CFO Research: Conversations on Sales Performance Management

8/11/2019 CFO Research: Conversations on Sales Performance Management

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Conversations on

Sales PerformanceManagementINVESTING IN THE RIGHT PARTNER


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Conversations on SalesPerformance ManagementINVESTING IN THE RIGHT PARTNER

Conversations on Sales Performance Management: Investing in the Right Partner ispublished by CFO Publishing LLC, 51 Sleeper Street, Boston, MA 02210.Please direct inquiries to Matt Surka at (617) 790 3211 or [email protected].

CFO Research and Varicent, an IBM company, developed hypotheses for thisresearch jointly. Varicent, an IBM company, funded the research and publication ofour findings.

At CFO Research, Josh Hyatt, Celina Rogers, and Matt Surka directed the research,and Josh Hyatt wrote the report.

November 2012

Copyright 2012 CFO Publishing LLC, which is solely responsible for its content.All rights reserved. No part of this report may be reproduced, stored in a retrievalsystem, or transmitted in any form, by any means, without written permission.


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Contents

Connecting Corporate Goals with Sales Performance 2

SPM under the Finance Lens 3

CalibratingandRecalibratingIncentives at the Speed of Business 5

Recognizing the Need for a System that Grows with You 7

Choosing the Right SPM Vendor 9

Gathering the Right Resources to Implement SPM 12

Using the Reporting Function to Affect Performance 13

The Payoff: A Company of CFOs 15

Sponsors Perspective 17


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CONVERSATIONS ON SALESPERFORMANCE MANAGEMENT:INVESTING IN THE RIGHT PARTNER

when one compensation manager began

working at a health insurance provider, he fully

expected to devote some of his time each month to fig-

uring out how much his company needed to pay each of

its 200 salespeople. What he didnt anticipate was that it

would take him practically an entire month to do it.

The task required the compensation manager to

hunker down at his desk, scrolling his way through

4,000 membership files. Working manually, hed

extract summary level data from those files and

transfer them to spreadsheets, assigning the correct

commission to each employee who had earned

it. It took him about three weeks to complete the

computations, which also required incorporating

data that came in from the sales-management team

and checking to make sure every calculation hadbeen updated. When he was finished, the company

would hand out a copy of a spreadsheet, and any

supporting documentation, to each member of its

sales team. At that point, the information would

be more than six weeks oldmuch too late for the

sales-force members to be a little more proactive

with the data, as the compensation manager puts

it. And it would nearly be time for him to start over.

Before he could do so, however, hed have to field que-

ries from the sales force, digging through nearly two

months worth of data to investigate why certain planmembers werent included in that months report. The

salespeople would want to know, How come I havent

gotten paid for that group? says the compensation

manager. In addition to being labor-intensive, the

manual method was also susceptible to errors, causing

the company to distribute inaccurate or inequitable

payouts. It was very time-consuming on our end, and

we wanted to ensure a lot more accuracy in the data

that was coming in, as well as the payouts that were

going out, says the compensation manager, explaining

why the company, which is based in New York City,

[Calculatingcommisions]was very time-

consuming onour end, andwe wantedto ensure alot more

ACCURACYinthe data thatwas comingin, as well asthe payouts

that weregoing out.COMPENSATIONMANAGER, HEALTH

INSURANCEPROVIDER

began searching about five years ago for an automated

alternative for calculating commission checks.

How did the company undertake that process? Have

sales performance management (SPM) systems

provided executives and sales representatives with

valuable financial insight into customer segments,

distribution channels, and products? Have the sys-

tems (which can be installed on-premises or used as

a cloud-based subscription service) lived up to wide-

ranging expectations, from slashing administrative

costs to aligning selling processes with broader stra-

tegic objectives? Has having the increased visibility

into the compensation process measurably affected

the behavior of sales representativesleading

more of them, for example, to meet their quotas? To

answer those questions, among others, we conductedin-depth interviews with executives from 12 com-

paniesincluding two based in the UK and one in

Asiaabout choosing, implementing, and benefiting

from SPM systems. All of our sources were employed

at companies where management had chosen to

invest in SPM systems within the past five years.

What is SPM?Using data fed to it from multiple company

sources, an SPM system extracts information

about sales and matches it with the employees

who should get credited. From frontline sales

reps to support staff to ancillary participants, the

number who share in the payout can easily reach

14 peoplerepresenting many different incentive

plans. Once the system has allocated the credits,

and measured them against each incentive plan,

the commission checks can be cut. Beyond that,

the system has to track clawbacks (say, $500 off

of the next commission check) for items that are

returned or sales that were mistakenly credited to

the wrong person. Given the complexity of the cal-

culations, its of little surprise that performing such

tasks manually typically results in an overpayment

rate of between 3% and 10%.2

Connecting Corporate Goalswith Sales Performance


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any cfo who suspects that their companyis

overpaying salespeople will quickly develop an

intense interest in SPM systems. In addition, with

traditional systems, theres the inevitable six-to-

nine-week delay in commission payments that

makes it difficult to close the books on a timely

basis. Earl Fry, CFO of Informatica, the $800 mil-

lion data-integration company, says that the fact

that spreadsheet-based approaches dont scale

cost-effectively becomes apparent upon reviewing

the total costs of supporting existing spreadsheet

solutions and future cost increases in head count

due to growth of the business and increasing

complexity. To assess the return on investing

in SPM, he advises fellow finance executives to

compare planned improvements in error rates

with existing rates and to weigh the increasedsales/margin performance that would result from

being able to link sales behavior and specific

incentives, which is nearly impossible to do with

manual systems.

