right Resources to Implement SPM 12
Using the Reporting Function to Affect Performance 13
The Payoff: A Company of CFOs 15
Sponsors Perspective 17
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when one compensation manager began
working at a health insurance provider, he fully
expected to devote some of his time each month to fig-
uring out how much his company needed to pay each of
its 200 salespeople. What he didnt anticipate was that it
would take him practically an entire month to do it.
The task required the compensation manager to
hunker down at his desk, scrolling his way through
4,000 membership files. Working manually, hed
extract summary level data from those files and
transfer them to spreadsheets, assigning the correct
commission to each employee who had earned
it. It took him about three weeks to complete the
computations, which also required incorporating
data that came in from the sales-management team
and checking to make sure every calculation hadbeen updated. When he was finished, the company
would hand out a copy of a spreadsheet, and any
supporting documentation, to each member of its
sales team. At that point, the information would
be more than six weeks oldmuch too late for the
sales-force members to be a little more proactive
with the data, as the compensation manager puts
it. And it would nearly be time for him to start over.
Before he could do so, however, hed have to field que-
ries from the sales force, digging through nearly two
months worth of data to investigate why certain planmembers werent included in that months report. The
salespeople would want to know, How come I havent
gotten paid for that group? says the compensation
manager. In addition to being labor-intensive, the
manual method was also susceptible to errors, causing
the company to distribute inaccurate or inequitable
payouts. It was very time-consuming on our end, and
we wanted to ensure a lot more accuracy in the data
that was coming in, as well as the payouts that were
going out, says the compensation manager, explaining
why the company, which is based in New York City,
[Calculatingcommisions]was very time-
consuming onour end, andwe wantedto ensure alot more
ACCURACYinthe data thatwas comingin, as well asthe payouts
that weregoing out.COMPENSATIONMANAGER, HEALTH
INSURANCEPROVIDER
began searching about five years ago for an automated
alternative for calculating commission checks.
How did the company undertake that process? Have
sales performance management (SPM) systems
provided executives and sales representatives with
valuable financial insight into customer segments,
distribution channels, and products? Have the sys-
tems (which can be installed on-premises or used as
a cloud-based subscription service) lived up to wide-
ranging expectations, from slashing administrative
costs to aligning selling processes with broader stra-
tegic objectives? Has having the increased visibility
into the compensation process measurably affected
the behavior of sales representativesleading
more of them, for example, to meet their quotas? To
answer those questions, among others, we conductedin-depth interviews with executives from 12 com-
paniesincluding two based in the UK and one in
Asiaabout choosing, implementing, and benefiting
from SPM systems. All of our sources were employed
at companies where management had chosen to
invest in SPM systems within the past five years.
What is SPM?Using data fed to it from multiple company
sources, an SPM system extracts information
about sales and matches it with the employees
who should get credited. From frontline sales
reps to support staff to ancillary participants, the
number who share in the payout can easily reach
14 peoplerepresenting many different incentive
plans. Once the system has allocated the credits,
and measured them against each incentive plan,
the commission checks can be cut. Beyond that,
the system has to track clawbacks (say, $500 off
of the next commission check) for items that are
returned or sales that were mistakenly credited to
the wrong person. Given the complexity of the cal-
culations, its of little surprise that performing such
tasks manually typically results in an overpayment
rate of between 3% and 10%.2
Connecting Corporate Goalswith Sales Performance
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any cfo who suspects that their companyis
overpaying salespeople will quickly develop an
intense interest in SPM systems. In addition, with
traditional systems, theres the inevitable six-to-
nine-week delay in commission payments that
makes it difficult to close the books on a timely
basis. Earl Fry, CFO of Informatica, the $800 mil-
lion data-integration company, says that the fact
that spreadsheet-based approaches dont scale
cost-effectively becomes apparent upon reviewing
the total costs of supporting existing spreadsheet
solutions and future cost increases in head count
due to growth of the business and increasing
complexity. To assess the return on investing
in SPM, he advises fellow finance executives to
compare planned improvements in error rates
with existing rates and to weigh the increasedsales/margin performance that would result from
being able to link sales behavior and specific
incentives, which is nearly impossible to do with
manual systems.
CFOs are also likely to see value in SPM systems
ability to mitigate risk by producing more-accu-
rate real-time forecasts. Using an SPM system,
a finance chief has the ability to run multiple
income-statement forecast scenarios and to
accurately match various revenue and sales-mix
scenarios with a precise commission-expense
forecast. Such forecasts require a CFO to have
access to information about which sales manag-
ers and reps are responsible for the deals that are
most likely to close within the quarter, along with
their variable-compensation plans. They need the
same data for an alternate set of sales that could
close in that time frame. With access to histori-
cal data, they can use it to model new incentive
compensation plans and commission structures,
forecasting their impact on future payouts. Youneed the ability to get to that level of granularity,
says Mr. Fry. Otherwise youre forced to make
high-level assumptions, which could have a huge
impactseveral cents per shareon your expense
3
SPM under the Finance Lens
[You needto be] ableto link sales
behavior andSPECIFIC
INCENTIVES,which isnearlyimpossibleto do withmanual
systems.CFO, DATA
INTEGRATIONCOMPANY
Whats in It for Us?Heres how different company functions benefit from the adoption of sales performance management(SPM) systems, according to executives we interviewed.
