Rose and Carroll, WorldatWork Certified Sales Compensation Professionals™, saw a need for a practical book of sample compensation plans to provide insight into the many plan design possibilities and typical designs by type of sales role and industry.  The sample plans will be based on their combined 30 years experience in sales compensation plan design and on contributions from today’s leading sales organizations. Cases featuring a “before” and “after” approach will be included to help readers understand why the plans were changed and how these changes improved the company’s situation.

“The appetite for a view of other companies’ plans is significant,” said Donya Rose. “And, as we know from our consulting practice, the best designs spring from a broad understanding of the array of possibilities in sales compensation plan design. Knowledge of what other companies are doing contributes to a designer’s ability to choose the best plan measures, mechanics, and features for the specific situation their business is facing in the coming year.”

Brenda comes to us with over 9 years of experience from Towers Watson. She holds an MBA from Northwestern University’s Kellogg School of Management as well as a BSIE from Purdue University.

Developed after a thorough analysis of the body of knowledge applicable to sales compensation, the certification has been awarded to only 18 practitioners to date. To become certified, candidates must pass a 140-question competency-based exam designed to test understanding of the following topics:

• Strategic management of sales compensation
• Sales compensation plan design and administration
• Evaluation of compensation plan effectiveness

“Taking the time to be certified demonstrates commitment to the field as a profession,” said Donya Rose. “A community of practitioners can generate a richer and better developed approach to the subject than one smart person operating without that community. Becoming certified is an acknowledgement of the value of the community and its work. And, ideally, the process of preparing for certification should make one a more capable practitioner.”

View a video of Donya Rose being interviewed by WorldatWork about the importance of sales compensation as a specialty.

About The Cygnal Group

The Cygnal Group is a consulting firm located in the Research Triangle of North Carolina and in Chicago, Illinois that focuses exclusively on sales compensation. Cygnal Group consultants assess sales compensation plans, train people to develop them, help clients design them, help to manage them and provide administrative services for them.  For more information, visit www.cygnalgroup.com or call 919-933-2290.

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By Donya Rose, The Cygnal Group

“You get what you pay for.” If you pay for behaviors, you’re very likely to get them; if you pay for results, you will improve the chances of getting the needed results significantly.

To be more specific, your company will be best served if the measures in your sales compensation plans are directly linked to the company’s income statement. The most common measures of this type are sales and gross margin on either revenue or bookings. Other measures that correlate highly with generating profit for the company are volume and cost management type measures.

The necessity for focusing variable pay in sales compensation plans on “hard” financial measures comes from the following key principles of incentive design, which, taken together, all but require it:

1. Pay at risk: Pay at risk means that sales people who do not earn the target incentive will not be paid their market value. For example, a typical sales person may earn in base pay only 60% of what she would likely have earned elsewhere doing similar work. This element of risk is one of the keys to maximizing the motivational value of the incentive plan.
2. Upside: In addition to at-risk pay, most sales compensation plans also offer “upside” or over-market pay to those who exceed expectations. Without the upside, it would not be sensible for a sales person to seek or accept at-risk pay. Just as when investing, people choose a “risky” stock only if there’s a real chance that it could outperform the more conservative stocks for an exciting upside. Similarly, sales people who are willing to “bet on” their own ability to be successful seek and accept risk in their compensation plan in exchange for the opportunity to earn above their market value if they can outperform expectations. For our example sales person with 60% of her market value delivered as base pay, 40% is delivered in the incentive at target, and if she achieves top performance (90th percentile performance), she could double that 40% so she is earning 140% of her market value.
3. Self-funding: In most companies, the budget for the sales team is based on the compensation at target per person. The affordability of that budget is determined based on the annual operating plan for the business, which includes some expectations about the productivity of the sales team (how much they will sell, of what kind of product/services, at what pricing/profitability). It is important to the health of the business that sales compensation costs move in alignment with profitability so that any over-budget payment made to the sales team is funded out of over-plan profits generated by their productivity. In this way, any upside paid to the sales people is clearly “worth it” to the company.

A More Straightforward Approach
A behavior-based sales compensation plan risks inviting manipulation and does not align with the results-based necessities of running a business. In a company with a variable pay plan for sales people in which 50% of the target incentive was a traditional commission on sales and 50% was in a bonus paid at year-end based on behaviors, total compensation was very steady for each sales person over several years in spite of significant fluctuations in performance against quota. Sales leaders were adjusting the behavior-based bonus to offset the sales commissions, paying those with high commissions a lower bonus, and those with low commission earnings a higher bonus.

