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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. Research-based and sales incentive designs have been proven to produce better sales results, but it also takes a multidisciplinary team incorporating the views of different 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 the key business requirements and driving outstanding sales results. Learning how your sales compensation program aligns with your business goals, and how sales marketing and service strategies will help to 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 how to develop an effective sales compensation program. My guest today is Matt Tyre. Matt is a sales compensation professional who works in the insurance industry. He has over 15 years of experience in consulting, and is a corporate practitioner designing and implementing sales compensation programs for large organizations. He's worked in financial services, communications, and the insurance industries and has consulted with many of Canada's top sales organizations. Matt and I worked together for a number of years and I can testify to the fact that he not only has a wealth of knowledge on this subject, but he also has the creative expertise to deliver well thought out and successful plan designs. Matt, thank you very much for participating in the CPSA Sales Compensation Podcast. Before we dive into the questions, tell our listeners a little bit more about you, and a couple of the roles that you've had in the past dealing with sales compensation.
Matt Tyre: Well, thanks Dave. I would like to say first off that I've had the good fortune of working with David Johnston at Sales Resource Group and learning the trade of sales compensation. Through that great experience, I've been able to take my career and go into different industries, and working for the likes of TD Bank, Sun Life Financial Group, and really looking at growing in many different industries the sales compensation and the complexities that come with each of those type of organizations.
David Johnston: Well, that's great Matt. Why don't we begin first with this question: What differentiates a plan that works from one that doesn't?
Matt Tyre: Well, first I would say the plans need to be really simple, and there's a lot of organizations that make programs too complicated and too complex. I think if you keep it to a "keep it simple, stupid" theory, the KISS theory, and really focusing on attracting, retaining, and motivating top talent, you're doing your justice by your sales compensation programs. Also, with the programs is when you can differentiate top talent from those that are underperforming with your sales compensation program with a normalized performance distribution or a bell curve, I think you're in a great state with your sales compensation program. The trick is building sustainable plans that you can actually measure success year over year. If you're tweaking or even making radical changes year over year, it's hard to measure if you're actually doing the right things.
David Johnston: Well, you mention it being complicated. How many measures would you say are appropriate within a sales compensation plan and why?
Matt Tyre: That's one of the big downfalls you see in sales incentive programs, but rule of thumb is if we can keep it on one hand or less, or even three or less, would be best, because the more metrics you put in a program, then the more you're going to dilute your incentive plan and you're not really going to get the behavior that you're looking for. If you can keep it to three or less, then you're going to get the focus. Someone taught me this one time, and I think you'll know who it is, Dave. A really effective sales compensation does two things. One, it tells the employee what the company values, and two, where to spend their time and effort. The sales incentive programs that are built that way will be deftly delivering the right behavior and the results you're trying to achieve.
David Johnston: You know, I'm going to have to start charging you for stealing my lines, eh?
Matt Tyre: I learned from the best. Thanks, Dave.
David Johnston: Well listen, you've designed a lot of plans. What are some of the steps involved in designing a sales compensation plan?
Matt Tyre: Well, just like the number of metrics in a plan, you do want to try and keep it simple. I look at it and it is about a handful of steps. The first one is really looking at the eligibility of a plan, and it could be an eligibility review of either new plan designs, so let's say there's a new role being developed and you're being asked by a business leader to develop a program, or is it a tweak to an existing plan, or a change to an existing plan. I definitely look at from an eligibility perspective the requests that come in, because more often than not, there isn't a real need for the design change. It may be something completely outside of the plan itself. It could be addressing issues around target setting or other areas. The deep root of it is the sales compensation plan's fine, and you don't need to move forward. The other example with a new plan would be, did the ultimate decision maker put in the request? You could have a manager requesting a new plan design without the authority to have one developed. It's having the eligibility requirements or rules set out that you can use to develop to know when is it appropriate to develop a sales incentive plan first and foremost.
Second I would say is the assessment stage, and it's really an intake and a needs analysis stage. That's where you scope the other requirements with your leaders in determining the materiality of the request. Is it a tweak or is it a radical change? I look at material changes as being one of those new plans or a radically changed plan. When you're looking at the assessment, that's part of it, but I also want to sit down and dig deep with your leaders, and also management in the field, but when you're looking at leadership conversations is looking at identifying short-term and long-term business objectives, because you can have the conversation around what's good for 2017, the year that's coming up, and you want to really build plans for sustainability. To do so you need to have more foresight to what's down the road if you can.