An SPM system
aligns sales repsbehavior withcompany goals
motivates and fo-cuses frontline salesreps by giving themimmediate access totheir updated per-formance numbers
reduces errors
leaves audit trail
saves time throughautomation
increases salesteam alignment
improves docu-ment management
simplifies work-flows by using multi-tenant SaaS
enables updatesto be handled by
vendors
SALES:GAINING VISIBILITY
HR:GAINING ALIGNMENT
FINANCE:GAINING EFFICIENCY
IT:GAINING TIME
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forecast. Mr. Fry says that the improved forecast-
ing ability has been absolutely invaluable to me
and refers to it as the primary reason why we
went with an SPM system several years ago.
Interest runs high among other CFOs as well.
Previously, CFO Research conducted a survey
of 157 senior finance executives at large U.S.
companies, finding that half of the respondents
said there was room for improvement at their
company when it came to gathering and using
information on sales activity for planning, bud-
geting, and forecasting. (The report,Managing
Sales Incentive Compensation amid Uncertainty,
is available for download at cfo.com/research.)
Compensation errors are more costly than they
appear. If salespeople sense they are being treated
inequitably, they are more likely to leave. With
unsophisticated sales-performance management
tools, youre basically capturing the wrong data,
making the wrong calculations, and leaving the
sales reps disgruntled, says one assistant VP
of sales operations at a media company based
in North Carolina. The amount they get paid
is never what they think they are going to get
paid. One study estimated that sales turnover
decreases by as much as 25% when a company
shifts to an automated system to manage all
incentive-plan components and processes. The
proportion of sales reps who hit their quotas also
nudges upward, a productivity spurt that likely
results from the fact that employees no longer
have to engage in shadow accounting, using
company time to investigate the processes that
led to their payments. That blatant inefficiency
rankles finance chiefs, who want to drive as much
administration and non-customer-facing time out
of the sales process as possible. Such paramount
concerns help explain why SPM is a $1-billion
market thats growing at 25% a year, according
to industry estimates. Compensation is a major
expenditure, so CFOs are challenging the chief
sales executive and the line-of-business manag-
ers: Have we made the best use of every dollar
we have spent in this area? says Robert Dicks,a principal in Deloitte Consulting LLPs Sales
Effectiveness practice. CFOs are asking the ques-
tions that need to be asked: Could I have gotten
the same results for less? Would the results have
gotten better if Id spent more?
Sometimes the answer is almost tooobvious.
Kevin Pilcher, senior manager of corporate
and information management systems at Colt
Technology Services, says he started exploring
SPM when the companys existing six-year-old
system got to the point where it was costing usover $200,000 a year to maintain it and reconfigure
it when plans changed. The IT-services company
switched off its old system in mid-2009, having
made an initial investment of about $1.5 million in
a hosted SPM application. It has since renewed the
three-year contract, at a cost of about $500,000.
Mr. Pilcher, whose company is based in London,
points to one metric that changed dramatically
within months. Our satisfaction with the new
system, he says, was at a much higher level than
it had been with the old system.4
With manualtools, yourebasicallycapturing thewrong data,making thewrongcalculations,and leaving
the sales repsDISGRUNTLED.
ASSISTANTVPOFSALESOPERATIONS,
MEDIACOMPANY
,Incentives to Invest1 OF 5
Executives ask themselves these basicquestions when thinking about whether aninvestment in SPM would pay off:
Q Is my company
making a significantnumber of incorrectpayments toits salesrepresentatives?
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with business needs and organizational
strategies in frequent flux, stagnant compensation
plans have outlived their usefulness. Business has
closed the books on the era of stable sales ter-
ritories and predictable sales cycles. As a result,
a purely outcome-driven incentive compensation
model, dominant for years, can no longer fulfill
the purpose it was intended to serve. The object
of incentive compensation, after all, isand
always has beento identify and use those met-
rics that will drive sales behavior.
But simple quotas and crediting rules, as straight-
forward as they may be, cant easily accommodate
ever-shifting dynamics, such as changes in compli-
ance issues (required, for example, by the recent
Dodd-Frank Act). More important, management iscontinually readjusting its organizational strategy
to capitalize on real-time opportunities, such as
the arrival of a new competitor or the need to
add distribution channels or target new customer
segments. The key is for companies to have the
agility to shift resources and reset priorities as
the market requires them to do so. A company
expanding into a new category of products, which
will require longer and more-complex sales pro-
cesses, may want to add team-based incentives
to their existing sales compensation plan. In the
earlier CFO Research study, 61 percent of seniorfinance executives reported that they wanted to
see more-sophisticated selling at their compa-
niesapproaches such as team-selling, bundled
offerings, and cross-selling.
At one media company, the mix of products has
changed, as has the sheer number of products we
sell, says an assistant VP of sales operations at the
firm. We need to be focused on selling bundles.
When the company was founded, more than 100
years ago, it was in the business of selling space in
the Yellow Pages;it now derives 25% of its revenue
from digital products. Its 1,600-member sales force
has had to switch from selling a page of advertising
to selling a range of products and services, from cus-
tom websites to search engine optimization services
The old software wasnt conducive to transform-
ing this business into an Internet media company,
period, says the sales-operations executive.
Three years ago, the media companys management
opted to abandon its existing sales-compensation
management system, composed of a hodgepodge of
software, some of which it had purchased and some
of which it had inherited through acquisitions. By
investing in an SPM system, the sales-operations
executive says, the company sought to find a solu-
tion that could be much more flexible in terms ofgoing to the marketplace, and also could handle the
fact that where we used to have 6 or 7 sales channels
now we have at least 20 or more test sales channels
out there where were doing a lot of trial and error.
