Archive for the ‘Compensation Plans’ Category

Makana Motivator for Free!

July 29, 2008

I talked about Makana Solutions’ product – Motivator – before. Makana offers a solution to build really good compensation plans and help you out in the process every step of the way.

The usual cost for Makana Motivator is $49 per month for up to 20 participants, $69 for 21 to 100 participants, and $149 for more than 100 participants. A yearly subscription will even cut that cost by 2 months.

Game Plan
Makana just launched a new program called “Game Plan”. Game Plan is a free program to help out with your 2009 Sales Compensation planning. It offers a free year’s subscription to Makana Motivator and strategic advice with sales compensation experts.

The catch? You have to take a training in July or August to receive your free one year subscription. That probably doesn’t sound too bad, so there is no reason why you shouldn’t check it out.

Note: Makana didn’t ask me to promote this “deal”. I don’t usually promote any Sales Performance solution, but… it’s free!

For Love or Money: Social vs Monetary Reward

May 26, 2008

Social Status and cash activate the same reward centre in the brain. That’s what two papers in the latest Neuron journal (Volume 58, Issue 2) are saying. I’m always very interested by cognitive research attempting to explain how certain activities can affect human behavior.

The article “Know Your Place: Neural Processing of Social Hierarchy in Humans” by Dr. Caroline Zink and colleagues explains how information about social status activated the same brain regions.

The second article “Processing of Social and Monetary Rewards in the Human Striatum” by Dr. Norihiro Sadato supports how reputation affects people in the same way as money does.

A subscription is required to read those articles, but they were summarized in ABC Science article “Praise or Cash? Your brain doesn’t care“.

Personal Story:

These studies support my own view on the topic. Last month I discussed the impact of the size of a money bonus on performance. It would be very interesting to see a similar experiment where some a group receive a lot of encouragement and the other group receives no praise at all, to compare their performance.

One of my previous employers, as many employers do, offered an annual performance bonus. This bonus was a percentage of the annual salary, but every employee received a very similar bonus. Employees developed a sense of entitlement to this bonus, and always thought they had met all their performance objectives and deserved the full amount. I’m just giving this context to illustrate how the cash incentive most likely did not have a positive impact on performance.

The employer, aware of this problem, introduced a “praise” program, consisting of recognizing employees who had made a significant contribution. Managers were encouraged to simply give a “Thank You” card to exceptional employees. I have no idea how this program affected performance… But it’s impact on motivation was priceless.

Employees receiving these “praises” would shine for weeks. Common sense tells me that motivation can easily be correlated to performance. I can safely say that the thank you notes I received from colleagues I had helped during evenings and weekends really motivated me to keep working hard – there is nothing like feeling appreciated!

Another Story on Social Status

A few weeks ago I read an article about how job titles could be used to motivate employees, even if no pay increase is associated with the new title. I have a friend who had his job title changed from “Business Dev Manager” to “Manager, Entrepreneurship and Innovation Development”. He’s been jumping up and down since he got this “promotion”. His reasons for being so happy: the title is unique, distinguishes him from his peers, and sounds better from his perspective.

Common Pitfalls in Sales Compensation Design

May 13, 2008

Today I attended the “Common Pitfalls in Sales Compensation Design” webinar, hosted by Makana Solutions, featuring guest speaker Donya Rose, Founding Partner of the Cygnal Group, a sales compensation consulting company.

I did not manage to get the audio working (the toll-free number was only for Americans and the International number was out-of-service). However I will quickly recap the major pitfalls identified, based on the presentation deck.

Pitfall 1: Sales Credit Wars
Symptom: Time is spent fighting over who is supposed to get credit
Cause: Lack of documentation, rules not formalized
Cost: Lost sales, management distraction, potentially double crediting, morale issues
Solution: Document the policies and credit-sharing criteria

My comment: Another cost which must be considered is the waste of time for the comp team trying to resolve issues and conflicts. In large organizations this can be a huge time burden. However it is generally fairly easy to minimize this situation by having well established rules.

Pitfall 2: Too many Measures
Symptom: Sales people ignore some of the required results and only focus on what makes them earn the biggest commission
Cause: Too many measures…
Cost: Lack of focus, compensation hard relate to actual results
Solution: Only use a few measures.

