IBM Big Data & Analytics Hub: Top Three WorldatWork 2016 Spotlight on Sales Compensation Takeaways

Sales compensation is a collaborative effort

In one session, Mark A. Donnolo from SalesGlobe hosted a customer panel with vice presidents (VPs) of sales, sales operations and worldwide sales and finance along with a director of sales compensation from different companies. The takeaway from this session was that the sales compensation planning process should be a collaborative effort among all the key stakeholders including sales, finance, marketing and human resources (HR).

Each line of business has an independent structure but has a vested interest in the company’s compensation plans. For example, marketing wants to ensure the plans are weighted toward the market opportunity for the company, and finance has a vested interest from a cost perspective—that is, variable compensation is one of the organization’s biggest expenses. HR wants to ensure payment plans for reps are fair and benchmarked accurately in the market. And sales wants to ensure the compensation plans are aligned to the corporate objectives and sales plans.

The panel agreed that the biggest challenge is not necessarily how to do compensation, but how to coordinate the effort across these departments who have various interests. The panelists also agreed that the best solution to the collaboration challenge is to put some governance in place for sales compensation planning. Here are some of their ideas:

• A director of sales compensation, a VP of sales operations or both should take the lead
• Create a working group of employees with a representative from each line of business—for example, finance, marketing and sales—to design the compensation plans
• Schedule regular checkpoints managed by a steering committee from the sales leadership team
• Ensure buy in from the C suite with an executive committee

The plans should go through the layers of the organization to ensure everyone is on the same page and is in agreement with the plans. By achieving this alignment, the organization can go to market with a companywide program that is aligned and will effectively drive the corporate objectives and goals.

Sales compensation needs to be agile

Change and complexity for sales leaders and compensation professionals is a reality in today’s business environment. Staying agile and flexible is essential to an organization’s success. In another session at the conference, a healthcare company shared how it leverages Incentive Compensation Management (ICM) to focus its sales reps in a changing business landscape.

In the past, this healthcare company sold its products directly to doctors and healthcare providers in a one-to-one relationship between the sales rep and the doctor. However, its business landscape changed. Groups of hospitals began purchasing medical equipment together, allowing them to reduce costs.

This situation caused the healthcare company to rethink how it was selling to the hospitals and created complexity for how it compensated its sales reps. For example, sales reps getting into the hospital was highly challenging because purchasing decisions changed to include C-level decision makers across multiple hospitals and healthcare facilities. In addition, multiple sales reps were required in the deal because a portfolio of products needed to be sold instead of a single solution. With this complexity, determining who should get credit for what became more challenging for the sales compensation manager. This particular healthcare company overcame this challenge by leveraging IBM ICM to build compensation plans that could handle this complexity, which could be adjusted quickly in an agile way as its business changed.

Sales performance goes beyond sales compensation

A theme I heard from many of the thought leaders and experts at the conference was that sales compensation is just one aspect of optimizing sales performance. Three main areas should be considered: sales planning, sales management and sales analytics.

The first area to consider is the sales planning process, which for most organizations occurs once a year and starts around three to four months before an organization’s fiscal year. Normally, sales plans are built off a forecast from the finance department. But how do you know if that forecast is accurate? To optimize a sales plan, tools such as Planning Analytics can be leveraged to build a highly accurate forecast that is built from multiple inputs across the enterprise. With an accurate forecast, the sales plan can be developed with much more confidence.

Once the sales plan—sales forecast, territory coverage, quota assignments—has been finalized, the compensation plans can be designed and deployed to the sales team. Effective compensation plans can motivate the sales team to execute on the strategy. Sales analytics is becoming a critical component of sales performance. You need to measure the success of your planning efforts if you are executing to plan. Tools such as IBM Watson Analytics can be used to measure territory performance, compensation plan effectiveness, quota attainment and more: