CFO - White Paper Sales Performance Management

8/19/2019 CFO - White Paper Sales Performance Management

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Conversations on

Sales PerformanceManagementINVESTING IN THE RIGHT PARTNER


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Contents

Connecting Corporate Goals with Sales Performance 2

SPM under the Finance Lens 3

Calibrating—and Recalibrating —Incentives 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

Sponsor’s Perspective 17


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CONVERSATIONS ON SALESPERFORMANCE MANAGEMENT: INVESTING IN THE RIGHT PARTNER

when one compensation manager began

working at a health insurance provider, he fullyexpected to devote some of his time each month to g-uring out how much his company needed to pay each ofits 200 salespeople. What he didn’t anticipate was that itwould take him practically an entire month to do it.

The task required the compensation manager tohunker down at his desk, scrolling his way through4,000 membership les. Working manually, he’dextract summary level data from those les andtransfer them to spreadsheets, assigning the correctcommission to each employee who had earnedit. It took him about three weeks to complete thecomputations, which also required incorporatingdata that came in from the sales-management team

and checking to make sure every calculation hadbeen updated. When he was nished, the companywould hand out a copy of a spreadsheet, and anysupporting documentation, to each member of itssales team. At that point, the information wouldbe more than six weeks old—much too late for thesales-force members to “be a little more proactivewith the data,” as the compensation manager putsit. And it would nearly be time for him to start over.

Before he could do so, however, he’d have to eld que-ries from the sales force, digging through nearly two

months’ worth of data to investigate why certain planmembers weren’t included in that month’s report. “Thesalespeople would want to know, ‘How come I haven’tgotten paid for that group?’” says the compensationmanager. In addition to being labor-intensive, themanual method was also susceptible to errors, causingthe company to distribute inaccurate or inequitablepayouts. “It was very time-consuming on our end, andwe wanted to ensure a lot more accuracy in the datathat was coming in, as well as the payouts that weregoing out,” says the compensation manager, explainingwhy the company, which is based in New York City,

“[Calculatingcommisions]was very time-consuming onour end, andwe wantedto ensure alot more

ACCURACY inthe data thatwas comingin, as well asthe payouts

that were going out.”— COMPENSATION

MANAGER , HEALTH INSURANCE PROVIDER

began searching about ve years ago for an automatedalternative for calculating commission checks.

How did the company undertake that process? Havesales performance management (SPM) systemsprovided executives and sales representatives withvaluable nancial insight into customer segments,distribution channels, and products? Have the sys-tems (which can be installed on-premises or used asa cloud-based subscription service) lived up to wide-ranging expectations, from slashing administrativecosts to aligning selling processes with broader stra-tegic objectives? Has having the increased visibilityinto the compensation process measurably affectedthe behavior of sales representatives—leadingmore of them, for example, to meet their quotas? To

answer those questions, among others, we conductedin-depth interviews with executives from 12 com-panies—including two based in the UK and one inAsia—about choosing, implementing, and benetingfrom SPM systems. All of our sources were employedat companies where management had chosen toinvest in SPM systems within the past ve years.

What is SPM?Using data fed to it from multiple companysources, an SPM system extracts informationabout sales and matches it with the employeeswho should get credited. From frontline salesreps to support staff to ancillary participants, thenumber who share in the payout can easily reach14 people—representing many different incentiveplans. 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 offof the next commission check) for items that arereturned or sales that were mistakenly credited tothe wrong person. Given the complexity of the cal-culations, it’s of little surprise that performing suchtasks manually typically results in an overpaymentrate of between 3% and 10%.2

Connecting Corporate Goalswith Sales Performance


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any cfo who suspects that their company is overpaying salespeople will quickly develop anintense interest in SPM systems. In addition, withtraditional systems, there’s the inevitable six-to-nine-week delay in commission payments thatmakes it difficult to close the books on a timelybasis. Earl Fry, CFO of Informatica, the $800 mil-lion data-integration company, says that the factthat spreadsheet-based approaches don’t scalecost-effectively becomes apparent upon reviewing“the total costs of supporting existing spreadsheetsolutions and future cost increases in head countdue to growth of the business and increasingcomplexity.” To assess the return on investingin SPM, he advises fellow nance executives tocompare 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 specicincentives, which is nearly impossible to do withmanual 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 nance chief has the ability to run multipleincome-statement forecast scenarios and toaccurately match various revenue and sales-mixscenarios with a precise commission-expenseforecast. Such forecasts require a CFO to haveaccess to information about which sales manag-ers and reps are responsible for the deals that aremost likely to close within the quarter, along withtheir variable-compensation plans. They need thesame 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 incentivecompensation plans and commission structures,

forecasting their impact on future payouts. “Youneed the ability to get to that level of granularity,”says Mr. Fry. “Otherwise you’re forced to makehigh-level assumptions, which could have a hugeimpact—several cents per share—on your expense

3

SPM under the Finance Lens

“[You needto be] ableto link salesbehavior and

SPECIFICINCENTIVES, which isnearlyimpossibleto do withmanual

systems.”— CFO , DATA

INTEGRATION COMPANY

What’s in It for Us?Here’s how different company functions benet from the adoption of sales performance management(SPM) systems, according to executives we interviewed.