CFOs are also likely to see value in SPM systems

ability to mitigate risk by producing more-accu-

rate real-time forecasts. Using an SPM system,

a finance chief has the ability to run multiple

income-statement forecast scenarios and to

accurately match various revenue and sales-mix

scenarios with a precise commission-expense

forecast. Such forecasts require a CFO to have

access to information about which sales manag-

ers and reps are responsible for the deals that are

most likely to close within the quarter, along with

their variable-compensation plans. They need the

same data for an alternate set of sales that could

close in that time frame. With access to histori-

cal data, they can use it to model new incentive

compensation plans and commission structures,

forecasting their impact on future payouts. Youneed the ability to get to that level of granularity,

says Mr. Fry. Otherwise youre forced to make

high-level assumptions, which could have a huge

impactseveral cents per shareon your expense

3

SPM under the Finance Lens

[You needto be] ableto link sales

behavior andSPECIFIC

INCENTIVES,which isnearlyimpossibleto do withmanual

systems.CFO, DATA

INTEGRATIONCOMPANY

Whats in It for Us?Heres how different company functions benefit from the adoption of sales performance management(SPM) systems, according to executives we interviewed.

An SPM system

aligns sales repsbehavior withcompany goals

motivates and fo-cuses frontline salesreps by giving themimmediate access totheir updated per-formance numbers

reduces errors

leaves audit trail

saves time throughautomation

increases salesteam alignment

improves docu-ment management

simplifies work-flows by using multi-tenant SaaS

enables updatesto be handled by

vendors

SALES:GAINING VISIBILITY

HR:GAINING ALIGNMENT

FINANCE:GAINING EFFICIENCY

IT:GAINING TIME


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forecast. Mr. Fry says that the improved forecast-

ing ability has been absolutely invaluable to me

and refers to it as the primary reason why we

went with an SPM system several years ago.

Interest runs high among other CFOs as well.

Previously, CFO Research conducted a survey

of 157 senior finance executives at large U.S.

companies, finding that half of the respondents

said there was room for improvement at their

company when it came to gathering and using

information on sales activity for planning, bud-

geting, and forecasting. (The report,Managing

Sales Incentive Compensation amid Uncertainty,

is available for download at cfo.com/research.)

Compensation errors are more costly than they

appear. If salespeople sense they are being treated

inequitably, they are more likely to leave. With

unsophisticated sales-performance management

tools, youre basically capturing the wrong data,

making the wrong calculations, and leaving the

sales reps disgruntled, says one assistant VP

of sales operations at a media company based

in North Carolina. The amount they get paid

is never what they think they are going to get

paid. One study estimated that sales turnover

decreases by as much as 25% when a company

shifts to an automated system to manage all

incentive-plan components and processes. The

proportion of sales reps who hit their quotas also

nudges upward, a productivity spurt that likely

results from the fact that employees no longer

have to engage in shadow accounting, using

company time to investigate the processes that

led to their payments. That blatant inefficiency

rankles finance chiefs, who want to drive as much

administration and non-customer-facing time out

of the sales process as possible. Such paramount

concerns help explain why SPM is a $1-billion

market thats growing at 25% a year, according

to industry estimates. Compensation is a major

expenditure, so CFOs are challenging the chief

sales executive and the line-of-business manag-

ers: Have we made the best use of every dollar

we have spent in this area? says Robert Dicks,a principal in Deloitte Consulting LLPs Sales

Effectiveness practice. CFOs are asking the ques-

tions that need to be asked: Could I have gotten

the same results for less? Would the results have

gotten better if Id spent more?

Sometimes the answer is almost tooobvious.

Kevin Pilcher, senior manager of corporate

and information management systems at Colt

Technology Services, says he started exploring

SPM when the companys existing six-year-old

system got to the point where it was costing usover $200,000 a year to maintain it and reconfigure

it when plans changed. The IT-services company

switched off its old system in mid-2009, having

made an initial investment of about $1.5 million in

a hosted SPM application. It has since renewed the

three-year contract, at a cost of about $500,000.

Mr. Pilcher, whose company is based in London,

points to one metric that changed dramatically

within months. Our satisfaction with the new

system, he says, was at a much higher level than

it had been with the old system.4

With manualtools, yourebasicallycapturing thewrong data,making thewrongcalculations,and leaving

the sales repsDISGRUNTLED.

ASSISTANTVPOFSALESOPERATIONS,

MEDIACOMPANY

,Incentives to Invest1 OF 5

Executives ask themselves these basicquestions when thinking about whether aninvestment in SPM would pay off:

Q Is my company

making a significantnumber of incorrectpayments toits salesrepresentatives?


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with business needs and organizational

strategies in frequent flux, stagnant compensation

plans have outlived their usefulness. Business has

closed the books on the era of stable sales ter-

ritories and predictable sales cycles. As a result,

a purely outcome-driven incentive compensation

model, dominant for years, can no longer fulfill

the purpose it was intended to serve. The object

of incentive compensation, after all, isand

always has beento identify and use those met-

rics that will drive sales behavior.

But simple quotas and crediting rules, as straight-

forward as they may be, cant easily accommodate

ever-shifting dynamics, such as changes in compli-

ance issues (required, for example, by the recent

Dodd-Frank Act). More important, management iscontinually readjusting its organizational strategy

to capitalize on real-time opportunities, such as

the arrival of a new competitor or the need to

add distribution channels or target new customer

segments. The key is for companies to have the

agility to shift resources and reset priorities as

the market requires them to do so. A company

expanding into a new category of products, which

will require longer and more-complex sales pro-

cesses, may want to add team-based incentives

to their existing sales compensation plan. In the

earlier CFO Research study, 61 percent of seniorfinance executives reported that they wanted to

see more-sophisticated selling at their compa-

niesapproaches such as team-selling, bundled

offerings, and cross-selling.