Salespeople at the media company are now rewarded
based on a customers total advertising spend. To
ignite growth, the company has bulked up its bonuses
for new business. The company is continuously test-
marketing new offerings and exploring geographies
beyond its current 28-state reach. We need new
compensation systems, and we need to have them inless than a year, says the sales-operations executive,
who estimates that 60% of the companys customers
now buy a bundle (at least five items) of products.
Now the company can add new plans, or tweak
existing ones, in about a week. Equipped with SPM
systems, companies can implement certain types of
plan components that would be difficult to handle
any other way, including margin-based incentives,
quarterly SPIFs (short-term rewards), and incentives
targeting certain offerings. Salespeople can log in and
view their two-week commission statement or their5
CalibratingandRecalibratingIncentives at the Speed of Business
[We needed]a solution thatcould be much
more FLEXIBLEin terms of
going to themarketplace,and alsocould handlethe fact thatwhere weused to have6 or 7 sales
channels,now we haveat least 20or moretest saleschannels.
ASSISTANTVPOFSALESOPERATIONS,
MEDIACOMPANY
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annual year-to-date plan on their iPads or laptops.
They dont have to ask anybody any questions, says
the sales-operations executive. They can see their
progress for themselves.
Furthermore, they can believe what they are
seeing. To ensure their accuracy, SPM systems
not only extract data from a companys core
systems but also exercise much more rigor-
ous control over that information. By, in effect,
breaking compensation systems down to their
individual components, managers gain a clear
view of the flaws in that system. At Shaw
Industries, for example, the companys frontline
territory managers were rewarded based on the
profitability of their sales. But a lot of things
that go into that profit margin are outside of the
territory managers control, says Carla Clark,
special projects manager for commissions at
the manufacturer of flooring products, which
started shopping for SPM software in 2008. We
didnt want territory managers incentives to
be impacted, positively or negatively, by things,
such as the cost of raw materials, which are
outside their span of control. But they can have
an immediate impact on profitability by focus-
ing on pricing. On the carpet-selling side of
the business, the companys revamped commis-
sion plan rewards territory managers based on
a combination of the product category involved
in the sale and the pricing level they negotiated.
Now that we have moved to a net-based sales
plan, says Ms. Clark, a territory manager can
see a direct relationship between his behavior
and the amount of his check.
Using SPM systems reporting function, sales plan
administrators and reps can conduct their own
current-versus-goal analysis in real timewithout
having to be IT masters. If youre spending lesstime trying to figure out what your compensation
is and why, then you should be able to spend more
time selling, says Steve Love, CFO of mBlox, a
provider of messaging and mobile payment ser-
vices. Armed with timely information, salespeople
can also act on it, figuring out which product or
bundle to sell to whom to reach the next commis-
sion tier before the month is out. This is a great
business process to automate, says Mr. Love.
One health insurance providers management
reached the same conclusion. The health insurerupdates compensation data every morning. If sales-
people are puzzled by what they see on their screens
they can raise questions, sending screenshots, before
the payouts are even processed. It gives them the
opportunity to be more proactive, says a compensa-
tion manager at the company. Our goal, all along,
has been simple. We just want to make sure that
everyone is going out selling what they should be
going out selling to keep bringing in the business
thats most profitable for the organization.
6
If yourespending lesstime tryingto figure outwhat yourcompensationis and why,then you
should be
able toSPENDMORE TIMESELLING.
CFO, PROVIDEROFMOBILEMESSAGING
SERVICES
,Incentives to Invest2 OF 5
Q Are my companys sales representativesspending a substantial amount of timecrunching numbersto figure outtheir compensation (so-called shadowaccounting)? Is this detracting from thetime that they spend selling?
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fulfilling the compensation managers
simple-sounding mission naturally becomes more
complex as a company changes and grows. The
simplest thing to tell somebody [in sales] is, This
is your revenue target, and thats the end of the
discussion, says Damian Glendinning, who serves
as treasurer for Lenovo, the Chinese computer
maker, but who has extensive experience in other
companies. Once you do that, its nice and simple,
and its fairly difficult to screw up. But what many
companies very quickly get to is, Well, hang on a
secondwe dont want just any revenue. We prefer
the revenue to be skewed toward the most strategi-
cally important products or customer segments, or
toward products with a higher profit margin. Then
you start saying that [the target] is partly revenue,
partly strategic direction, and partly profit.
At Casual Male Retail Group, which operates
425 apparel stores, the decision to upgrade its
incentive-management system came during a
transformation in our business model, says Walter
Sprague, the retailers senior vice president of
human resources. The company has been rapidly
expanding its newest division, Destination XL
superstores, into new marketsand closing some
of its existing Casual Male XL stores in or near
those markets. As part of that makeover, the com-
pany decided two years ago to transition its CasualMale XL and Destination XL stores to commission-
based compensation. In part, the decision was
driven by the performance of a group of high-end
stores it had acquired in 2004, Rochester Big and
Tall Clothing. Rochester had a plan that was in
place for years after we acquired them, and we
were never incented to change that. It was work-
ing well, says Mr. Sprague. When we decided to
introduce a plan to Casual Male, we were introduc-
ing it to an environment where there was no his-
tory of it. We were free to create a new platform.
Sales associates at Rochester Big and Tall operated
on individual commissions based on their personal
sales. At the other chains, the company sought to
encourage teamwork by basing commission tiers on
a stores achievement of its quarterly goals.