An SPM system…

…aligns sales reps’behavior 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

…simplies work-ows 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 wewent with an SPM system several years ago.”

Interest runs high among other CFOs as well.Previously, CFO Research conducted a surveyof 157 senior nance executives at large U.S.companies, nding that half of the respondentssaid there was “room for improvement” at theircompany when it came to gathering and usinginformation on sales activity for planning, bud-geting, and forecasting. (The report, ManagingSales Incentive Compensation amid Uncertainty,is available for download at cfo.com/research.)Compensation errors are more costly than theyappear. If salespeople sense they are being treatedinequitably, they are more likely to leave. Withunsophisticated sales-performance managementtools, “you’re basically capturing the wrong data,making the wrong calculations, and leaving the

sales reps disgruntled,” says one assistant VPof sales operations at a media company basedin North Carolina. “The amount they get paidis never what they think they are going to getpaid.” One study estimated that sales turnoverdecreases by as much as 25% when a companyshifts to an automated system to manage allincentive-plan components and processes. Theproportion of sales reps who hit their quotas alsonudges upward, a productivity spurt that likelyresults from the fact that employees no longerhave to engage in “shadow accounting,” usingcompany time to investigate the processes thatled to their payments. That blatant inefficiencyrankles nance chiefs, who want to drive as muchadministration and non-customer-facing time outof the sales process as possible. Such paramountconcerns help explain why SPM is a $1-billionmarket that’s growing at 25% a year, accordingto industry estimates. “Compensation is a majorexpenditure, so CFOs are challenging the chiefsales 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 LLP’s SalesEffectiveness practice. “CFOs are asking the ques-tions that need to be asked: ‘Could I have gottenthe same results for less? Would the results havegotten better if I’d spent more?’”

Sometimes the answer is almost too obvious.Kevin Pilcher, senior manager of corporateand information management systems at ColtTechnology Services, says he started exploringSPM when the company’s existing six-year-old

system “got to the point where it was costing usover $200,000 a year to maintain it and recongureit when plans changed.” The IT-services companyswitched off its old system in mid-2009, havingmade an initial investment of about $1.5 million ina hosted SPM application. It has since renewed thethree-year contract, at a cost of about $500,000.Mr. Pilcher, whose company is based in London,points to one metric that changed dramaticallywithin months. “Our satisfaction with the newsystem,” he says, “was at a much higher level thanit had been with the old system.”4

With manualtools, “you’rebasicallycapturing thewrong data,making thewrongcalculations,and leaving

the sales repsDISGRUNTLED.”

— ASSISTANT VP OF SALES OPERATIONS ,

MEDIA COMPANY

, Incentives to Invest1 OF 5

Executives ask themselves these basicquestions when thinking about whether aninvestment in SPM would pay off:

Q Is my companymaking a signicantnumber of incorrect payments toits salesrepresentatives?


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with business needs and organizational strategies in frequent ux, stagnant compensationplans have outlived their usefulness. Business hasclosed the books on the era of stable sales ter-ritories and predictable sales cycles. As a result,a purely outcome-driven incentive compensationmodel, dominant for years, can no longer fulllthe purpose it was intended to serve. The objectof incentive compensation, after all, is—andalways has been—to identify and use those met-rics that will drive sales behavior.

But simple quotas and crediting rules, as straight-forward as they may be, can’t easily accommodateever-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 strategyto capitalize on real-time opportunities, such asthe arrival of a new competitor or the need toadd distribution channels or target new customersegments. The key is for companies to have theagility to shift resources and reset priorities asthe market requires them to do so. A companyexpanding into a new category of products, whichwill require longer and more-complex sales pro-cesses, may want to add team-based incentivesto their existing sales compensation plan. In the

earlier CFO Research study, 61 percent of seniornance executives reported that they wanted tosee “more-sophisticated selling” at their compa-nies—approaches such as team-selling, bundledofferings, and cross-selling.

At one media company, “the mix of products haschanged, as has the sheer number of products wesell,” says an assistant VP of sales operations at therm. “We need to be focused on selling bundles.”When the company was founded, more than 100years ago, it was in the business of selling space in

the Yellow Pages; it now derives 25% of its revenuefrom digital products. Its 1,600-member sales forcehas had to switch from selling a page of advertisingto selling a range of products and services, from cus-tom websites to search engine optimization services.“The old software wasn’t conducive to transform-ing this business into an Internet media company,period,” says the sales-operations executive.

