Are You Getting the Most Out of Your Global Sales Compensation Investments?

As companies continue to focus on profitable growth, they need to evaluate if they are correctly paying their global sales teams for the right type of behaviors. On average, companies in the industrial manufacturing sector incur:

64% of total sales expense from sales compensation

That equates to an average of 3.2% of sales compensation cost of sales.

Two key issues typically emerge for industrial leaders, especially in multi-BU, international organizations:

1. Inconsistent global governance, fueled by varied BU and regional approaches that increase administrative complexity.
2. Ineffective commission rate mechanics, often the result of legacy plan designs and leadership timidness to change top performer payouts with large territories.

Global industrial firms are increasingly looking to correct these issues by optimizing sales comp allocation and supporting enterprise value creation. They are moving towards a more consistent global sales comp governance program that optimizes sales compensation allocation and includes bonus formula-based mechanics focusing on growth expectations.

Understanding these drivers and how they relate to their global go-to-market (GTM) model will enhance an industrial organization’s sales comp investments.

Plan Designs Must Support Global GTM Models

Companies are developing more globally consistent programs for five key reasons:

1. Global commercial strategy alignment: allowing for reinforcement of a consistent, global commercial strategy.
2. Global role clarity: using the “platform jobs” approach that provides role clarity and consistency for leaders and individuals across regions and lines of business.
3. Improved plan effectiveness: assessing current state plan designs against industry benchmarks and best practices, aligning future changes to a consistent plan design.
4. Reduced administrative burden: reducing plan variations, centralizing administration and reducing cost and complexity.
5. Greater flexibility: establishing a consistent, effective plan approach that adjusts to changing business conditions and new objectives.

Companies must ensure that their global compensation plan designs align with GTM strategies for each business unit and regional role execution, maximizing sales compensation investments.

GTM strategies usually vary by business unit with additional variation by regional role execution. While one region may focus more on channel partners and sell the entire company portfolio, another region may focus on direct sales and only sell a portion of the portfolio.

Sales compensation plans should include a globally consistent approach that can support the variety of required GTM models. Appropriate plan governance and pay structures are two primary components of a successful, global GTM model.

Streamlining Global Governance

Inconsistent global governance programs frequently impact industrial organizations. Program disparity does not happen overnight but is usually the result of organizational growth, M&A activity and regional preferences. Streamlining global governance requires addressing outdated processes and practices by identifying critical components and the correct approach to rectify issues, which include:

1. Plan proliferation. The number of plans in global organizations can be unwieldy and include conflicting approaches.

• • Recommendation: Rationalize global/business sales titles into standard “platform jobs” for sales compensation plan purposes and develop a global design framework complemented by in-region, role-specific plan designs.

2. Inconsistent plan measures and component design. Compensation plans can conflict with evolving business strategies, fail to drive desired behaviors to maximize growth and become inconsistent within and across BUs.

• • Recommendation: Develop globally consistent component guidelines with regional flexibility while driving to align pay and performance.

3. Plan administration and governance challenges. Processes, systems and tools (often manual) are not transparent, cost-effective or timely, resulting in reduced ROI and poor employee experience.

• • Recommendation: Develop a governance process that drives consistency through timelines, stakeholders and RACI with appropriate tools for efficient administration.

4. Outdated sales job archetypes. Frequently, current programs do not include emerging digital solutions, revenue models (recurring contracts) or team coverage models.

• • Recommendation: Use best-in-class principles from parallel industries to develop plan designs based on each unique role’s responsibilities.

5. Inconsistent pay levels and earnings potential. A wide variance in pay levels within a similar role may have propagated over time due to a mash-up of acquisitions, one-offs to retain talent and tenure impact.

• • Recommendation: Determine the company’s pay philosophy. Determine market pay levels from incumbent-level databases. Define the minimum and maximum pay levels for each platform job. Determine grading and career pathing to augment earnings potential with career potential.

Effective global governance aligns plan design components to the GTM model and business objectives, providing consistency while optimizing sales investments.

Transitioning from Commission-Based to Bonus Formula-Based Compensation

It is common for legacy plan designs to drive behaviors that support individual sellers rather than global growth goals. Companies must evaluate their current compensation design to ensure it aligns with their GTM models and business objectives while appropriately incentivizing sellers.

Commission rate structured plans typically benefit highly tenured sellers with larger territories or significant books of business. Many industrial companies are looking to change these structures as they are not cost-effective, do not drive the volume growth goals and become roadblocks to adjusting account assignments and territories.

Moving to a bonus formula approach can effectively support growth objectives while being cost-effective. A bonus formula utilizes a pay curve such that a salesperson will earn a percentage of their target incentive for a percentage of quota attainment. The benefits of bonus formula mechanics include:

1. Improved retention of high-performing new hires by aligning to market competitive pay levels and incenting for performance against the actual opportunity given to a rep, not just volume.
2. Improved pay and performance correlation by redistributing earnings to reps who grow YoY from reps who are not meeting growth expectations.
3. Accelerated growth by driving accountability and correlating earnings to growth and paying less for steady state account retention and maintenance.
4. Improved linkage to financial goals by connecting incentive dollars to quotas.
5. Improved teamwork across roles and teams by allowing for a “double credit/double quota” approach where teamwork is required. In contrast, commission structures typically require split crediting to avoid cost overruns.
6. Greater GTM deployment flexibility by enabling leaders to adjust coverage and customer segmentation and transition accounts without it being a “takeaway” for reps.

When transitioning from commission to bonus formula-based plans there are many considerations to ensure a successful change:

• Bonus formula plans require accurate quota-setting.
• Change in moving from commission to bonus formula structure can be significant and can cause temporarily elevated turnover if not properly managed.
• It will require formalization and communication of established “target pay levels” and “target incentives” for all individuals.
• It may require pay-mix adjustments (e.g., increase in % base salary) that could lead to increased fixed costs.

Transitioning from a commission-based to a bonus formula-based approach can be complex, especially when deployed globally. However, organizations that do will benefit from improved plan consistency, streamlined administration, refined seller expectations and optimized sales compensation ROI.

Quota mechanics support a broader global governance program that supports the organization’s GTM strategy. While these changes can be initially complex, industrial companies are increasingly focused on ensuring their sales compensation investments support sustainable and profitable growth objectives. Leaders who employ these approaches will ensure they are best equipped for ongoing changes in a dynamic business environment.