At one media company, the mix of products has

changed, as has the sheer number of products we

sell, says an assistant VP of sales operations at the

firm. We need to be focused on selling bundles.

When the company was founded, more than 100

years ago, it was in the business of selling space in

the Yellow Pages;it now derives 25% of its revenue

from digital products. Its 1,600-member sales force

has had to switch from selling a page of advertising

to selling a range of products and services, from cus-

tom websites to search engine optimization services

The old software wasnt conducive to transform-

ing this business into an Internet media company,

period, says the sales-operations executive.

Three years ago, the media companys management

opted to abandon its existing sales-compensation

management system, composed of a hodgepodge of

software, some of which it had purchased and some

of which it had inherited through acquisitions. By

investing in an SPM system, the sales-operations

executive says, the company sought to find a solu-

tion that could be much more flexible in terms ofgoing to the marketplace, and also could handle the

fact that where we used to have 6 or 7 sales channels

now we have at least 20 or more test sales channels

out there where were doing a lot of trial and error.

Salespeople at the media company are now rewarded

based on a customers total advertising spend. To

ignite growth, the company has bulked up its bonuses

for new business. The company is continuously test-

marketing new offerings and exploring geographies

beyond its current 28-state reach. We need new

compensation systems, and we need to have them inless than a year, says the sales-operations executive,

who estimates that 60% of the companys customers

now buy a bundle (at least five items) of products.

Now the company can add new plans, or tweak

existing ones, in about a week. Equipped with SPM

systems, companies can implement certain types of

plan components that would be difficult to handle

any other way, including margin-based incentives,

quarterly SPIFs (short-term rewards), and incentives

targeting certain offerings. Salespeople can log in and

view their two-week commission statement or their5

CalibratingandRecalibratingIncentives at the Speed of Business

[We needed]a solution thatcould be much

more FLEXIBLEin terms of

going to themarketplace,and alsocould handlethe fact thatwhere weused to have6 or 7 sales

channels,now we haveat least 20or moretest saleschannels.

ASSISTANTVPOFSALESOPERATIONS,

MEDIACOMPANY


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annual year-to-date plan on their iPads or laptops.

They dont have to ask anybody any questions, says

the sales-operations executive. They can see their

progress for themselves.

Furthermore, they can believe what they are

seeing. To ensure their accuracy, SPM systems

not only extract data from a companys core

systems but also exercise much more rigor-

ous control over that information. By, in effect,

breaking compensation systems down to their

individual components, managers gain a clear

view of the flaws in that system. At Shaw

Industries, for example, the companys frontline

territory managers were rewarded based on the

profitability of their sales. But a lot of things

that go into that profit margin are outside of the

territory managers control, says Carla Clark,

special projects manager for commissions at

the manufacturer of flooring products, which

started shopping for SPM software in 2008. We

didnt want territory managers incentives to

be impacted, positively or negatively, by things,

such as the cost of raw materials, which are

outside their span of control. But they can have

an immediate impact on profitability by focus-

ing on pricing. On the carpet-selling side of

the business, the companys revamped commis-

sion plan rewards territory managers based on

a combination of the product category involved

in the sale and the pricing level they negotiated.

Now that we have moved to a net-based sales

plan, says Ms. Clark, a territory manager can

see a direct relationship between his behavior

and the amount of his check.

Using SPM systems reporting function, sales plan

administrators and reps can conduct their own

current-versus-goal analysis in real timewithout

having to be IT masters. If youre spending lesstime trying to figure out what your compensation

is and why, then you should be able to spend more

time selling, says Steve Love, CFO of mBlox, a

provider of messaging and mobile payment ser-

vices. Armed with timely information, salespeople

can also act on it, figuring out which product or

bundle to sell to whom to reach the next commis-

sion tier before the month is out. This is a great

business process to automate, says Mr. Love.

One health insurance providers management

reached the same conclusion. The health insurerupdates compensation data every morning. If sales-

people are puzzled by what they see on their screens

they can raise questions, sending screenshots, before

the payouts are even processed. It gives them the

opportunity to be more proactive, says a compensa-

tion manager at the company. Our goal, all along,

has been simple. We just want to make sure that

everyone is going out selling what they should be

going out selling to keep bringing in the business

thats most profitable for the organization.

6

If yourespending lesstime tryingto figure outwhat yourcompensationis and why,then you

should be

able toSPENDMORE TIMESELLING.

CFO, PROVIDEROFMOBILEMESSAGING

SERVICES


Q Are my companys sales representativesspending a substantial amount of timecrunching numbersto figure outtheir compensation (so-called shadowaccounting)? Is this detracting from thetime that they spend selling?


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fulfilling the compensation managers

simple-sounding mission naturally becomes more

complex as a company changes and grows. The

simplest thing to tell somebody [in sales] is, This

is your revenue target, and thats the end of the

discussion, says Damian Glendinning, who serves

as treasurer for Lenovo, the Chinese computer

maker, but who has extensive experience in other

companies. Once you do that, its nice and simple,

and its fairly difficult to screw up. But what many

companies very quickly get to is, Well, hang on a

secondwe dont want just any revenue. We prefer

the revenue to be skewed toward the most strategi-

cally important products or customer segments, or

toward products with a higher profit margin. Then

you start saying that [the target] is partly revenue,

partly strategic direction, and partly profit.

At Casual Male Retail Group, which operates

425 apparel stores, the decision to upgrade its

incentive-management system came during a

transformation in our business model, says Walter

Sprague, the retailers senior vice president of

human resources. The company has been rapidly

expanding its newest division, Destination XL

superstores, into new marketsand closing some

of its existing Casual Male XL stores in or near

those markets. As part of that makeover, the com-

pany decided two years ago to transition its CasualMale XL and Destination XL stores to commission-

based compensation. In part, the decision was

driven by the performance of a group of high-end

stores it had acquired in 2004, Rochester Big and

Tall Clothing. Rochester had a plan that was in

place for years after we acquired them, and we

were never incented to change that. It was work-

ing well, says Mr. Sprague. When we decided to

introduce a plan to Casual Male, we were introduc-

ing it to an environment where there was no his-

tory of it. We were free to create a new platform.