Three years ago, the media company’s managementopted to abandon its existing sales-compensationmanagement system, composed of a hodgepodge ofsoftware, some of which it had purchased and someof which it had inherited through acquisitions. Byinvesting in an SPM system, the sales-operationsexecutive says, the company sought to “nd a solu-

tion that could be much more exible in terms ofgoing to the marketplace, and also could handle thefact that where we used to have 6 or 7 sales channels,now we have at least 20 or more test sales channelsout there where we’re doing a lot of trial and error.”

Salespeople at the media company are now rewardedbased on a customer’s total advertising spend. Toignite growth, the company has bulked up its bonusesfor new business. The company is continuously test-marketing new offerings and exploring geographiesbeyond 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 company’s customersnow buy a bundle (at least ve items) of products.Now the company can add new plans, or tweakexisting ones, in about a week. Equipped with SPMsystems, companies can implement certain types ofplan components that would be difficult to handleany other way, including margin-based incentives,quarterly SPIFs (short-term rewards), and incentivestargeting certain offerings. Salespeople can log in andview their two-week commission statement or their5

Calibrating—and Recalibrating —Incentives at the Speed of Business

“[We needed]a solution thatcould be muchmore FLEXIBLE in terms of

going to themarketplace,and alsocould handlethe fact thatwhere weused to have6 or 7 sales

channels,now we haveat least 20or moretest saleschannels.”

— ASSISTANT VP OF SALES OPERATIONS ,

MEDIA COMPANY


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annual year-to-date plan on their iPads or laptops.“They don’t have to ask anybody any questions,” saysthe sales-operations executive. “They can see theirprogress for themselves.”

Furthermore, they can believe what they areseeing. To ensure their accuracy, SPM systemsnot only extract data from a company’s coresystems but also exercise much more rigor-ous control over that information. By, in effect,breaking compensation systems down to theirindividual components, managers gain a clearview of the aws in that system. At ShawIndustries, for example, the company’s frontlineterritory managers were rewarded based on theprotability of their sales. “But a lot of things

that go into that prot margin are outside of theterritory manager’s control,” says Carla Clark,special projects manager for commissions atthe manufacturer of ooring products, whichstarted shopping for SPM software in 2008. “Wedidn’t want territory managers’ incentives tobe impacted, positively or negatively, by things,such as the cost of raw materials, which areoutside their span of control. But they can havean immediate impact on protability by focus-ing on pricing.” On the carpet-selling side ofthe business, the company’s revamped commis-sion plan rewards territory managers based ona combination of the product category involvedin the sale and the pricing level they negotiated.“Now that we have moved to a net-based salesplan,” says Ms. Clark, “a territory manager cansee a direct relationship between his behaviorand the amount of his check.”

Using SPM systems’ reporting function, sales planadministrators and reps can conduct their owncurrent-versus-goal analysis in real time—without

having to be IT masters. “If you’re spending lesstime trying to gure out what your compensationis and why, then you should be able to spend moretime selling,” says Steve Love, CFO of mBlox, aprovider of messaging and mobile payment ser-vices. Armed with timely information, salespeoplecan also act on it, guring out which product orbundle to sell to whom to reach the next commis-sion tier before the month is out. “This is a greatbusiness process to automate,” says Mr. Love.

One health insurance provider’s 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, beforethe payouts are even processed. “It gives them theopportunity 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 thateveryone is going out selling what they should begoing out selling to keep bringing in the businessthat’s most protable for the organization.”

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“If you’re spending lesstime tryingto gure outwhat yourcompensationis and why,then you

should be

able to SPENDMORE TIME SELLING.”

— CFO , PROVIDER OF MOBILE MESSAGING

SERVICES


Q Are my company’s sales representativesspending a substantial amount of timecrunching numbers to gure outtheir compensation (so-called shadowaccounting)? Is this detracting from thetime that they spend selling?


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fullling the compensation manager’s

simple-sounding mission naturally becomes morecomplex as a company changes and grows. “Thesimplest thing to tell somebody [in sales] is, ‘Thisis your revenue target,’ and that’s the end of thediscussion,” says Damian Glendinning, who servesas treasurer for Lenovo, the Chinese computermaker, but who has extensive experience in othercompanies. “Once you do that, it’s nice and simple,and it’s fairly difficult to screw up. But what manycompanies very quickly get to is, ‘Well, hang on asecond—we don’t want just any revenue. We preferthe revenue to be skewed toward the most strategi-cally important products or customer segments, ortoward products with a higher prot margin.’ Thenyou start saying that [the target] is partly revenue,

partly strategic direction, and partly prot.”