My Comment: This is a topic I addressed a few times on this blog. Consultants generally agree that there should be no more than 3 independent measures.
Pitfall 3: Commissions Rates only go up
Symptom: Sales people can earn too much money compared to the value they bring
Cause: Commission rates are related to the level of sales even if those sales are attributable to windfalls.
Cost: Comp cost is not in line with sales contribution
Solution: The commission rate should diminish passed a certain performance level

My Comment: A “regressive” commission can protect against an unexpected windfall, but can also avoid an excessive payout caused by a quota set too low.
I often see different rules, formulas and quotas used for orders exceeding a certain mount to avoid a windfall scenario.
Pitfall 4: Extraordinary Performance is Over-Rewarded
Symptom: Dependence on over-achiever sales people
Cause: Over-performance is too attractive to sales people
Cost: Sales people developed entitlement and demanding attitude, more risks
Solution: Use appropriate deceleration in commission rates

My Comment: Deceleration does not necessarily needs to be applied as soon as the initial target is reached. I have often seen cases where the rate increased once the target was reached, and decelerated after another performance level was attained.
Pitfall 5: Unattainable Goals
Symptom: Sales people give-up because goals are too high
Cause: Goal setting issue
Cost: Lack of motivation and engagement, results below expectations
Solution: Set goals appropriately

My Comment: Goal setting should be based on historical data if possible to be “just right”. Making goals too easy to attain can lead to other problems such as a lack of motivation to exceed goals if rate decreases after, or an excessive commission payout.
Pitfall 6: “Phantom Base”
Symptom: Sales People whose salary largely depends on commissions act like they are salaried and under-achieve.
Cause: Compensation plans that pay too much for prior-year sales
Cost: Sub-optimal level of performance, losing account acquisition and penetration skills
Solution: Pay more for new business and less for prior-year sales
Pitfall 7: First Dollar Commission + Base
Symptom: Sales people are too comfortable with below-target earnings
Cause: Sales people are paid a significant base salary and earn commission on sales from first dollar
Cost: Income+Commission too high for actual productivity
Solution: Only pay commission after a threshold level of sales is achieved

My Comment: Other alternatives are possible to fix this situation. The entire compensation mix could be re-evaluated and the base salary could be lowered. It would also be possible to adjust the commission rate before a threshold to minimize the impact of removing commission completely before a certain threshold.

Towers Perrin Announced the Launch of New Compensation Administration Tool

April 23, 2008

Towers Perrin today announced the launch of an industry-leading, next-generation compensation administration tool with built-in talent management capability, Comp Agility.

Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management.

Web-based Comp Agility is a complete solution and allows for users around the world to utilize and customize the tool’s content and applications to meet their needs. Job descriptions and competency models can be adjusted to address market and internal considerations, and compensation design can easily be analyzed with region specific data.

The Comp Agility Suite consists of two modules:

Market Analyzer: This Web-based compensation analysis module provides a range of solutions and capabilities, including data storage and review, online benchmarking, a survey data browser, a market-pricing function, a survey submission function and a reporting tool.

Role Analyzer: This Web-based module lets you design and manage information about jobs and job evaluation, manage employee competency assessments, manage your organizational and functional competency models, and produce various workforce distribution reports.

I haven’t seen Comp Agility in action nor have I heard feedback from any client yet, but I will provide more information as soon as I do.

Read the full Press Release.

More information about Comp Agility can be found here.

Sales Compensation Planning Made Easy – Interview with Makana Solutions

April 22, 2008

I recently had the opportunity to spend an hour with Liz Cobb, Founder and CEO of Makana Solutions, and with Arthur Gehring, Director of Marketing.

Makana is a relatively new company (founded in 2004) offering a very good on-demand application, called Makana Motivator, which helps build effective and clear compensation plans. Makana Motivator is very easy to use and allows its users to quickly create a plan either based on other sample plans, or from the ground up. It also has the capability to “test” your plan.