Sales associates at Rochester Big and Tall operated

on individual commissions based on their personal

sales. At the other chains, the company sought to

encourage teamwork by basing commission tiers on

a stores achievement of its quarterly goals.

Given the volume of the transactions involved,

and the complexity of the different commission

programs, management concluded that it was

way too risky for it to rely on a spreadsheet

format to manage it, says Mr. Sprague. We

needed some sort of automated system to man-

age the commission environment efficiently. The

retailers compensation plan involved tens of thou-

sands of transactions, with employees working

different hours (including overtime) and striving

for different sales goals. Youre talking about acomplicated system with so many moving parts,

says Alan Teixeira, director of compensation,

benefits, and HR at the retailer, which is based in

Canton, Massachusetts. There are somewhere in

the vicinity of 185 different calculations that occur

to process payroll for just one pay period.

At acquisition-oriented companies, the prolifera-

tion of different compensation planswith their

attendant bonuses and deferred-compensation

rewardsoutstrips existing management systems.

After a 2008 merger, one health insurance providerdoubled its number of compensation plans, from 12

to 25. Each plan served a different segment of the

business, from new customers to government pro-

grams to separate Medicare and Medicaid groups.

Each groups formula relied on different mixtures

of goals and metrics. The Medicare group, for

instance, tracked separate goals for each half of the

year. In account management, commission rates

varied for attracting new customers versus servic-

ing existing ones. According to a compensation

manager, the company hired an outside consultant7

Recognizing the Need for aSystem that Grows with You

Youre talkingabout aCOMPLICATED

SYSTEMwithso manymoving parts.There are

somewhere inthe vicinity of185 differentcalculationsthat occurto process

payroll forjust one payperiod.

DIRECTOROFCOMPENSATION, BENEFITSAND HR;RETAILCOMPANY


10/19


to blend very different philosophies on paying

sales incentives. In some cases, he took a little

bit from this plan and a little bit from that plan;

other [changes] were complete overhauls based on

what he was finding in the market.

The push for change can also start with manage-

ments awareness that it needs to rethink how

well its current plan actually serves customers.

At Hertz Corporation, a newly installed head of

sales decided to redesign compensation to help

the rental company become more sales-friendly,

says Lynn Ferrara, the companys senior director

of compensation and human resources informa-

tion systems. At the time, customers had to rely

on a different sales representative for every line

of business, from corporate sales to tours. Three

years later, customers can get everything done

through one salesperson, says Ms. Ferrara, who

adds that two of the companys divisions have

since implemented an SPM system.

The need for a more sophisticated SPM system is,

in some ways, a fundamental recognition of howmuch more complex sales have grown as the web

has become a key distribution channel. As a route

to market, the Internet increased competition and

put pressure on margins, causing companies to

look for opportunities to reduce their cost of sales.

Companies have to be better on territory manage-

ment and coverage, says Deloittes Mr. Dicks. They

have become much more targeted and tactical about

how many salespeople cover a region. To maintain

their margins in a hypercompetitive world, they

need information about underserved markets and

salespeople who are underperforming. The need to

keep expandinginto new markets and distribution

channelsrequires constant tweaking of compa-

nies sales models. One senior analyst of global sales

compensation at a semiconductor maker says that

the company now uses about 10 different compensa-

tion plans. The more complicated sales model you

have, the more compensation formulas youre going

to have, says the senior analyst. There can be

many players involved: channel partners, distribu-

tion partners, warehousesand then there are sales

teams that are focused on different points in the

sales process. There are so many gives and takes

and handoffs, and you have your sales team focused

on so many different aspects. You do need a dif-

ferent plan for all of them. Turning to SPM, as thesenior analyst puts it, was just a natural progres-

sion for the company, which needed to accommo-

date a changed (and still changing) sales strategy.

8

As the Internetincreasescompetition,companiesare becomingmuch moretargeted andtactical abouthow many

salespeoplecover a region.To maintaintheir marginsin a HYPER-COMPETITIVE

WORLD,they needinformationaboutunderserved

markets andsalespeoplewho areunder-

performing.PRINCIPAL,

BUSINESS-CONSULTINGFIRM

,Incentives toInvest3 OF 5

Q How much timedoes my companyscompensation staffspend researchingqueries about incorrectpayments?


11/19


among the companies we interviewed, the

path to choosing an SPM vendor began with the

naming of a task force. The team is in charge

of everything up to the implementation of the

software: vendor-vetting, selection, and system

design. The teams enlisted a minimum of five

members and topped out at eight participants.

The roster included representatives from IT,

compensation, procurement, HR, and finance.

The size of the group often reflected whether

members of the sales team were fully involved

or used as occasional sounding boards. At one

health insurance provider, for example, the five-

member team didnt include the VP of sales,

but the executive was aware of the project on a

day-to-day basis and was solicited for input about

what [he] would find useful, says a compensationmanager at the company. Ms. Ferrara, of Hertz,

says that the companys five-member team would

have liked to have more than one salesperson

aboard, offering input about what the commission

statements should look like, how the dashboards

ought to appear, and the kind of functionality

theyd find most useful. But, she added, its tough

for them to be on a project like this. You want

them to be out there selling.

