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What then does a company need to do to find the best approach to fit their needs? It's not a quick and easy process, however research-based sales incentive designs have been proven to produce better sales results. It also takes a multidisciplinary team incorporating different views from the various stakeholders in the organization to develop a world-class program.
In our CPSA Sales Compensation Podcast Series, we're going to address a number of perspectives and best practices that companies are using today to create sales plans that are dynamic, linked to key business requirements, and drive outstanding sales results. Understanding how your overall sales compensation program aligns with your business goals and how sales, marketing, and service strategies will help achieve those goals is critical in today's highly competitive local and global economies. This series will feature experts in sales compensation that have extensive experience in the design, management, and administration for organizations.
In today's CPSA Sales Compensation podcast, we'll talk about connecting payments with performance. Our guest today is Colin Jarvis. Colin is a sales compensation professional and manager who works in the financial services industry. He has almost 20 years of experience as a corporate practitioner designing and implementing sales compensation programs for large sales organizations. He's worked in financial services, communications, and the technology industries. Colin, thank you so much for participating in this CPSA Sales Compensation podcast. Before we dive into the questions, tell our listeners a little bit more about you and a couple of the key experiences that you've had in the past dealing with sales compensation.
Colin Jarvis: Dave, thanks very much for the opportunity to join you on these podcasts. In addition to the information you provided, I've also presented a number of educational sessions internally to those organizations and I am also currently a peer reviewer for an industry publication.
David Johnston: That's great, Colin. Let's begin with our first question. Why is it so critical and yet difficult to link pay to performance in the sales compensation plan?
Colin Jarvis: If it's designed correctly, the sales comp plan will drive the success of the business. Therefore, you need the pay for performance to create that link from the activity that drives the organizational success to the monetary motivation of your sales force. It's challenging because you have to focus on the activities that will truly drive the success of the organization. In my experience, that's where the challenge lies is you need to be able to identify what the key measures are that do in fact drive the success of the business. If you are having trouble identifying those measures, then you're going to have great trouble getting your business to be successful.
David Johnston: Wow. What are some of the key performance metrics that are sort of unique to sales compensation?
Colin Jarvis: When you move from the general population of the employee to the sales organization, you can be more granular in your metrics. For example, overall sales might be a good measure for the generic corporate result, however you may want to be a little more differentiated by product for the sales force. Others that are more sales specific would be a measure like close ratios. That's much more specific to the sales organization and the general employee is not going to be overly excited about close ratios.
David Johnston: I guess it's not just revenue anymore.
Colin Jarvis: Not just revenue anymore. However, depending on the organization, revenue or profit really is the number one.
David Johnston: Okay. Recently, there's been a focus on qualitative measures of sales performance. Can they be incorporated into the sales compensation plan or is it just all about the numbers?
Colin Jarvis: As we just said the numbers really are important, however you can use some qualitative measures. What I've seen in the past is these qualitative measures or MBOs, measurement by objectives, have definitely been included in the sales comp plans. We just have to be very careful in how we do it, as sales roles as we said are really all about the numbers. I would suggest that you want to keep it as a minor component and not one with the greatest waiting in the sales comp plan.
Also, the organization needs to accept the philosophy behind the MBO. You may have very high participation rates on the MBOs but your actual numbers aren't coming through, so you need to be able to accept that disconnect between the two. Having said all that, you can get the "how it is done" influencing the payout through a multiplier. Usually, you would set up a, it would be a negative multiplier. If your sales rep is doing bad things, you could reduce the payout by a percentage.
David Johnston: Okay. How do organizations use sales compensation to improve their sales execution?
Colin Jarvis: For me, the really neat thing about sales comp itself is that if you tie some money to an activity or a result it usually gets done. If you're having issues with the execution, you can get laser focused on those activities that are going to drive your success. I think also if you keep the comp plan simple, meaning three or four metrics, then the sales teams can easily identify what it is that you want them to do and they'll do it. They'll be very focused on those three or four things.
David Johnston: It provides a real key focus to the sales organization and tells them what you value.
Colin Jarvis: Absolutely. It doesn't have to be a measure that is placed on the rep as well as the manager. If it's execution, you could have a measure on them at the manager level and let the sales reps go and sell and get them to be successful by the manager influencing them because the manager is the one with this measure or metric that's going to pay them something at the end of the year for success.
David Johnston: Okay. What are some of the most important elements that you see in linking performance and payouts?
Colin Jarvis: Probably one of the big ones is timing. You need to have a close link between I do the activity and I get paid for that activity. A sales plan that pays bi-weekly or monthly is going to create a much stronger link than a sales plan that pays annually. Also, borrowing from HR, if you can create SMART objectives then you are going to be successful. By SMART, it's the acronym for Specific, Measurable, Attainable, Relevant, and Time-bound. If you create a plan that adheres to those principles, then you're going to create a strong link between that performance and the payout because the reps will be able to identify easily what I have to do and what am I going to get for it.
David Johnston: The plan is really a communications tool and focuses people on some of those key things that the organization needs delivered.
Colin Jarvis: Absolutely, communication. It truly is a communications tool for the organization to get the sales people all headed in the direction that the rest of the organization's going.
David Johnston: Colin, thank you very much for being on this CPSA podcast series on sales compensation. It's always a pleasure to get together with you to talk about a subject that I know we both enjoy and we make a great living doing. That's it for today's podcast. This is Dave Johnston saying goodbye and wishing you a good day selling.
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