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Roy, thanks so much for participating in the CPSA sales compensation podcast. Before we dive into questions, tell our listeners a little bit more about you, and a couple of the roles you've had in the past dealing with sales compensation.
Roy Zavorsky: Sure thing. Thanks so much for having me, David. Especially on a topic that is far more than a tool within total rewards, but a key business lever that impacts the bottom line.
Currently I practice this craft as a defacto subject matter expert, center of excellence leader at BC Inc, also known as Bell Canada. As you can imagine, it's a corporation with such scale and diverse business units that there is an endless supply of mandates and positive change that can be put into effect.
The genesis of sales effectiveness and total rewards for me really started at Mercer Consulting, and from there continued to support a variety of organizations, including becoming a country manager business development role for a US benefits giant covering over 70 million lives. As you can imagine, the subject is close to heart.
David Johnston: That's great, Roy. Let's begin with the first question, what is a sales compensation strategy? What do we mean by that?
Roy Zavorsky: Super question. In essence, through pay principles and role design, it's creating alignment of the sales force to the strategic goals of an organization, and ensuring that these strategic goals, the return on investment on significant compensation spend is met. You really want to link how you sell, what you sell, and the people selling, to a clear business focus.
All this really culminates into some of the more traditional concepts people are familiar with, such as pay for performance, motivation, and eliciting desired behaviors.
David Johnston: That makes a lot of sense. What is it that makes a sales compensation plan strategic though?
Roy Zavorskyi: It first comes from the core realization that most companies revolve around creating profits and shareholder value. Typically an organization is doing two main things. They're either creating something, a service or a product, and then they're selling it. First off in my mind, sales compensation and sales compensation plans are inherently strategic because of the territory it holds. That link to sales and the customer is pivotal.
Secondly, it might account for a smaller percentage of roles within an organization, but it has a critical contribution to revenue streams, and this really deserves, in my opinion, special attention
Lastly, it is a lever which you can depend on to affect change.
David Johnston: When you listen to sales management, they've got so many items that they're trying to cover. Why is it that having a sales compensation strategy is so important in terms of trying to help them achieve their goals?
Roy Zavorsky: It's really to create continuity between the business strategy and what the sales force is doing. It helps an organization continue to engage employees while championing what and how to do during change. It's also important to ensure compensation remains balanced, in that it rewards the sales force but remains physically responsible and market relevant.
David Johnston: It's interesting. When you see where sales leaders tend to struggle, it's not coming up with the strategies, it's coming up with how to execute them. How does having a sales compensation strategy support the execution of sales strategy?
Roy Zavorsky: That's an easy one. It creates a clear line of sight and focus. It can enable better communication material. It helps create better metrics. Weightings, targets, reinforces behaviors. Ultimately it creates alignment to financial reporting and crediting. It helps with the product segmentation and territory allocation. It helps with governed performance in general. We could really go on and on depending on the context and the situation.
David Johnston: One of the things that I always find is that, when you're talking theory, it's more easily understood if you've got a couple of examples. Can you give us a couple of examples of different types of sales compensation strategy that you've utilized?
Roy Zavorsky: Absolutely. Strategic thinking is more conceptual than tactical. There's two predominant strategies or approaches that really come to mind.
The first one is analyzing where you are in a company's life cycle, in order to determine which compensation philosophy to pursue. For example, you could take a cost of sales approach, versus a cost of labor approach. Both differing in terms of how you define a sales organization in your company. When taking more of a mature organization that has set roles and responsibilities, and quotas are a key factor in managing the day to day operations of sales comp. Whereas a cost of sales approach is a lot more entrepreneurial, and you're more focused on the cost of the sale in terms of remunerating someone, as opposed to policies and practices, and traditional costs of labor and benchmarks.
The second strategic component of sales effectiveness has less to do with the numbers and plan design, but it has to do with role design and segmentation. This is where you come across cliché terms such as the need for hunters and farmers. These cliché terms really drive the tactics of compensation. When to use bonus versus commissions. The mix of paying on new revenues versus recurring ones. How do I pay a quasi-sales job? Do I use a corporate bonus, or do I use a sales bonus, or a hybrid type plan? Again, this can go on and on depending on the context and the nature of a problem being solved.
David Johnston: If I'm an owner of a sales leader in a start-up business, I'm more likely to use commissions to try and keep my costs associated with what went through the door in sales?
Roy Zavorsky: That would definitely be one strategy, depending on what the organization is selling. If it's a more transactional sale, or as a start-up business you're really trying to go out and get market share, you might want to have a very commission oriented type structure, and assuming that structure is aligned to what you can afford. In a more mature organization, regardless of the margin or the revenue being generated by a sales rep, you still want to stay within certain total rewards parameters, or market driven parameters, but ensure that a rep is being paid for what they sell.
David Johnston:Having good strategy and being able to execute it is very important. Roy, thank-you for being on the CPSA podcast series on sales compensation. I hope that we can have you on again in the future.
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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