Whatever the composition of the team, its likely

that members will represent different perspectivesand priorities. Sales leaders, for instance, may be

intent on driving more volume through the sales

channel, thereby boosting revenue and market

share. Others might be adamant that the companys

sales team needs to be redirected toward higher-

margin business, even if it means lower volumes. In

any case, project managers need to build a consen-

sus around specific time-based measurable goals.

Executives we interviewed told us that their

team started its work by putting together a list

of specifications, soliciting feedback from other

departments as needed. At Hertz, for example,

the final document ended up being 30 pages

long. Questions ranged from straightforward and

generalIs the tool available on-demand?to

more specific and detailed queries. The Hertz

spec documents included such questions as Can

it create participant sales territories based on any

combination of factors, includingbut not limited

togeography, customer type, industry, prod-

uct line, account size, and channel? and Can it

handle multiple quotas per participantand time-

based quotas by month, quarter, and year? Before

sending it out, the project team queries itself

on one main issue: Do we have everything we

need? Stacey Jones, director of human resources

management systems and payroll operations atCasual Male, says that we had hundreds of differ-

ent requirements that each of the organizations

needed to meet.

Most of the executives we spoke to said that

their companies had sent the questionnaire to

four vendors. Ms. Ferrara, of Hertz, says that she

assembled a vendor list based on her experiences

attending conferences, making note of speakers

and visiting booths. When she ran into contacts

in the compensation field, she made it a point to

ask them how they felt about the SPM tool theywere using. Vendors who received the question-

naires had to submit their answers within three

weeks. After receiving the vendors replies, the

teams conducted extensive requirements analy-

sis, grading them according to how many capa-

bilities they offered in the must have, nice to

have, and can live without categories; those

with matching capabilities were invited to meet

with the team for about two hours, including half

an hour of questions. We want them to come

in and show us what their system can do, says9

Choosing the RightSPM Vendor

We hadhundreds ofdifferentREQUIREMENTSthat each ofthe vendorsneeded tomeet.

DIRECTOROFHRMANAGEMENTSYSTEMS

AND PAYMENTOPERATIONS,RETAILCOMPANY


12/19


one compensation manager at a health insurance

company. At two of the companies, executives

had had experience with one of the vendors. At

Casual Male, for example, the payroll manager

had previously done business with one of the

candidate businesses. Initially, we envisioned

us going with that vendor only because we had

somebody internally who had worked with them

before, says Ms. Jones. But that knowledge actu-

ally helped us to make a better-educated deci-

sion. The retailer didnt let the payroll managers

previous relationship with the vendor unduly

influence their decision, she notes.

The first session is as much about chemistry as it

is about capability. Its the very beginning of how

youre starting to build a relationship with your con-

tacts, says Ms. Ferrara. One vendor got scratched

off the list because they were very new to sales

performance management, she says. The concern

is that we sign a contract for a number of years, and

we make a big investment to configure it.

At Casual Male, one of the early candidates failed toconvince the group that it would be a comfortable

fit. We quickly realized that they just could not han-

dle the level of transaction data that we were going

to be providing, says Ms. Jones. They also couldnt

provide the best integration between our current

human resources information system and their

software. So we walked away from that relation-

ship. One health insurance provider moved forward

with three out of its four candidates. One vendor

was eliminated because it seemed that a system

was going to be built according to what we wanted

instead of them having something they created that

we could already utilize, says a compensation man-

ager at the company. We wanted something that

was established and proven, not something that was

going to be built from the ground up.

Vendors that survive the first round are supplied

with sample plans or calculations and asked to

reappear for an hour or so to show how their

system would handle the required transactions.

At the health insurance provider and Casual

Male, one vendor was eliminated because of its

reliance on third parties for part of the process,

which raised the level of risk. Mr. Sprague,

of Casual Male, says that by digging into the

implementation process during their demo, the

group discovered that a vendor relied on a thirdparty for implementation. We wanted to be

able to work with the company that developed

the technology, could train us on their technol-

ogy, and would work with us to implement their

10

We wantedsomethingthat wasESTABLISHED

AND PROVEN,

not somethingthat was

going to bebuilt from the

ground up.COMPENSATIONMANAGER, HEALTH

INSURANCEPROVIDER

,Incentives toInvest4 OF 5

Q Does my companyspend too much timeon communicatingand reportingsales-performanceinformation to salesrepresentatives?


13/19


technology in an integrated fashion with our

systems, says Mr. Sprague. I dont think thats

too much to ask. Adds Alan Teixeira, director of

HR, compensation, and benefits: You like to see

all implementations go smoothly, with everything

working perfectly when you hit the switch. But

were talking about a complicated system, and

when you go live, and something is not quite

right, you dont want to have to deal with another

party about these issues. One compensation

manager at a health insurance provider says that

the company confronted a similar candidate. The

vendor seemed to really want to say that they

were the best and they had all these modules that

other companies dont have access to, says the

compensation manager. Our concern was that it

turned out that the additional modules were the

result of partnerships with other organizations.

The second presentation gives you a flavor of

what they can do, says Ms. Ferrara. Sometimes

an extra touch matters; at Hertz, one vendor used

car-like gauges on its dashboard. They really do

try to impress you, says Ms. Ferrara. It was realcute, because were a car-rental company. On the

other hand, Hertz eliminated a company that sent

a different salesperson each time it visited. It was

very concerning to us, says Ms. Ferrara. When

we asked, they said that they were going through

a big reorganization.

To supplement what they were seeing, the team

members also checked references. They sometimes

asked others who have specific expertisemembers

of IT or those with expertise in compensationto

do it. Questions include: How is the vendors cus-

tomer service? How do they handle upgrades? How

long did it take to implement this project? How

and whydid you choose this vendor?