At Casual Male Retail Group, which operates425 apparel stores, the decision to upgrade itsincentive-management system came during “atransformation in our business model,” says WalterSprague, the retailer’s senior vice president ofhuman resources. The company has been rapidlyexpanding its newest division, Destination XLsuperstores, into new markets—and closing someof its existing Casual Male XL stores in or nearthose 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 wasdriven by the performance of a group of high-endstores it had acquired in 2004, Rochester Big andTall Clothing. “Rochester had a plan that was inplace for years after we acquired them, and wewere never incented to change that. It was work-ing well,” says Mr. Sprague. “When we decided tointroduce 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 operatedon individual commissions based on their personalsales. At the other chains, the company sought toencourage teamwork by basing commission tiers ona store’s achievement of its quarterly goals.

Given the volume of the transactions involved,and the complexity of the different commissionprograms, management concluded that it was“way too risky” for it “to rely on a spreadsheetformat to manage it,” says Mr. Sprague. “Weneeded some sort of automated system to man-age the commission environment efficiently.” Theretailer’s compensation plan involved tens of thou-sands of transactions, with employees workingdifferent hours (including overtime) and striving

for different sales goals. “You’re talking about acomplicated system with so many moving parts,”says Alan Teixeira, director of compensation,benets, and HR at the retailer, which is based inCanton, Massachusetts. “There are somewhere inthe vicinity of 185 different calculations that occurto process payroll for just one pay period.”

At acquisition-oriented companies, the prolifera-tion of different compensation plans—with theirattendant bonuses and deferred-compensationrewards—outstrips existing management systems.

After a 2008 merger, one health insurance providerdoubled its number of compensation plans, from 12to 25. Each plan served a different segment of thebusiness, from new customers to government pro-grams to separate Medicare and Medicaid groups.Each group’s formula relied on different mixturesof goals and metrics. The Medicare group, forinstance, tracked separate goals for each half of theyear. In account management, commission ratesvaried for attracting new customers versus servic-ing existing ones. According to a compensationmanager, the company hired an outside consultant7

Recognizing the Need for aSystem that Grows with You

“You’re talkingabout aCOMPLICATED

SYSTEM with so manymoving parts.There are

somewhere inthe vicinity of185 differentcalculationsthat occurto process

payroll for just one pay period.”

— DIRECTOR OF COMPENSATION , BENEFITS AND HR ; RETAIL COMPANY


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to blend “very different philosophies on payingsales incentives.… In some cases, he took a littlebit from this plan and a little bit from that plan;other [changes] were complete overhauls based onwhat he was nding in the market.”

The push for change can also start with manage-ment’s awareness that it needs to rethink howwell its current plan actually serves customers.At Hertz Corporation, a newly installed head ofsales decided to redesign compensation to helpthe rental company become “more sales-friendly,”says Lynn Ferrara, the company’s senior directorof compensation and human resources informa-tion systems. At the time, customers had to relyon a different sales representative for every lineof business, from corporate sales to tours. Threeyears later, customers “can get everything donethrough one salesperson,” says Ms. Ferrara, whoadds that two of the company’s divisions havesince 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 webhas become a key distribution channel. As a routeto market, the Internet increased competition and

put pressure on margins, causing companies tolook for opportunities to reduce their cost of sales.Companies “have to be better on territory manage-ment and coverage,” says Deloitte’s Mr. Dicks. “Theyhave become much more targeted and tactical abouthow many salespeople cover a region. To maintaintheir margins in a hypercompetitive world, theyneed information about underserved markets andsalespeople who are underperforming.” The need tokeep expanding—into new markets and distributionchannels—requires constant tweaking of compa-nies’ sales models. One senior analyst of global salescompensation at a semiconductor maker says thatthe company now uses about 10 different compensa-tion plans. “The more complicated sales model youhave, the more compensation formulas you’re goingto have,” says the senior analyst. “There can bemany players involved: channel partners, distribu-tion partners, warehouses—and then there are salesteams that are focused on different points in thesales process. There are so many gives and takesand handoffs, and you have your sales team focusedon 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.

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As the Internetincreasescompetition,companiesare becoming“much moretargeted andtactical abouthow many

salespeoplecover a region.To maintaintheir marginsin a HYPER-COMPETITIVEWORLD, they needinformationaboutunderservedmarkets and

salespeoplewho areunder-

performing.”— PRINCIPAL ,

BUSINESS - CONSULTING FIRM

, Incentives toInvest3 OF 5

Q How much time does my company’scompensation staffspend researchingqueries about incorrectpayments?


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among the companies we interviewed, the path to choosing an SPM vendor began with thenaming of a task force. The team is in chargeof everything up to the implementation of thesoftware: vendor-vetting, selection, and systemdesign. The teams enlisted a minimum of vemembers and topped out at eight participants.The roster included representatives from IT,compensation, procurement, HR, and nance.The size of the group often reected whethermembers of the sales team were fully involvedor used as occasional sounding boards. At onehealth insurance provider, for example, the ve-member team didn’t include the VP of sales,but the executive “was aware of the project on aday-to-day basis and was solicited for input about

what [he] would nd useful,” says a compensationmanager at the company. Ms. Ferrara, of Hertz,says that the company’s ve-member team wouldhave liked to have more than one salespersonaboard, offering input about what the commissionstatements should look like, how the dashboardsought to appear, and the kind of functionalitythey’d nd most useful. But, she added, “it’s toughfor them to be on a project like this. You wantthem to be out there selling.”