Given the volume of the transactions involved,
and the complexity of the different commission
programs, management concluded that it was
way too risky for it to rely on a spreadsheet
format to manage it, says Mr. Sprague. We
needed some sort of automated system to man-
age the commission environment efficiently. The
retailers compensation plan involved tens of thou-
sands of transactions, with employees working
different hours (including overtime) and striving
for different sales goals. Youre talking about acomplicated system with so many moving parts,
says Alan Teixeira, director of compensation,
benefits, and HR at the retailer, which is based in
Canton, Massachusetts. There are somewhere in
the vicinity of 185 different calculations that occur
to process payroll for just one pay period.
At acquisition-oriented companies, the prolifera-
tion of different compensation planswith their
attendant bonuses and deferred-compensation
rewardsoutstrips existing management systems.
After a 2008 merger, one health insurance providerdoubled its number of compensation plans, from 12
to 25. Each plan served a different segment of the
business, from new customers to government pro-
grams to separate Medicare and Medicaid groups.
Each groups formula relied on different mixtures
of goals and metrics. The Medicare group, for
instance, tracked separate goals for each half of the
year. In account management, commission rates
varied for attracting new customers versus servic-
ing existing ones. According to a compensation
manager, the company hired an outside consultant7
Recognizing the Need for aSystem that Grows with You
Youre talkingabout aCOMPLICATED
SYSTEMwithso manymoving parts.There are
somewhere inthe vicinity of185 differentcalculationsthat occurto process
payroll forjust one payperiod.
DIRECTOROFCOMPENSATION, BENEFITSAND HR;RETAILCOMPANY
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to blend very different philosophies on paying
sales incentives. In some cases, he took a little
bit from this plan and a little bit from that plan;
other [changes] were complete overhauls based on
what he was finding in the market.
The push for change can also start with manage-
ments awareness that it needs to rethink how
well its current plan actually serves customers.
At Hertz Corporation, a newly installed head of
sales decided to redesign compensation to help
the rental company become more sales-friendly,
says Lynn Ferrara, the companys senior director
of compensation and human resources informa-
tion systems. At the time, customers had to rely
on a different sales representative for every line
of business, from corporate sales to tours. Three
years later, customers can get everything done
through one salesperson, says Ms. Ferrara, who
adds that two of the companys divisions have
since implemented an SPM system.
The need for a more sophisticated SPM system is,
in some ways, a fundamental recognition of howmuch more complex sales have grown as the web
has become a key distribution channel. As a route
to market, the Internet increased competition and
put pressure on margins, causing companies to
look for opportunities to reduce their cost of sales.
Companies have to be better on territory manage-
ment and coverage, says Deloittes Mr. Dicks. They
have become much more targeted and tactical about
how many salespeople cover a region. To maintain
their margins in a hypercompetitive world, they
need information about underserved markets and
salespeople who are underperforming. The need to
keep expandinginto new markets and distribution
channelsrequires constant tweaking of compa-
nies sales models. One senior analyst of global sales
compensation at a semiconductor maker says that
the company now uses about 10 different compensa-
tion plans. The more complicated sales model you
have, the more compensation formulas youre going
to have, says the senior analyst. There can be
many players involved: channel partners, distribu-
tion partners, warehousesand then there are sales
teams that are focused on different points in the
sales process. There are so many gives and takes
and handoffs, and you have your sales team focused
on so many different aspects. You do need a dif-
ferent plan for all of them. Turning to SPM, as thesenior analyst puts it, was just a natural progres-
sion for the company, which needed to accommo-
date a changed (and still changing) sales strategy.
8
As the Internetincreasescompetition,companiesare becomingmuch moretargeted andtactical abouthow many
salespeoplecover a region.To maintaintheir marginsin a HYPER-COMPETITIVE
WORLD,they needinformationaboutunderserved
markets andsalespeoplewho areunder-
performing.PRINCIPAL,
BUSINESS-CONSULTINGFIRM
,Incentives toInvest3 OF 5
Q How much timedoes my companyscompensation staffspend researchingqueries about incorrectpayments?
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among the companies we interviewed, the
path to choosing an SPM vendor began with the
naming of a task force. The team is in charge
of everything up to the implementation of the
software: vendor-vetting, selection, and system
design. The teams enlisted a minimum of five
members and topped out at eight participants.
The roster included representatives from IT,
compensation, procurement, HR, and finance.
The size of the group often reflected whether
members of the sales team were fully involved
or used as occasional sounding boards. At one
health insurance provider, for example, the five-
member team didnt include the VP of sales,
but the executive was aware of the project on a
day-to-day basis and was solicited for input about
what [he] would find useful, says a compensationmanager at the company. Ms. Ferrara, of Hertz,
says that the companys five-member team would
have liked to have more than one salesperson
aboard, offering input about what the commission
statements should look like, how the dashboards
ought to appear, and the kind of functionality
theyd find most useful. But, she added, its tough
for them to be on a project like this. You want
them to be out there selling.
Whatever the composition of the team, its likely
that members will represent different perspectivesand priorities. Sales leaders, for instance, may be
intent on driving more volume through the sales
channel, thereby boosting revenue and market
share. Others might be adamant that the companys
sales team needs to be redirected toward higher-
margin business, even if it means lower volumes. In
any case, project managers need to build a consen-
sus around specific time-based measurable goals.
Executives we interviewed told us that their
team started its work by putting together a list
of specifications, soliciting feedback from other
departments as needed. At Hertz, for example,
the final document ended up being 30 pages
long. Questions ranged from straightforward and
generalIs the tool available on-demand?to
more specific and detailed queries. The Hertz
spec documents included such questions as Can
it create participant sales territories based on any
combination of factors, includingbut not limited
togeography, customer type, industry, prod-
uct line, account size, and channel? and Can it
handle multiple quotas per participantand time-
based quotas by month, quarter, and year? Before
sending it out, the project team queries itself
on one main issue: Do we have everything we
need? Stacey Jones, director of human resources
management systems and payroll operations atCasual Male, says that we had hundreds of differ-
ent requirements that each of the organizations
needed to meet.