When asked about this clear pattern in the payouts, sales leaders said, “He didn’t need a big bonus last year since he did so well with his commissions.” And for a different sales person with low commissions and a high bonus the explanation would be, “She worked really hard but the sales just weren’t there, so we’re recognizing all that hard work in her bonus.”

The inclination of many sales managers is to use flexible behavior-based compensation plans or manipulate the objectives or the evaluations to generate the payout they feel is needed. While these sales managers may have been trying to retain the talent they had in place, the design of the compensation plans was not serving the sales people, their leaders or the business well. If it was possible to have an underperforming year and still be a “keeper,” and still possible to have a terrific year but not be worthy of significant upside in the total variable pay delivered, then the pay mix for the role was inappropriately incentive-rich.

To correct this problem, the company moved more of the compensation into the base pay, eliminated the behavior-based bonus, added slightly to the commission at target, and adjusted the payout curve shape to recognize the difficulty in setting accurate quotas. With these changes in place, the results-based incentive plan generated payouts that were generally seen as fair by sales leaders and sales people. The new plans also helped to improve the focus on quota accuracy by the sales leaders, and resulted in a higher percentage of sales people meeting and exceeding quota.

Sales results are why we hire and manage a salesforce, and rewarding sales people for results is the most effective way to ensure that the company’s investment in the sales organization yields the expected return.

April 7-10, 2010 — Tucson, AZ

Beth Carroll to participate in a panel discussion: “Incentives and Payment Practices that Work”

Beth will be speaking at the 32nd annual Transportation Intermediaries Association Annual Convention & Trade Show. The Trade Show runs from April 7-10, 2010 and is taking place at the Hilton Tucson El Conquistador Golf & Tennis Resort, in Tucson AZ.  Beth will be speaking on Thursday, April 8, as a panelist during the seminar Incentives and Payment Practices that Work along with panelists Kerry Byrne, Executive Vice President, Total Quality Logistics and Michael S. Brown, Senior Vice President – Sales, Avalon Risk Management, Inc.  The panel will be moderated by Brian Evans, CTB, Arkansas Division Manager of Addison Transportation.

Donya will be leading a workshop as part of the Sales Performance Conference. The conference runs April 20-21, 2010 at the CHF Conference Center in Philadelphia’s historic Old City. The workshop will focus on companies with large sales forces and explore approaches for developing a sales compensation framework that provides consistency across the sales organization while supporting the individuality of the business units.

Use discount code CYGE when registering for the Sales Performance Conference to save $250 off the regular individual registration cost.

1. Find answers to many of your sales compensation questions quickly and easily
2. Comment on what you see posted, ask additional questions, and receive answers from others who frequent the site (as well as from Beth and Donya)
3. Learn from case studies based on real client experience (coming soon!)
4. Understand what needs to happen to update sales compensation plans, regardless of whether you get consulting help to do it, and how we might be able to help you with yours.

We are eager to hear from you as you use the site, and have the capability (and interest) to make the site as valuable to you as we can. Feel free to drop us an email (website@cygnalgroup.com), call (919-933-2204), or just add a comment below.

We’re glad you stopped by!

Interesting idea, and we do have a client that is violently opposed to quotas as providing a “stopping place.” I suspect it may be a case of bad comp design + a flawed quota setting process. If there’s a big payout AT quota, then yes – it’s a stopping place. But if the reward for getting to quota is the opportunity to earn at an accelerated rate, then no rational sales person would hold back at that point, unless…

…unless the goal setting system will result in a much larger (and harder to attain) quota the next year as the “reward” for over-achievement. And that, in my experience, is the real reason for the quota becoming a “stopping place.”

So I’d say that attainable and fair quotas set using a process that does not punish success with added risk the next year, combined with correct comp design, will yield the best return on the cost of comp for the company in most cases.

Austin, TX – August 20, 2008 – nGeneraTM Corporation today announced that it has partnered with The Cygnal Group to offer customers of nGenera’s Total Compensation SolutionTM an authoritative and independent analysis of their sales compensation plans.