Whatever the composition of the team, it’s likely

that members will represent different perspectivesand priorities. Sales leaders, for instance, may beintent on driving more volume through the saleschannel, thereby boosting revenue and marketshare. Others might be adamant that the company’ssales team needs to be redirected toward higher-margin business, even if it means lower volumes. Inany case, project managers need to build a consen-sus around specic time-based measurable goals.

Executives we interviewed told us that theirteam started its work by putting together a list

of specications, soliciting feedback from otherdepartments as needed. At Hertz, for example,the nal document ended up being 30 pageslong. Questions ranged from straightforward andgeneral—Is the tool available on-demand?—tomore specic and detailed queries. The Hertzspec documents included such questions as “Canit create participant sales territories based on anycombination of factors, including—but not limitedto—geography, customer type, industry, prod-uct line, account size, and channel?” and “Can ithandle multiple quotas per participant—and time-based quotas by month, quarter, and year?” Beforesending it out, the project team queries itselfon one main issue: “Do we have everything weneed?” 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 organizationsneeded to meet.”

Most of the executives we spoke to said thattheir companies had sent the questionnaire tofour vendors. Ms. Ferrara, of Hertz, says that sheassembled a vendor list based on her experiencesattending conferences, making note of speakersand visiting booths. When she ran into contactsin the compensation eld, 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 threeweeks. After receiving the vendors’ replies, theteams conducted extensive requirements analy-sis, grading them according to how many capa-bilities they offered in the “must have,” “nice tohave,” and “can live without” categories; thosewith matching capabilities were invited to meetwith the team for about two hours, including halfan hour of questions. “We want them to comein and show us what their system can do,” says9

Choosing the RightSPM Vendor

“We hadhundreds ofdifferentREQUIREMENTS that each ofthe vendorsneeded tomeet.”

— DIRECTOR OF HR MANAGEMENT SYSTEMS

AND PAYMENT OPERATIONS ,RETAIL COMPANY


12/19


one compensation manager at a health insurancecompany. At two of the companies, executiveshad had experience with one of the vendors. AtCasual Male, for example, the payroll managerhad previously done business with one of thecandidate businesses. “Initially, we envisionedus going with that vendor only because we hadsomebody internally who had worked with thembefore,” says Ms. Jones. “But that knowledge actu-ally helped us to make a better-educated deci-sion.” The retailer didn’t let the payroll manager’sprevious relationship with the vendor undulyinuence their decision, she notes.

The rst session is as much about chemistry as itis about capability. “It’s the very beginning of howyou’re starting to build a relationship with your con-tacts,” says Ms. Ferrara. One vendor got scratchedoff the list because “they were very new to salesperformance management,” she says. “The concernis that we sign a contract for a number of years, andwe make a big investment to congure it.”

At Casual Male, one of the early candidates failed toconvince the group that it would be a comfortablet. “We quickly realized that they just could not han-dle the level of transaction data that we were goingto be providing,” says Ms. Jones. “They also couldn’t

provide the best integration between our currenthuman resources information system and theirsoftware. So we walked away from that relation-ship.” One health insurance provider moved forwardwith three out of its four candidates. One vendorwas eliminated because “it seemed that a systemwas going to be built according to what we wantedinstead of them having something they created thatwe could already utilize,” says a compensation man-ager at the company. “We wanted something thatwas established and proven, not something that wasgoing to be built from the ground up.”

Vendors that survive the rst round are suppliedwith sample plans or calculations and asked toreappear for an hour or so to show how theirsystem would handle the required transactions.At the health insurance provider and CasualMale, one vendor was eliminated because of itsreliance on third parties for part of the process,which raised the level of risk. Mr. Sprague,of Casual Male, says that “by digging into theimplementation process during their demo,” the

group discovered that a vendor relied on a thirdparty for implementation. “We wanted to beable to work with the company that developedthe technology, could train us on their technol-ogy, and would work with us to implement their

10

“We wanted somethingthat wasESTABLISHED

AND PROVEN,not somethingthat was

going to bebuilt from the

ground up.”— COMPENSATION

MANAGER , HEALTH INSURANCE PROVIDER

, Incentives toInvest4 OF 5

Q Does my companyspend too much timeon communicating and reportingsales-performanceinformation to salesrepresentatives?


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technology in an integrated fashion with oursystems,” says Mr. Sprague. “I don’t think that’stoo much to ask.” Adds Alan Teixeira, director ofHR, compensation, and benets: “You like to seeall implementations go smoothly, with everythingworking perfectly when you hit the switch. Butwe’re talking about a complicated system, andwhen you go live, and something is not quiteright, you don’t want to have to deal with anotherparty about these issues.” One compensationmanager at a health insurance provider says thatthe company confronted a similar candidate. Thevendor “seemed to really want to say that theywere the best and they had all these modules thatother companies don’t have access to,” says thecompensation manager. “Our concern was that itturned out that the additional modules were theresult of partnerships with other organizations.”

The second presentation “gives you a avor ofwhat they can do,” says Ms. Ferrara. Sometimesan extra touch matters; at Hertz, one vendor usedcar-like gauges on its dashboard. “They really do

try to impress you,” says Ms. Ferrara. “It was realcute, because we’re a car-rental company.” On theother hand, Hertz eliminated a company that sent

a different salesperson each time it visited. “It wasvery concerning to us,” says Ms. Ferrara. “Whenwe asked, they said that they were ‘going througha big reorganization.’”

To supplement what they were seeing, the teammembers also checked references. They sometimesasked others who have specic expertise—membersof IT or those with expertise in compensation—todo it. Questions include: How is the vendor’s cus-tomer service? How do they handle upgrades? Howlong did it take to implement this project? How—and why—did you choose this vendor?

As the process wound toward a close, vendorswere sometimes eliminated based on whetherthe prospective customer decided it wanted anon-premises solution or an on-demand congura-tion. At mBlox, management was clear on whichapproach it wanted. “We do what we do verywell,” says Mr. Love, “and that does not includetaking on the process of developing and managingincentive compensation plans.” Similarly, Hertz

had already outsourced IT, so “it’s 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 candidatesstill standing, procurement began negotiatingon pricing. At the health insurance provider, thehighest bid was three times higher than any of theothers. 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. Ferrara’s head,calling her boss—who had not been involved.“It was a slap in the face to me,” she says. It alsobegan bad-mouthing the winning vendor, insistingthe vendor couldn’t provide what the customerneeded. “I don’t like it when companies slam othercompanies,” says Ms. Ferrara.

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“We wantedto be able towork with thecompany thatdeveloped theTECHNOLOGY,could train uson theirtechnology,

and wouldwork with usto implementtheirtechnology.”

–SVP OF HUMAN RESOURCES , RETAIL

COMPANY


Q Finally (and most importantly):What

share of resources does my company

allocate to manually gathering compensation-related data? To what extent could mycompany meaningfully benet 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 team—oftenincluding outside consultants or developersand a project manager from the vendor. CasualMale assembled an internal team of four, whoworked with a consultant from the vendor. Thefour-member lineup consisted of a compensa-tion analyst, the payroll manager, Ms. Jones, andMr. Teixeira. Over the course of six months,the consultant spent a total of two weeks at thecompany during the “discovery” phase, duringwhich time he interviewed executives in orderto understand the company’s business and whatit 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 meeting—“and sometimesmore than one,” notes Mr. Teixeira—virtually,using a Web-hosted service that enabled every-one to share desktops.

This stage of implementation is an opportunetime for companies to change their establishedprocesses. Mr. Pilcher, of Colt TechnologyServices, says that in order to implement SPM,the company had to rationalize its data sources.“We identied that we had nearly 40 different

data sources,” he says. “It was all valid informa-tion that was part of the calculations. But wefound that by changing and modifying some ofthe major sources of data, we were able to ratio-nalize the 40 down to 20.” Implementing an SPMsystem posed an unusual challenge for Colt, anearly $2 billion company based in London. Atthe time, 2009, the vendor didn’t 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 companieswe spoke to started user testing, conducting itfor at least three months. Once the system wasdeemed ready, most companies launched the toolin a simple version, gathering feedback after aboutthree months and incorporating it within severalmonths. “If we had gone out when we were rstconguring the system and asked our people,‘What do you want out of the tool? What reportswould you like?’ they probably wouldn’t have beenable to tell us,” says Ms. Ferrara. “So we decided tosend out simple versions of the statements and tolet them see the capabilities of the system. Thenwe 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 becamevery aware of the shortcomings of its eight-year-old system. The SPM system was rolled out to thatdivision at the beginning of 2011, three years afterits initial rollout. “They are nding it very useful,”says Ms. Ferrara.

12

Gathering the Right Resourcesto Implement SPM

“We decidedto sendout simpleversionsof the

statementsand to letthem see THECAPABILITIES of the

system.”— SENIOR DIRECTOR OF

COMPENSATION , CAR -RENTAL COMPANY


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the degree to which spm is useful—dened by CFOs as enhancing efficiency—ultimatelydepends on the effectiveness of its reporting.The goal is for salespeople to fully understandtheir incentive compensation with a glance at adashboard, clicking on specic numbers to getthe details. “When people didn’t understand whattheir achievement was, we got pushback on every-thing about our plan,” says Mr. Love. “By havingtransparency into the system we don’t have toworry about them saying, ‘Wait—I don’t get this.’”