Most of the executives we spoke to said that
their companies had sent the questionnaire to
four vendors. Ms. Ferrara, of Hertz, says that she
assembled a vendor list based on her experiences
attending conferences, making note of speakers
and visiting booths. When she ran into contacts
in the compensation field, she made it a point to
ask them how they felt about the SPM tool theywere using. Vendors who received the question-
naires had to submit their answers within three
weeks. After receiving the vendors replies, the
teams conducted extensive requirements analy-
sis, grading them according to how many capa-
bilities they offered in the must have, nice to
have, and can live without categories; those
with matching capabilities were invited to meet
with the team for about two hours, including half
an hour of questions. We want them to come
in and show us what their system can do, says9
Choosing the RightSPM Vendor
We hadhundreds ofdifferentREQUIREMENTSthat each ofthe vendorsneeded tomeet.
DIRECTOROFHRMANAGEMENTSYSTEMS
AND PAYMENTOPERATIONS,RETAILCOMPANY
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one compensation manager at a health insurance
company. At two of the companies, executives
had had experience with one of the vendors. At
Casual Male, for example, the payroll manager
had previously done business with one of the
candidate businesses. Initially, we envisioned
us going with that vendor only because we had
somebody internally who had worked with them
before, says Ms. Jones. But that knowledge actu-
ally helped us to make a better-educated deci-
sion. The retailer didnt let the payroll managers
previous relationship with the vendor unduly
influence their decision, she notes.
The first session is as much about chemistry as it
is about capability. Its the very beginning of how
youre starting to build a relationship with your con-
tacts, says Ms. Ferrara. One vendor got scratched
off the list because they were very new to sales
performance management, she says. The concern
is that we sign a contract for a number of years, and
we make a big investment to configure it.
At Casual Male, one of the early candidates failed toconvince the group that it would be a comfortable
fit. We quickly realized that they just could not han-
dle the level of transaction data that we were going
to be providing, says Ms. Jones. They also couldnt
provide the best integration between our current
human resources information system and their
software. So we walked away from that relation-
ship. One health insurance provider moved forward
with three out of its four candidates. One vendor
was eliminated because it seemed that a system
was going to be built according to what we wanted
instead of them having something they created that
we could already utilize, says a compensation man-
ager at the company. We wanted something that
was established and proven, not something that was
going to be built from the ground up.
Vendors that survive the first round are supplied
with sample plans or calculations and asked to
reappear for an hour or so to show how their
system would handle the required transactions.
At the health insurance provider and Casual
Male, one vendor was eliminated because of its
reliance on third parties for part of the process,
which raised the level of risk. Mr. Sprague,
of Casual Male, says that by digging into the
implementation process during their demo, the
group discovered that a vendor relied on a thirdparty for implementation. We wanted to be
able to work with the company that developed
the technology, could train us on their technol-
ogy, and would work with us to implement their
10
We wantedsomethingthat wasESTABLISHED
AND PROVEN,
not somethingthat was
going to bebuilt from the
ground up.COMPENSATIONMANAGER, HEALTH
INSURANCEPROVIDER
,Incentives toInvest4 OF 5
Q Does my companyspend too much timeon communicatingand reportingsales-performanceinformation to salesrepresentatives?
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technology in an integrated fashion with our
systems, says Mr. Sprague. I dont think thats
too much to ask. Adds Alan Teixeira, director of
HR, compensation, and benefits: You like to see
all implementations go smoothly, with everything
working perfectly when you hit the switch. But
were talking about a complicated system, and
when you go live, and something is not quite
right, you dont want to have to deal with another
party about these issues. One compensation
manager at a health insurance provider says that
the company confronted a similar candidate. The
vendor seemed to really want to say that they
were the best and they had all these modules that
other companies dont have access to, says the
compensation manager. Our concern was that it
turned out that the additional modules were the
result of partnerships with other organizations.
The second presentation gives you a flavor of
what they can do, says Ms. Ferrara. Sometimes
an extra touch matters; at Hertz, one vendor used
car-like gauges on its dashboard. They really do
try to impress you, says Ms. Ferrara. It was realcute, because were a car-rental company. On the
other hand, Hertz eliminated a company that sent
a different salesperson each time it visited. It was
very concerning to us, says Ms. Ferrara. When
we asked, they said that they were going through
a big reorganization.
To supplement what they were seeing, the team
members also checked references. They sometimes
asked others who have specific expertisemembers
of IT or those with expertise in compensationto
do it. Questions include: How is the vendors cus-
tomer service? How do they handle upgrades? How
long did it take to implement this project? How
and whydid you choose this vendor?
As the process wound toward a close, vendors
were sometimes eliminated based on whether
the prospective customer decided it wanted an
on-premises solution or an on-demand configura-
tion. At mBlox, management was clear on which
approach it wanted. We do what we do very
well, says Mr. Love, and that does not include
taking on the process of developing and managing
incentive compensation plans. Similarly, Hertz
had already outsourced IT, so its a better busi-ness case to let them take care of all of it for us,
says Ms. Ferrara. At one health insurance provider
however, the IT department changed its mind, say-
ing it wanted an on-site solution, thereby eliminat-
ing the vendor that offered only a hosted solution.