As the process wound toward a close, vendors

were sometimes eliminated based on whether

the prospective customer decided it wanted an

on-premises solution or an on-demand configura-

tion. At mBlox, management was clear on which

approach it wanted. We do what we do very

well, says Mr. Love, and that does not include

taking on the process of developing and managing

incentive compensation plans. Similarly, Hertz

had already outsourced IT, so its a better busi-ness case to let them take care of all of it for us,

says Ms. Ferrara. At one health insurance provider

however, the IT department changed its mind, say-

ing it wanted an on-site solution, thereby eliminat-

ing the vendor that offered only a hosted solution.

At this point in the process, with two candidates

still standing, procurement began negotiating

on pricing. At the health insurance provider, the

highest bid was three times higher than any of the

others. When Hertz chose the vendor who best

met its requirements, the runner-up called andbegan throwing out all kinds of offers. An execu-

tive went so far as to go over Ms. Ferraras head,

calling her bosswho had not been involved.

It was a slap in the face to me, she says. It also

began bad-mouthing the winning vendor, insisting

the vendor couldnt provide what the customer

needed. I dont like it when companies slam other

companies, says Ms. Ferrara.

11

We wantedto be able towork with thecompany thatdeveloped theTECHNOLOGY,

could train uson theirtechnology,

and wouldwork with usto implementtheirtechnology.

SVP OFHUMANRESOURCES, RETAIL

COMPANY


Q Finally (and most importantly):What

share of resourcesdoes my company

allocate to manually gathering compensation-related data? To what extent could mycompany meaningfully benefit from havinga single repository forcompensation-related dataand/or from having salesincentives calculatedautomatically?


14/19


the implementation phase of the process

is managed by a much smaller teamoften

including outside consultants or developers

and a project manager from the vendor. Casual

Male assembled an internal team of four, who

worked with a consultant from the vendor. The

four-member lineup consisted of a compensa-

tion analyst, the payroll manager, Ms. Jones, and

Mr. Teixeira. Over the course of six months,

the consultant spent a total of two weeks at the

company during the discovery phase, during

which time he interviewed executives in order

to understand the companys business and what

it expected from an SPM system. Our imple-

mentation consultant was excellent at asking,

Did you think about this? What happens when

this happens? says Ms. Jones. The consultantalso attended a daily meetingand sometimes

more than one, notes Mr. Teixeiravirtually,

using a Web-hosted service that enabled every-

one to share desktops.

This stage of implementation is an opportune

time for companies to change their established

processes. Mr. Pilcher, of Colt Technology

Services, says that in order to implement SPM,

the company had to rationalize its data sources.

We identified that we had nearly 40 different

data sources, he says. It was all valid informa-tion that was part of the calculations. But we

found that by changing and modifying some of

the major sources of data, we were able to ratio-

nalize the 40 down to 20. Implementing an SPM

system posed an unusual challenge for Colt, a

nearly $2 billion company based in London. At

the time, 2009, the vendor didnt have a pres-

ence in the UK; it had to ship employees over.

Perhaps SPM is just more mature in the U.S.

than it is in Europe, he says.

After their systems were designed, the companies

we spoke to started user testing, conducting it

for at least three months. Once the system was

deemed ready, most companies launched the tool

in a simple version, gathering feedback after about

three months and incorporating it within several

months. If we had gone out when we were first

configuring the system and asked our people,

What do you want out of the tool? What reports

would you like? they probably wouldnt have been

able to tell us, says Ms. Ferrara. So we decided to

send out simple versions of the statements and to

let them see the capabilities of the system. Then

we could talk about enhancements.

They could also expand their use of the report.

At Hertz, after the rent-a-car division was up andrunning, the heavy-equipment division became

very aware of the shortcomings of its eight-year-

old system. The SPM system was rolled out to that

division at the beginning of 2011, three years after

its initial rollout. They are finding it very useful,

says Ms. Ferrara.

12

Gathering the Right Resourcesto Implement SPM

We decidedto sendout simple

versionsof the

statementsand to letthem see THECAPABILITIESof the

system.SENIORDIRECTOROFCOMPENSATION, CAR-

RENTALCOMPANY


15/19


the degree to which spm is usefuldefined

by CFOs as enhancing efficiencyultimately

depends on the effectiveness of its reporting.

The goal is for salespeople to fully understand

their incentive compensation with a glance at a

dashboard, clicking on specific numbers to get

the details. When people didnt understand what

their achievement was, we got pushback on every-

thing about our plan, says Mr. Love. By having

transparency into the system we dont have to

worry about them saying, WaitI dont get this.

Reaching that point takes time. During its six-

month pilot program, Shaw Industries learned

that its territory managers didnt want separate

reports detailing their commissions from selling

carpets, for example, and their commissions forselling promotional goods. The territory manag-

ers wanted the summary first, in one spot, before

deciding what they wanted to study in detail,

says Ms. Clark. Management also learned that

having the ability to go in and see their com-

missions as they were making them, or within

a couple of days, was something the territory

managers loved, Ms. Clark adds. Eye appeal mat-

ters; if a salespersons landing page looks like a

massive calculation stream, the only action hes

likely to take is to log out as quickly as possible.

When one senior analyst of global sales com-

pensation at a semiconductor manufacturer

began working with an SPM vendor in 2010,

she made it clear that she didnt think process-

ing the calculations was the biggest challenge.

The actual math behind it is easy, she says.

She expected a vendor to make the calculations

in real-time, updating them every day. But that

was not my focus. I wanted the reporting to be

very intuitive and user friendly, says the senior

analyst. I actually gave them my manual reports

and I told them, I want thisbut prettier and

nicer, more intuitive and available every day.

Her chosen priority makes sense. The challenge

for any SPM system is to produce reports with

numbers that pop out at you, as the senior ana-

lyst puts it, making them easy to read. By making

the report readily accessible and understood, it

should motivate salespeoples performance in the

field. Your average salespeople are highly driven

Type A personalities, and they want to know how

they are doing every day, says the senior analyst.