When you're doing those assessments, that's critical to your design. You really want to know, is there going to be head count changes, is there any new roles being created, and what's the strategy in the execution in those sales roles, because it helps you to understand the flow in which the design's going to be, because you can learn the sales life cycle is longer, so maybe you're going to have a performance period being longer than ... Let's say it's more transactional and you would have let's say monthly payouts. It's T&D, and that's really the assessment stage. Also identifying the budget's important, identifying the key players, and the key players would be really a crucial thing because you'll want to make sure you've got all the right stakeholders at the table.
Then there's design, so all that's done prior to even the design stage when you develop concepts. You want to work with cross-functional teams. That would be your business or sales leadership, HR, compensation, total rewards, legal, finance ops, IT. Every organization's different on who you want to have at the table around design, but you need to make sure that they're there. Financial modeling would be something that needs to be done. You really need to look at that, and that can actually change the outcome of your design. Then there's approvals, and the last one's communications.
David Johnston: It sounds like there's a lot of steps in designing a new plan, Matt. How important is it to have a formal design process in developing an effective sales compensation plan?
Matt Tyre: Well, I think it's one of the most important steps. It's more important than the design themselves. Time that could be wasted really not addressing the right stakeholders, and you can spin. Unless there's clear processes followed, you can really end up in a trap. Really focusing on, I'll repeat the design steps, it's making sure that there's eligibility of the design, but really assessing a plan, designing a plan, financial modeling, approvals, and communications are the five steps. It's important that you are engaging the right audience and delivering the programs that are going to meet everyone's needs. Yeah, I definitely agree with you. We'll say that it's one of the most important components of the sales compensation projects.
David Johnston: Well, you mentioned about sales compensation program ownership for the various design steps in the finished product.
Matt Tyre: Yeah, and I can't emphasize this enough. I get asked this a lot is who owns sales compensation? It's not the person designing the program. In my roles in the organizations I've worked with in the sales compensation practitioner, I don't own the designs. It's actually the business. The business owns it. It's their sales team. It's their sales results that they need to increase, so they own it, and in many different ways. The idea is to support them with it. There's multiple roles involved. As I had mentioned, HR would play a part. How would HR play a part? HR would be definitely considering the employee experience with the compensation plan changes. They can help in the communications. Then there's the sales compensation teams and their roles. Sales compensation could be from a design perspective. It could be from the process perspective.
Finance plays a pivotal role. Before designing a plan, you need to make sure that the metrics that sales has really identified they want to focus on is can you measure those? Do we have the data to calculate, and at what frequency, and is it from a vetted source? Also finance plays a role around the costing in the modeling of programs in some organizations so that the backtesting is done, and that we've met budget.
Then there's legal, so legal terms and conditions are typically in the sales compensation plan communication materials. That's to ensure that we are meeting provincial and federal, or state and federal legislations. Legal provisions are important, and it's good to have that relationship with legal as well, and ensure they're reviewing over your compensation programs before they're being distributed to employees.
There's operations, and sometimes it's IT, but the team that's calculating your incentive programs play a pivotal role. They typically will be a part of the process ensuring that not only is there that measurability, but the data is going to be in a format that we can calculate programs in.
Then the last but not least is communications. Communications of incentive programs again not only is the process important, but my other recommendation to any organization is to look at the communications, because you can build great plans in theory, but if you don't communicate them effectively, they can fail. It's around positive messaging. It's around the carrot versus the stick. It's around communicating at the beginning of the plan year, as opposed to middle of the year, and it's keeping the communications simple. Those are some of the key cross-functional teams, and all of them play a very important pivotal role in the design process and the final product.
David Johnston:Wow. No wonder organizations struggle with it. Seems like there's a lot of people have their finger in the pie, but as long as you have some good process, I presume that the project management side of it keeps everybody in line.
Matt Tyre: Right. You're right.
David Johnston: Matt, thank you for being on this CPSA Podcast Series on sales compensation today. It's always a pleasure to get together with you to talk shop. That's it for today's podcast, and this is Dave Johnston saying goodbye, and wishing you a good day selling.
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