Reaching that point takes time. During its six-month pilot program, Shaw Industries learnedthat its territory managers didn’t want separatereports detailing their commissions from selling

carpets, for example, and their commissions forselling promotional goods. “The territory manag-ers wanted the summary rst, in one spot, beforedeciding 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 withina couple of days, was something the territorymanagers loved,” Ms. Clark adds. Eye appeal mat-ters; if a salesperson’s landing page looks like amassive calculation stream, the only action he’slikely to take is to log out as quickly as possible.

When one senior analyst of global sales com-pensation at a semiconductor manufacturerbegan working with an SPM vendor in 2010,she made it clear that she didn’t 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 calculationsin real-time, updating them every day. “But thatwas not my focus. I wanted the reporting to bevery intuitive and user friendly,” says the senioranalyst. “I actually gave them my manual reports

and I told them, ‘I want this—but prettier andnicer, more intuitive and available every day.’”

Her chosen priority makes sense. The challengefor any SPM system is to produce reports withnumbers that “pop out at you,” as the senior ana-lyst puts it, making them easy to read. By makingthe report readily accessible and understood, itshould motivate salespeople’s performance in theeld. “Your average salespeople are highly drivenType A personalities, and they want to know howthey are doing every day,” says the senior analyst.“It’s like playing a sport or a video game; if youcan’t see the score, it’s not very motivating, isit?” By knowing how they are doing that day, andbeing able to see how their pay would change if

they altered their performance in some way, sales-people can adjust their behavior accordingly. “Theinformation is there so that they can see howtheir incentive pay would change if they spentthe quarter selling more of product A and lessof product B,” says Mr. Dicks, of Deloitte. “Thetarget can stay the same, but they might choose tohit it differently.” The presentation of the informa-tion, in addition to which data appears, may varyaccording 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 differsaccording to which level of management is access-ing it. A sales rep will see her own results, while aregional manager needs to see all of his territories;a divisional VP wants to view all the regions, whilethe executive VP of sales will see everything.

The semiconductor maker’s rst reports were aimedat regional directors, who need the most data. After13

Using the Reporting Functionto Affect Performance

“Your average salespeopleare highlydriven TYPE A

personalities,and they wantto know howthey aredoing everyday. It’s like

playing a sport or avideo game; if

you can’t seethe score, it’snot very moti-vating, is it?”

— SENIOR ANALYST OF SALES COMPENSATION ,

SEMICONDUCTOR MANUFACTURER


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logging on, they see eight different charts on thescreen, including a metered gauge that shows howthe company is performing, a two-color bar chartthat displays how their direct reports are performingin relation to their goals, and a pie chart that slicesthe region’s revenues into product wedges. Thereare also small tables showing their top 10 customers,top 10 sales performers, and bottom 10 performers. “Ihad not thought about showing the bottom 10” untilthe vendor suggested it, says one senior compensa-tion analyst at the company. “But I think it totallymakes sense. If you’re a regional director you wantto know that information so you can follow up on it.You want to nd out why the plan isn’t working.”

By contrast, sales managers’ reports open withwhat the senior analyst calls “the money chart.”The report shows the number that will be on theirnext paycheck, as well as the percentage of theannual incentive they’ve earned to date. “You couldjust throw everything on there because you havethe data,” she says. “The way I like it, you have yourmain piece of information on the landing page,

and then you can drill down into whatever levelof minutiae or granularity you want.” Click on thecommission percentage, for instance, and you’ll get

a summary breaking it down into each component,which might include an individual incentive, a teamquota, 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,” saysthe senior analyst. “Sometimes those of us who arebehind the scenes get a little carried away with allof the cool things it can do, and we make it a bit toofancy. That’s what I was trying not to go with.”

The information also inuences management’sactions. At Casual Male, store managers can viewa summary report that rolls up the unit’s results,ranking associates according to, for example,sales per hour. The managers can also analyze theperformance of individual associates. “They canunderstand, at a glance, the productivity of all oftheir associates,” says Mr. Sprague. Managementuses the information about store productivity—how many units the store sells every hour, and howmany dollars each of those transactions is worth—to help drive training programs. “We want them tobe 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 thesize of every transaction. It’s all very compelling.”

14

“We want[reps] to beaware of theirPERSONALPRODUCTIVITY.We have theability to showthem what itwill mean in

terms of theirincome if theyraise the sizeof everytransaction.It’s all verycompelling.”

— SVP OF HUMAN RESOURCES , RETAIL

COMPANY

O Secrets of SPM Success1 OF 3

Here are the most important lessons that executiveswe interviewed learned while choosing andimplementing SPM systems:

Conrm that the vendor you select is an expert andfocused in the SPM area.