As I mentioned several times, one of the biggest challenges faced by sales management or consultants when implementing a sales compensation system is the “complexity” of the compensation plans. Sometimes compensation plans are quickly described in a e-mail or over the phone, or almost handed over written on a napkin. In other scenarios, they are can be well documented but may still lack clarity, key aspects, or examples, or may be lengthy. Finally, even if a compensation plan is well documented, it does not mean that the plan is effective and well aligned with the objectives and budget of the company.

The Makana Motivator application is very intuitive to use. Companies using the application typically receive a 1-hour live tutorial from Makana, after which they are able to model plans on their own. The main components of the application consist of the space in which the plans are built, where the organization is built with assignments and territories (participants can be imported from, a section for cost modeling the plans, and finally, a section that generates a plan and gives the option to save it as a PDF.

In my opinion, one of the most powerful aspects of Makana Motivator is that it allows users to choose templates from a best-practice library and to adapt them to meet individual circumstances. The application then guides the user following a “wizard” step-by-step approach to ensure nothing is overlooked. The application is very interactive; hovering over most of the application components provides additional feedback . “Blue-ribbon advice” offering expert tips and help is also available throughout the process.

Another important feature of this application is the ability to display and compare plans side by side. Such a graphical representation quickly helps identify the major differences between plans.

Plans are not only displayed side-by-side; they can also be designed and modified side-by-side. Plans consist of measures and formulas which can be edited by expanding their respective section.

The cost modeling section can show costs for the entire company or byany sub-set such as product group or geography. Projected attainment can be modified to gain an idea of the impact of those variables on the overall incentive costs. Many sales performance management applications offer modeling and analytics capabilities, but Makana Motivator allows its users to model the plans BEFORE they are implemented rather than after, which can save a lot of time, money and headaches.

Once the plans are fully designed, and since the application is on-demand; they can easily be circulated and feedback can be gathered directly in the application. Upon acceptance of the plans, plan documents can be individualized and generated. The resulting plans are very clear and easy to understand by consultants, comp teams and sales reps alike, and are visually pleasing.

Motivator adds a lot of value over the spreadsheets used for planning today by streamlining the process, providing best practice guidance, easy cost modeling, clear plans and an audit trail. Makana Motivator also provides users Apexchange certified integration.

Read more about what customers have to say about Makana Motivator.

After completing a form on the Makana website, you can access several free webinars and articles about Makana Motivator and compensation plan design best practices.

The Most Important Aspect of a Compensation Plan

February 21, 2008

When I got staffed on my first incentive compensation management system integration project, I knew virtually nothing about that industry. As any good consultant would do, I started to read as much as I could on the topic. One thing I realized is that there are so many books out there talking about how to design plans, formulas, frameworks, etc… But most of these books spend so little time actually discussing how the plan will look like.

That’s probably one of the main reason I come across so many plans that are not completely defined. When I say not “completely define”, I mean that some of its elements are left to interpretation… As a result, the implementers go with that plan, ask countless questions wasting everybody’s time during long meetings, trying to find out who the subject matter expert with a certain piece of knowledge is, only to find out that he or she is on vacation, etc. Alternatively, the consultants could “think” they understand the plan, implement it and later during testing, realize that the results are not those expected by the client… oops! And that often happens around the go-live date and, what-do-you-know, the deadlines are pushed back, the project goes over budget, people are unhappy.

Fortunately, there is one small book called Compensating the Sales Force – A Practical Guide to Designing Winning Sales Compensation Plans by David Cichelli. There is a lot of good info in this book – I will talk about some of it in the future – but in my opinion the best part is only found at the end in Appendix A: Illustrative Sales Compensation Plan. If only all comp plans could look like this!

But that’s not all… The best part of Appendix A is its last few pages; Sales Compensation Plan and Calculation Examples. And THAT’s what I call the most important aspect of a compensation plan (from an implementer’s perspective).

Having a few DETAILED examples in the plan will ensure the implementers knows exactly what the plan does. It will remove any ambiguities, it will save time and be a quick “at a glance” reference. It will also help out in the planning of unit and system tests to cover all scenarios.

A good example will include all the assumptions, sample data/rates/periods/etc and result. If a plan has any exceptions or special calculations, examples for those should be included as well.

That’s it! Please include examples for us 🙂