Its like playing a sport or a video game; if you

cant see the score, its not very motivating, is

it? By knowing how they are doing that day, and

being able to see how their pay would change if

they altered their performance in some way, sales-people can adjust their behavior accordingly. The

information is there so that they can see how

their incentive pay would change if they spent

the quarter selling more of product A and less

of product B, says Mr. Dicks, of Deloitte. The

target can stay the same, but they might choose to

hit it differently. The presentation of the informa-

tion, in addition to which data appears, may vary

according to which level of the corporate hierar-

chy is accessing it. The dashboard one compensa-

tion manager at a health insurance provider sees

is useful, he says, but not necessarily a reportthat I want to pass upstairs.

The information contained in the report differs

according to which level of management is access-

ing it. A sales rep will see her own results, while a

regional manager needs to see all of his territories

a divisional VP wants to view all the regions, while

the executive VP of sales will see everything.

The semiconductor makers first reports were aimed

at regional directors, who need the most data. After13

Using the Reporting Functionto Affect Performance

Your averagesalespeopleare highly

driven TYPE Apersonalities,and they wantto know howthey aredoing everyday. Its like

playing asport or avideo game; if

you cant seethe score, itsnot very moti-vating, is it?

SENIORANALYSTOFSALESCOMPENSATION,

SEMICONDUCTORMANUFACTURER


16/19


logging on, they see eight different charts on the

screen, including a metered gauge that shows how

the company is performing, a two-color bar chart

that displays how their direct reports are performing

in relation to their goals, and a pie chart that slices

the regions revenues into product wedges. There

are also small tables showing their top 10 customers,

top 10 sales performers, and bottom 10 performers. I

had not thought about showing the bottom 10 until

the vendor suggested it, says one senior compensa-

tion analyst at the company. But I think it totally

makes sense. If youre a regional director you want

to know that information so you can follow up on it.

You want to find out why the plan isnt working.

By contrast, sales managers reports open with

what the senior analyst calls the money chart.

The report shows the number that will be on their

next paycheck, as well as the percentage of the

annual incentive theyve earned to date. You could

just throw everything on there because you have

the data, she says. The way I like it, you have your

main piece of information on the landing page,

and then you can drill down into whatever levelof minutiae or granularity you want. Click on the

commission percentage, for instance, and youll get

a summary breaking it down into each component,

which might include an individual incentive, a team

quota, and a key strategic objective (such as sell-

ing four new customer trials during the quarter).

You just log on, and it makes sense to you, says

the senior analyst. Sometimes those of us who are

behind the scenes get a little carried away with all

of the cool things it can do, and we make it a bit too

fancy. Thats what I was trying not to go with.

The information also influences managements

actions. At Casual Male, store managers can view

a summary report that rolls up the units results,

ranking associates according to, for example,

sales per hour. The managers can also analyze the

performance of individual associates. They can

understand, at a glance, the productivity of all of

their associates, says Mr. Sprague. Management

uses the information about store productivity

how many units the store sells every hour, and how

many dollars each of those transactions is worth

to help drive training programs. We want them to

be aware of their personal productivity, says Mr.

Sprague. We have the ability to show them what itwill mean in terms of their income if they raise the

size of every transaction. Its all very compelling.

14

We want[reps] to beaware of theirPERSONAL

PRODUCTIVITY.

We have theability to showthem what itwill mean in

terms of theirincome if theyraise the sizeof everytransaction.Its all verycompelling.

SVP OFHUMANRESOURCES, RETAIL

COMPANY

OSecrets of SPM Success1 OF 3

Here are the most important lessons that executiveswe interviewed learned while choosing andimplementing SPM systems:

Confirm that the vendor you select is anexpertandfocused in the SPM area.

A successfully implemented SPM system becomespart of your planning, reporting, and forecastinginfrastructure.


17/19


when one assistant vp of sales operations at

a media company reviews the benefits the com-

pany has secured from adopting an SPM system,

he quickly arrives at a number: $500,000. Thats

how much the company has saved in staffing the

unit that handles sale-compensation support. You

had this big staff sitting in the background, answer-

ing questions to justify the payments or fixing

payments that werent right, he explains. At the

media firm, he says, the arrival of SPM software

led to the departure of 50% of those employees.

Savings of that magnitude are certainly going to

make SPM appealing to CFOs. But whats espe-

cially compelling to finance executiveswho often

revel in digging through data, no matter how it

is presentedabout SPM is more than just theadministrative efficiencies that can be won. There

is an additional, less-visible benefit of SPM that

may be most appreciated by finance executives,

who are under pressure to improve governance

within their sales-incentive processes: To comply

with government regulations, companies must

supply evidence that the financial applications

and supporting systems provide the controls and

audit trails to make certain that financial reports

are trustworthy. Without the appropriate financial

controls, companies are exposed to risks associ-

ated with inaccurate financial reporting. Manual

compensation-management systems arent likely

to leave behind such a clear and traceable path. If

youre sending spreadsheets from person to person

for approval, theres no clear way to show who

changed what and when, says Ms. Clark, of Shaw

Industries. From an internal-audit standpoint,

there were just too many hands touching things.

As far as CFOs are concerned, there can never be

too many employees involved in driving profits.We want as many eyes focused on the gross

profit line as possible, says Mr. Love, of mBlox.

With SPM generating detailed reports, executives

and managers can see whether their commission

structure is motivating salespeople to sell the

15

The Payoff:A Company of CFOs

We want asmany eyesfocused on

the GROSSPROFIT LINEas

possible.CFO, PROVIDEROFMOBILEMESSAGING

SERVICES

OSecrets of SPM Success

2 OF 3Verifythat the system can be easily integrated withyour companys other systems.

An SPM system will need to interface with yoursystems for HR administration, CRM, payroll, expense

forecasting, and others.