A successfully implemented SPM system becomes part of your planning, reporting, and forecastinginfrastructure.


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when one assistant vp of sales operations at

a media company reviews the benets the com-pany has secured from adopting an SPM system,he quickly arrives at a number: $500,000. That’show much the company has saved in staffing theunit that handles sale-compensation support. “Youhad this big staff sitting in the background, answer-ing questions to justify the payments or xingpayments that weren’t right,” he explains. At themedia rm, he says, the arrival of SPM softwareled to the departure of 50% of those employees.

Savings of that magnitude are certainly going tomake SPM appealing to CFOs. But what’s espe-cially compelling to nance executives—who oftenrevel in digging through data, no matter how it

is presented—about SPM is more than just theadministrative efficiencies that can be won. Thereis an additional, less-visible benet of SPM thatmay be most appreciated by nance executives,who are under pressure to improve governancewithin their sales-incentive processes: To comply

with government regulations, companies mustsupply evidence that the nancial applicationsand supporting systems provide the controls andaudit trails to make certain that nancial reportsare trustworthy. Without the appropriate nancialcontrols, companies are exposed to risks associ-ated with inaccurate nancial reporting. Manualcompensation-management systems aren’t likelyto leave behind such a clear and traceable path. “Ifyou’re sending spreadsheets from person to personfor approval, there’s no clear way to show whochanged what and when,” says Ms. Clark, of ShawIndustries. “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 prots.“We want as many eyes focused on the grossprot line as possible,” says Mr. Love, of mBlox.With SPM generating detailed reports, executivesand managers can see whether their commissionstructure is motivating salespeople to sell the

15

The Payoff:A Company of CFOs

“We want asmany eyesfocused onthe GROSSPROFIT LINE as

possible.”— CFO , PROVIDER OF

MOBILE MESSAGING SERVICES


Verify that the system can be easily integrated withyour company’s 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 protable product mix. If they aren’t doingso, a sales executive may want to initiate a quickcontest, pay out on margin rather than revenue,or reorganize sales territories to maximize, say,the fact that one rep is especially successfulat selling into a specic industry, or another isskilled at selling certain products. Having gainedthe ability to analyze his team’s sales by quota,product, or region, a sales executive can plainlysee where to concentrate his resources to achievethe greatest growth. With the information avail-able on a timely basis, salespeople can have it inthe back of their minds, inuencing the deal evenas they are making it . With any incentive compen-sation plan, “the challenge is about embedding thethought processes in each of the employees, andgetting them to really think in a different way andthink much more about the prot than just aboutsales,” says Andrew Humphreys, CFO of DirectWines, a direct marketer based in the UK.

But that mind-set shift doesn’t happen fast, warnsMs. Clark. Shaw Industries’s redrawn incentiveplan is designed to reward salespeople for pre-serving prots. During the rst six months, “wedidn’t see huge shifts,” says Ms. Clark. “But we didsee small shifts in pricing. We felt like we weregaining benets from the whole plan and all of thetransparency, but it was a slower-moving changewhen it came to the ability to make better busi-ness decisions.” And it’s not as if the newfoundknowledge transforms a bottom-dweller into a starproducer. “The go-getters are still going to be thego-getters,” says Sevi Howeth, commission analystat Harmonic, a video-delivery company basedin San Jose, California. “I don’t think it’s neces-sarily changing their behavior in that sense. It’sjust a great package to monitor their sales perfor-mance—anytime, anywhere.”

Certainly, well-managed incentive compensationcan discourage unwanted behavior. One healthinsurance provider’s incentive pay plan offereda higher bonus for bringing in new health-plan

members than for maintaining existing accounts.Management, says a compensation manager atthe company, became concerned that some of itsnew account reps were reselling recently expiredaccounts and claiming them as new. “When timesget tough, some people are willing to do things alittle differently to tip their number,” says the com-pensation manager, who notes that the companyhas since redesigned its plan.

And, as the compensation manager proudlypoints out, there’s no question that his behavior

has changed since the company’s adoption ofSPM. While he used to spend three out of everyfour weeks processing incentive compensation,he now can get it off his desk in less than a week.How’s he spending the rest of his time? “This hasgiven me the opportunity to do everything else Ishould have been doing on the general compen-sation side,” he says, adding that he is now focus-ing on areas such as performance reviews andhiring. “It’s more rewarding for me—and for thecompany.” By tying those two aims together, he’sdemonstrating the power of SPM software.16

“The challengeis to getemployees toreally THINK IN

A DIFFERENTWAY and thinkmuch moreabout the

prot than

just about sales.”

— CFO , DIRECT MARKETER


Ensure that there’s agreement among internalstakeholders as to what needs to be improved andwhose responsibility it is to oversee a successfulimplementation.

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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