At this point in the process, with two candidates
still standing, procurement began negotiating
on pricing. At the health insurance provider, the
highest bid was three times higher than any of the
others. When Hertz chose the vendor who best
met its requirements, the runner-up called andbegan throwing out all kinds of offers. An execu-
tive went so far as to go over Ms. Ferraras head,
calling her bosswho had not been involved.
It was a slap in the face to me, she says. It also
began bad-mouthing the winning vendor, insisting
the vendor couldnt provide what the customer
needed. I dont like it when companies slam other
companies, says Ms. Ferrara.
11
We wantedto be able towork with thecompany thatdeveloped theTECHNOLOGY,
could train uson theirtechnology,
and wouldwork with usto implementtheirtechnology.
SVP OFHUMANRESOURCES, RETAIL
COMPANY
,Incentives to Invest5 OF 5
Q Finally (and most importantly):What
share of resourcesdoes my company
allocate to manually gathering compensation-related data? To what extent could mycompany meaningfully benefit from havinga single repository forcompensation-related dataand/or from having salesincentives calculatedautomatically?
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the implementation phase of the process
is managed by a much smaller teamoften
including outside consultants or developers
and a project manager from the vendor. Casual
Male assembled an internal team of four, who
worked with a consultant from the vendor. The
four-member lineup consisted of a compensa-
tion analyst, the payroll manager, Ms. Jones, and
Mr. Teixeira. Over the course of six months,
the consultant spent a total of two weeks at the
company during the discovery phase, during
which time he interviewed executives in order
to understand the companys business and what
it expected from an SPM system. Our imple-
mentation consultant was excellent at asking,
Did you think about this? What happens when
this happens? says Ms. Jones. The consultantalso attended a daily meetingand sometimes
more than one, notes Mr. Teixeiravirtually,
using a Web-hosted service that enabled every-
one to share desktops.
This stage of implementation is an opportune
time for companies to change their established
processes. Mr. Pilcher, of Colt Technology
Services, says that in order to implement SPM,
the company had to rationalize its data sources.
We identified that we had nearly 40 different
data sources, he says. It was all valid informa-tion that was part of the calculations. But we
found that by changing and modifying some of
the major sources of data, we were able to ratio-
nalize the 40 down to 20. Implementing an SPM
system posed an unusual challenge for Colt, a
nearly $2 billion company based in London. At
the time, 2009, the vendor didnt have a pres-
ence in the UK; it had to ship employees over.
Perhaps SPM is just more mature in the U.S.
than it is in Europe, he says.
After their systems were designed, the companies
we spoke to started user testing, conducting it
for at least three months. Once the system was
deemed ready, most companies launched the tool
in a simple version, gathering feedback after about
three months and incorporating it within several
months. If we had gone out when we were first
configuring the system and asked our people,
What do you want out of the tool? What reports
would you like? they probably wouldnt have been
able to tell us, says Ms. Ferrara. So we decided to
send out simple versions of the statements and to
let them see the capabilities of the system. Then
we could talk about enhancements.
They could also expand their use of the report.
At Hertz, after the rent-a-car division was up andrunning, the heavy-equipment division became
very aware of the shortcomings of its eight-year-
old system. The SPM system was rolled out to that
division at the beginning of 2011, three years after
its initial rollout. They are finding it very useful,
says Ms. Ferrara.
12
Gathering the Right Resourcesto Implement SPM
We decidedto sendout simple
versionsof the
statementsand to letthem see THECAPABILITIESof the
system.SENIORDIRECTOROFCOMPENSATION, CAR-
RENTALCOMPANY
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the degree to which spm is usefuldefined
by CFOs as enhancing efficiencyultimately
depends on the effectiveness of its reporting.
The goal is for salespeople to fully understand
their incentive compensation with a glance at a
dashboard, clicking on specific numbers to get
the details. When people didnt understand what
their achievement was, we got pushback on every-
thing about our plan, says Mr. Love. By having
transparency into the system we dont have to
worry about them saying, WaitI dont get this.
Reaching that point takes time. During its six-
month pilot program, Shaw Industries learned
that its territory managers didnt want separate
reports detailing their commissions from selling
carpets, for example, and their commissions forselling promotional goods. The territory manag-
ers wanted the summary first, in one spot, before
deciding what they wanted to study in detail,
says Ms. Clark. Management also learned that
having the ability to go in and see their com-
missions as they were making them, or within
a couple of days, was something the territory
managers loved, Ms. Clark adds. Eye appeal mat-
ters; if a salespersons landing page looks like a
massive calculation stream, the only action hes
likely to take is to log out as quickly as possible.
When one senior analyst of global sales com-
pensation at a semiconductor manufacturer
began working with an SPM vendor in 2010,
she made it clear that she didnt think process-
ing the calculations was the biggest challenge.
The actual math behind it is easy, she says.
She expected a vendor to make the calculations
in real-time, updating them every day. But that
was not my focus. I wanted the reporting to be
very intuitive and user friendly, says the senior
analyst. I actually gave them my manual reports
and I told them, I want thisbut prettier and
nicer, more intuitive and available every day.
Her chosen priority makes sense. The challenge
for any SPM system is to produce reports with
numbers that pop out at you, as the senior ana-
lyst puts it, making them easy to read. By making
the report readily accessible and understood, it
should motivate salespeoples performance in the
field. Your average salespeople are highly driven
Type A personalities, and they want to know how
they are doing every day, says the senior analyst.