18/19


most profitable product mix. If they arent doing

so, a sales executive may want to initiate a quick

contest, pay out on margin rather than revenue,

or reorganize sales territories to maximize, say,

the fact that one rep is especially successful

at selling into a specific industry, or another is

skilled at selling certain products. Having gained

the ability to analyze his teams sales by quota,

product, or region, a sales executive can plainly

see where to concentrate his resources to achieve

the greatest growth. With the information avail-

able on a timely basis, salespeople can have it in

the back of their minds, influencing the deal even

as they are making it . With any incentive compen-

sation plan, the challenge is about embedding the

thought processes in each of the employees, and

getting them to really think in a different way and

think much more about the profit than just about

sales, says Andrew Humphreys, CFO of Direct

Wines, a direct marketer based in the UK.

But that mind-set shift doesnt happen fast, warns

Ms. Clark. Shaw Industriess redrawn incentive

plan is designed to reward salespeople for pre-

serving profits. During the first six months, we

didnt see huge shifts, says Ms. Clark. But we did

see small shifts in pricing. We felt like we were

gaining benefits from the whole plan and all of the

transparency, but it was a slower-moving change

when it came to the ability to make better busi-

ness decisions. And its not as if the newfound

knowledge transforms a bottom-dweller into a star

producer. The go-getters are still going to be the

go-getters, says Sevi Howeth, commission analyst

at Harmonic, a video-delivery company based

in San Jose, California. I dont think its neces-

sarily changing their behavior in that sense. Its

just a great package to monitor their sales perfor-

manceanytime, anywhere.

Certainly, well-managed incentive compensation

can discourageunwanted behavior. One health

insurance providers incentive pay plan offered

a higher bonus for bringing in new health-plan

members than for maintaining existing accounts.Management, says a compensation manager at

the company, became concerned that some of its

new account reps were reselling recently expired

accounts and claiming them as new. When times

get tough, some people are willing to do things a

little differently to tip their number, says the com-

pensation manager, who notes that the company

has since redesigned its plan.

And, as the compensation manager proudly

points out, theres no question that hisbehavior

has changed since the companys adoption ofSPM. While he used to spend three out of every

four weeks processing incentive compensation,

he now can get it off his desk in less than a week.

Hows he spending the rest of his time? This has

given me the opportunity to do everything else I

should have been doing on the general compen-

sation side, he says, adding that he is now focus-

ing on areas such as performance reviews and

hiring. Its more rewarding for meand for the

company. By tying those two aims together, hes

demonstrating the power of SPM software.16

The challengeis to getemployees toreally THINK IN

A DIFFERENT

WAYand thinkmuch moreabout the

profit than

just aboutsales.

CFO, DIRECTMARKETER

OSecrets of SPM Success3 OF 3

Ensure that theres agreementamong internalstakeholders as to what needs to be improved and

whose responsibility it is to oversee a successful

implementation.

SPM selection and implemen-tation can be a long process,with many players and func-tions involved. It can lose itsway if other company events(a merger, say, or a change inleadership) interfere.


19/19


grow revenues and control costs. critical

priorities for the office of the CFO in both good

times and troubled markets. Their importance

drives an ongoing search for new areas of effi-

ciency and effectiveness for the organization. By

seeking and realizing incremental improvements

throughout the enterprise, companies tend to

discover a lifting effect of streamlined systems,

increased speed to market, confidence in numbers,

and improved alignment.

Many companies have already achieved these

improvements and others through the use of

technology in the finance organization: A short-

ened budgeting cycle via web-based portals.

Improved accuracy and accelerated forecasting

through the integration of systems. A faster andsimpler payroll process under new, tech-enabled

approval structures. But amid all of the strides

forward in finance technology, too often an

overlooked area is the management of variable

compensation and commissions.

Varicent, an IBM Company, provides solutions to

help companies fill this gap and improve com-

mission accounting, deploy new compensation

structures, support the management of complex

territories, set more-accurate quotas, and better

align sales priorities. This area of technology isknown as sales performance management (SPM).

In 2012, we observe many companies that should

be too big and complex to use spreadsheets to

manage compensation, territories, and quotas

but still muddle through. Other companies have

worked with internal IT departments to build

systems that fit their point-in-time needs. These

systems are often behind the curve of todays

business practices, are slow to respond to changes

in plans, and are mastered only by a select group

of individuals. And while spreadsheet and home-

grown options might work for some, readers of

this report will find companies that have invested

in a dedicated SPM solution and realized benefits

that exceed their initial expectations.

After years of collaborating with CFO Research

to track the pulse of finance leaders, we recently

approached them to conduct a different kind of

study. This year we wanted to answer three key

questions:

nHow are companies planning to improve their

ability to manage sales incentive compensation?

n

When companies have sought to improve theirmanagement of sales incentive compensation in

recent years, how successful were their efforts?

nWhat role has technology played in their

efforts to improve and manage sales incentive

compensation?

And rather than conduct a broad, data-based

study, we asked CFO Research to facilitate a series

of conversations with executives who have first-

hand experience with the power of SPM.

The research helped us better understand what

the practitioners of incentive compensation man-

agement experience as they identify challenges

and work through a process of partner evaluation

and resolution. We found it revealing to hear what

they thought of the vendors involved and why

they made certain decisions. We are pleased to

facilitate this research, which uncovers lessons

learned by SPM adopters and provides additional

insight on the subject of SPM.

SponsorsPerspective

Documents

CFO Research: Conversations on Sales Performance Management