Under terms of the deal, The Cygnal Group will provide compensation plan design services as needed to nGenera customers. These sales compensation plans, once optimized, can then be easily integrated into nGenera’s nGen CompensationTM SaaS-based suite for rapid deployment and maximum effectiveness.

“nGenera’s partnership with The Cygnal Group is an exciting step forward in our commitment to bring even greater sales compensation value to our customers. Their subject matter expertise and years of experience in the area of designing sales compensation plans is a real asset to customers interested in an independent assessment and optimization of their sales compensation plans,” said Vincent Salvo, Vice President of Global Partnerships and Collaborative Innovation for nGenera.

“Well-designed sales compensation plans only create value when they are administered and paid accurately, with clear reporting and timely pay delivery. We are pleased to partner with nGenera to deliver a more complete solution to companies needing both improved plan designs and a world-class compensation management solution,” said Donya Rose, Managing Principle for The Cygnal Group.

nGen CompensationTM is the first total compensation and pay-for-performance software delivered on demand, based on service-oriented architecture (SOA). This market-changing product includes the most robust and flexible rules engine for all forms of compensation – capable of scaling beyond 100,000 payees and 100 million transactions. nGen Compensation is a multi-client, SaaS environment with no hardware or upgrade costs and simple monthly subscription models, which enable the fastest ROI.

The Cygnal Group has years of experience in aligning sales results with business imperatives through the design of sales compensation plans that motive and reward the right sales focus. Clients include Home Depot, Thomson, Verispan, Red Hat Software and many other leading companies.

About nGenera

nGenera Corporation is an on-demand platform for business innovation that provides a suite of subscription-based offerings to enable the Next Generation Enterprise. Powered by software and people, nGenera’s on-demand offerings give organizations sustainable, breakthrough capabilities in leadership performance, talent management and development, and customer experience. Customers that subscribe to the company’s on-demand solutions include a marquee list of Global 2000 companies in a range of industries.

April 30, 2008 – Makana Solutions Inc., provider of self-service on-demand solutions for sales compensation plan design, today announced that it is teaming with The Cygnal Group sales compensation consulting firm to offer a webinar on effective sales compensation. The Tuesday, May 13, 2008, webinar is offered free of charge, but space is limited, so advanced registration is required.

“Most sales managers have rolled out their 2008 compensation plans and are starting to see results,” said Elizabeth Cobb, chairman and CEO of Makana Solutions. “Makana Solutions is teaming with recognized expert Donya Rose, founding partner of The Cygnal Group, to provide webinar attendees with immediate action items that can improve sales performance this year.”

“Over decades of sales compensation consulting, we’ve identified a number of common pitfalls,” said Rose. “Clients who’ve adopted our recommendations for avoiding or rectifying common problems have seen immediate results.”

Common Pitfalls in Sales Compensation Planning

The 45-minute webinar will address solutions for frequently encountered sales compensation problems:

– Sales credit wars between team members

– Sales people who ignore the important goals, but are still highly compensated

– Rewarding employees for attainment of the wrong measures

– De-motivation from unattainable goals

Attendees will receive specific guidelines on how to avoid the unintended consequences that lurk behind many plans designed in haste.

To register for this webinar–the fifth in a continuing series hosted by Makana Solutions–visit www1.gotomeeting.com/register/519148588. Recorded versions of previous sales compensation best practice webinars, each featuring a guest expert, are available for free viewing in the sales compensation best practice area of Makana Solutions’ web site, www.makanasolutions.com.

About the Companies

The Cygnal Group is a consulting firm focused exclusively on sales compensation design, communication, and administration. Sales compensation plans that are designed properly create the right risk/reward balance, maximize motivation and sales productivity, and deliver maximum value to the business for their sales compensation spend. For an overview of The Cygnal Group’s services, or to read the company’s blog, which covers many sales compensation challenges, visit www.cygnalgroup.com.

Makana Solutions’ on-demand software helps companies design, model, and communicate sales compensation. Effective sales incentive plans support company goals and help teams pull together to achieve them. Makana Motivator(SM) is the industry’s first on-demand solution designed specifically for effective sales compensation planning. For more information, a free trial, or to subscribe to Makana Motivator, visit www.makanasolutions.com.

Session Will Highlight Solutions to Common Pitfalls in Sales
Compensation Planning