Its like playing a sport or a video game; if you
cant see the score, its not very motivating, is
it? By knowing how they are doing that day, and
being able to see how their pay would change if
they altered their performance in some way, sales-people can adjust their behavior accordingly. The
information is there so that they can see how
their incentive pay would change if they spent
the quarter selling more of product A and less
of product B, says Mr. Dicks, of Deloitte. The
target can stay the same, but they might choose to
hit it differently. The presentation of the informa-
tion, in addition to which data appears, may vary
according to which level of the corporate hierar-
chy is accessing it. The dashboard one compensa-
tion manager at a health insurance provider sees
is useful, he says, but not necessarily a reportthat I want to pass upstairs.
The information contained in the report differs
according to which level of management is access-
ing it. A sales rep will see her own results, while a
regional manager needs to see all of his territories
a divisional VP wants to view all the regions, while
the executive VP of sales will see everything.
The semiconductor makers first reports were aimed
at regional directors, who need the most data. After13
Using the Reporting Functionto Affect Performance
Your averagesalespeopleare highly
driven TYPE Apersonalities,and they wantto know howthey aredoing everyday. Its like
playing asport or avideo game; if
you cant seethe score, itsnot very moti-vating, is it?
SENIORANALYSTOFSALESCOMPENSATION,
SEMICONDUCTORMANUFACTURER
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logging on, they see eight different charts on the
screen, including a metered gauge that shows how
the company is performing, a two-color bar chart
that displays how their direct reports are performing
in relation to their goals, and a pie chart that slices
the regions revenues into product wedges. There
are also small tables showing their top 10 customers,
top 10 sales performers, and bottom 10 performers. I
had not thought about showing the bottom 10 until
the vendor suggested it, says one senior compensa-
tion analyst at the company. But I think it totally
makes sense. If youre a regional director you want
to know that information so you can follow up on it.
You want to find out why the plan isnt working.
By contrast, sales managers reports open with
what the senior analyst calls the money chart.
The report shows the number that will be on their
next paycheck, as well as the percentage of the
annual incentive theyve earned to date. You could
just throw everything on there because you have
the data, she says. The way I like it, you have your
main piece of information on the landing page,
and then you can drill down into whatever levelof minutiae or granularity you want. Click on the
commission percentage, for instance, and youll get
a summary breaking it down into each component,
which might include an individual incentive, a team
quota, and a key strategic objective (such as sell-
ing four new customer trials during the quarter).
You just log on, and it makes sense to you, says
the senior analyst. Sometimes those of us who are
behind the scenes get a little carried away with all
of the cool things it can do, and we make it a bit too
fancy. Thats what I was trying not to go with.
The information also influences managements
actions. At Casual Male, store managers can view
a summary report that rolls up the units results,
ranking associates according to, for example,
sales per hour. The managers can also analyze the
performance of individual associates. They can
understand, at a glance, the productivity of all of
their associates, says Mr. Sprague. Management
uses the information about store productivity
how many units the store sells every hour, and how
many dollars each of those transactions is worth
to help drive training programs. We want them to
be aware of their personal productivity, says Mr.
Sprague. We have the ability to show them what itwill mean in terms of their income if they raise the
size of every transaction. Its all very compelling.
14
We want[reps] to beaware of theirPERSONAL
PRODUCTIVITY.
We have theability to showthem what itwill mean in
terms of theirincome if theyraise the sizeof everytransaction.Its all verycompelling.
SVP OFHUMANRESOURCES, RETAIL
COMPANY
OSecrets of SPM Success1 OF 3
Here are the most important lessons that executiveswe interviewed learned while choosing andimplementing SPM systems:
Confirm that the vendor you select is anexpertandfocused in the SPM area.
A successfully implemented SPM system becomespart of your planning, reporting, and forecastinginfrastructure.
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when one assistant vp of sales operations at
a media company reviews the benefits the com-
pany has secured from adopting an SPM system,
he quickly arrives at a number: $500,000. Thats
how much the company has saved in staffing the
unit that handles sale-compensation support. You
had this big staff sitting in the background, answer-
ing questions to justify the payments or fixing
payments that werent right, he explains. At the
media firm, he says, the arrival of SPM software
led to the departure of 50% of those employees.
Savings of that magnitude are certainly going to
make SPM appealing to CFOs. But whats espe-
cially compelling to finance executiveswho often
revel in digging through data, no matter how it
is presentedabout SPM is more than just theadministrative efficiencies that can be won. There
is an additional, less-visible benefit of SPM that
may be most appreciated by finance executives,
who are under pressure to improve governance
within their sales-incentive processes: To comply
with government regulations, companies must
supply evidence that the financial applications
and supporting systems provide the controls and
audit trails to make certain that financial reports
are trustworthy. Without the appropriate financial
controls, companies are exposed to risks associ-
ated with inaccurate financial reporting. Manual
compensation-management systems arent likely
to leave behind such a clear and traceable path. If
youre sending spreadsheets from person to person
for approval, theres no clear way to show who
changed what and when, says Ms. Clark, of Shaw
Industries. From an internal-audit standpoint,
there were just too many hands touching things.
As far as CFOs are concerned, there can never be
too many employees involved in driving profits.We want as many eyes focused on the gross
profit line as possible, says Mr. Love, of mBlox.
With SPM generating detailed reports, executives
and managers can see whether their commission
structure is motivating salespeople to sell the
15
The Payoff:A Company of CFOs
We want asmany eyesfocused on
the GROSSPROFIT LINEas
possible.CFO, PROVIDEROFMOBILEMESSAGING
SERVICES
OSecrets of SPM Success
2 OF 3Verifythat the system can be easily integrated withyour companys other systems.
An SPM system will need to interface with yoursystems for HR administration, CRM, payroll, expense
forecasting, and others.
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most profitable product mix. If they arent doing
so, a sales executive may want to initiate a quick
contest, pay out on margin rather than revenue,
or reorganize sales territories to maximize, say,
the fact that one rep is especially successful
at selling into a specific industry, or another is
skilled at selling certain products. Having gained
the ability to analyze his teams sales by quota,
product, or region, a sales executive can plainly
see where to concentrate his resources to achieve
the greatest growth. With the information avail-
able on a timely basis, salespeople can have it in
the back of their minds, influencing the deal even
as they are making it . With any incentive compen-
sation plan, the challenge is about embedding the
thought processes in each of the employees, and
getting them to really think in a different way and
think much more about the profit than just about
sales, says Andrew Humphreys, CFO of Direct
Wines, a direct marketer based in the UK.
But that mind-set shift doesnt happen fast, warns
Ms. Clark. Shaw Industriess redrawn incentive
plan is designed to reward salespeople for pre-
serving profits. During the first six months, we
didnt see huge shifts, says Ms. Clark. But we did
see small shifts in pricing. We felt like we were
gaining benefits from the whole plan and all of the
transparency, but it was a slower-moving change
when it came to the ability to make better busi-
ness decisions. And its not as if the newfound
knowledge transforms a bottom-dweller into a star
producer. The go-getters are still going to be the
go-getters, says Sevi Howeth, commission analyst
at Harmonic, a video-delivery company based
in San Jose, California. I dont think its neces-
sarily changing their behavior in that sense. Its
just a great package to monitor their sales perfor-
manceanytime, anywhere.
Certainly, well-managed incentive compensation
can discourageunwanted behavior. One health
insurance providers incentive pay plan offered
a higher bonus for bringing in new health-plan
members than for maintaining existing accounts.Management, says a compensation manager at
the company, became concerned that some of its
new account reps were reselling recently expired
accounts and claiming them as new. When times
get tough, some people are willing to do things a
little differently to tip their number, says the com-
pensation manager, who notes that the company
has since redesigned its plan.
And, as the compensation manager proudly
points out, theres no question that hisbehavior
has changed since the companys adoption ofSPM. While he used to spend three out of every
four weeks processing incentive compensation,
he now can get it off his desk in less than a week.
Hows he spending the rest of his time? This has
given me the opportunity to do everything else I
should have been doing on the general compen-
sation side, he says, adding that he is now focus-
ing on areas such as performance reviews and
hiring. Its more rewarding for meand for the
company. By tying those two aims together, hes
demonstrating the power of SPM software.16
The challengeis to getemployees toreally THINK IN
A DIFFERENT
WAYand thinkmuch moreabout the
profit than
just aboutsales.
CFO, DIRECTMARKETER
OSecrets of SPM Success3 OF 3
Ensure that theres agreementamong internalstakeholders as to what needs to be improved and
whose responsibility it is to oversee a successful
implementation.
SPM selection and implemen-tation can be a long process,with many players and func-tions involved. It can lose itsway if other company events(a merger, say, or a change inleadership) interfere.
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grow revenues and control costs. critical
priorities for the office of the CFO in both good
times and troubled markets. Their importance
drives an ongoing search for new areas of effi-
ciency and effectiveness for the organization. By
seeking and realizing incremental improvements
throughout the enterprise, companies tend to
discover a lifting effect of streamlined systems,
increased speed to market, confidence in numbers,
and improved alignment.
Many companies have already achieved these
improvements and others through the use of
technology in the finance organization: A short-
ened budgeting cycle via web-based portals.
Improved accuracy and accelerated forecasting
through the integration of systems. A faster andsimpler payroll process under new, tech-enabled
approval structures. But amid all of the strides
forward in finance technology, too often an
overlooked area is the management of variable
compensation and commissions.
Varicent, an IBM Company, provides solutions to
help companies fill this gap and improve com-
mission accounting, deploy new compensation
structures, support the management of complex
territories, set more-accurate quotas, and better
align sales priorities. This area of technology isknown as sales performance management (SPM).
In 2012, we observe many companies that should
be too big and complex to use spreadsheets to
manage compensation, territories, and quotas
but still muddle through. Other companies have
worked with internal IT departments to build
systems that fit their point-in-time needs. These
systems are often behind the curve of todays
business practices, are slow to respond to changes
in plans, and are mastered only by a select group
of individuals. And while spreadsheet and home-
grown options might work for some, readers of
this report will find companies that have invested
in a dedicated SPM solution and realized benefits
that exceed their initial expectations.
After years of collaborating with CFO Research
to track the pulse of finance leaders, we recently
approached them to conduct a different kind of
study. This year we wanted to answer three key
questions:
nHow are companies planning to improve their
ability to manage sales incentive compensation?
n
When companies have sought to improve theirmanagement of sales incentive compensation in
recent years, how successful were their efforts?
nWhat role has technology played in their
efforts to improve and manage sales incentive
compensation?
And rather than conduct a broad, data-based
study, we asked CFO Research to facilitate a series
of conversations with executives who have first-
hand experience with the power of SPM.
The research helped us better understand what
the practitioners of incentive compensation man-
agement experience as they identify challenges
and work through a process of partner evaluation
and resolution. We found it revealing to hear what
they thought of the vendors involved and why
they made certain decisions. We are pleased to
facilitate this research, which uncovers lessons
learned by SPM adopters and provides additional
insight on the subject of SPM.
SponsorsPerspective