How to incentivize established account managers with large revenue modules to produce more and stay motivated?
Given the amount of experience I have working with a complicated and diverse sales organization, I wanted to share some lessons that might be of use to other Sales Strategy Planners. Recently, I have been designing the compensation strategy and getting leadership buy in around migrating to a revenue based compensation from a pure widgets based model. One of the key things that came with it is how to reward people that already have established revenue bases. In the widgets model, the quota attainment was simple - there was a target for the widgets established and if you brought in a certain quantity above it, you earned more and if you got below it, you got dinged. There are accelerators and decelerators designed to achieve further reward goals but the math is basic. There are no caps to attainment in this model. An account manager that brings in widgets purely on the basis of numbers without regards to whether the widgets are value accretive to the company comes out on top.
Such mis-aligned goals prompts us to switch to a value based model such as Module Revenue based compensation. However, the challenge is a model such as this vastly decreases the attainment potential for account managers that have already built up a large revenue module as the incremental revenue growth would be timid, and therefore setting a large desired revenue base as the target (since the rep already has a large base to begin with) would lead to a very narrow range of attainments.
This is where the role of accelerators have to be thought about more carefully. I found that it is important to divvy up module revenues into clusters and then design specific accelerators for each cluster. For instance, let's assume 3 account managers with varying revenue module sizes. Rep A is a new entrant and has $10K for her module, Rep B is a relatively seasoned employee that has grown his module over some years and now has $100K, and Rep C is a seasoned veteran that has grown her module to lofty heights and now has $500K in her modules.
Assume that Rep A , a newbie is expected to bring in 100 widgets, Rep B 250 Widgets and Rep C 500 widgets in their current sales period at let's say $50 a pop as all reps are perceived to have the same productivity potential. Then Rep A brings in $5K on a base of $10K and therefore her attainment is $15K over $10K or 150%. Rep B brings in the $12.5K but over a base of $100K and therefore his attainment is $112.5K over $100K or 113%. Rep C brings in a much higher $25K but over a very large base of $500K and therefore her attainment is $525K over $500K, or 105%. Summarizing, Rep A brought in $5K of revenues and got paid out at 150% of her at-risk pay; Rep B brought in $12.5K worth of revenues but got paid out only at 113%; Rep C brought the largest revenues at $25K but got paid only a lowly 105% of her at-risk pay. Since the difference between at-risk pays of newbies and seasoned account managers generally tend to be small, we can readily see that as the module revenues under management increase, seasoned reps may not attain as much as new reps, and therefore take home proportionately a much less pay. It is important to understand this attainment distribution and its effects on a rep's take home pay, motivation levels, hunting versus farming choices, risk versus reward profiles, and the ability to service current large size customers.
A potential solution is to cluster the account managers into groups of attainments and then apply a common accelerator to each cluster. For example, Rep C could be in a $500K-$1000K module cluster and have an accelerator of 2X. In effect, the accelerator would convert the 105% quota attainment to 210% payout attainment as a reward for the rep's consistent performance and the value accreted to the company. Another solution is to have a much larger at-risk pay for seasoned reps but this may not sit right with your HR team. Yet another solution could be to reward under indexed performers with bonus SPIFFs but this could become a routine affair every sales period and may not be the best way to compensate. Each such solution has its own financial and motivational challenges and a Sales Strategy Planner has to carefully weigh all pros and cons before going down this tricky road. Good luck to all Sales Strategists out there!
Such mis-aligned goals prompts us to switch to a value based model such as Module Revenue based compensation. However, the challenge is a model such as this vastly decreases the attainment potential for account managers that have already built up a large revenue module as the incremental revenue growth would be timid, and therefore setting a large desired revenue base as the target (since the rep already has a large base to begin with) would lead to a very narrow range of attainments.
This is where the role of accelerators have to be thought about more carefully. I found that it is important to divvy up module revenues into clusters and then design specific accelerators for each cluster. For instance, let's assume 3 account managers with varying revenue module sizes. Rep A is a new entrant and has $10K for her module, Rep B is a relatively seasoned employee that has grown his module over some years and now has $100K, and Rep C is a seasoned veteran that has grown her module to lofty heights and now has $500K in her modules.
Assume that Rep A , a newbie is expected to bring in 100 widgets, Rep B 250 Widgets and Rep C 500 widgets in their current sales period at let's say $50 a pop as all reps are perceived to have the same productivity potential. Then Rep A brings in $5K on a base of $10K and therefore her attainment is $15K over $10K or 150%. Rep B brings in the $12.5K but over a base of $100K and therefore his attainment is $112.5K over $100K or 113%. Rep C brings in a much higher $25K but over a very large base of $500K and therefore her attainment is $525K over $500K, or 105%. Summarizing, Rep A brought in $5K of revenues and got paid out at 150% of her at-risk pay; Rep B brought in $12.5K worth of revenues but got paid out only at 113%; Rep C brought the largest revenues at $25K but got paid only a lowly 105% of her at-risk pay. Since the difference between at-risk pays of newbies and seasoned account managers generally tend to be small, we can readily see that as the module revenues under management increase, seasoned reps may not attain as much as new reps, and therefore take home proportionately a much less pay. It is important to understand this attainment distribution and its effects on a rep's take home pay, motivation levels, hunting versus farming choices, risk versus reward profiles, and the ability to service current large size customers.
A potential solution is to cluster the account managers into groups of attainments and then apply a common accelerator to each cluster. For example, Rep C could be in a $500K-$1000K module cluster and have an accelerator of 2X. In effect, the accelerator would convert the 105% quota attainment to 210% payout attainment as a reward for the rep's consistent performance and the value accreted to the company. Another solution is to have a much larger at-risk pay for seasoned reps but this may not sit right with your HR team. Yet another solution could be to reward under indexed performers with bonus SPIFFs but this could become a routine affair every sales period and may not be the best way to compensate. Each such solution has its own financial and motivational challenges and a Sales Strategy Planner has to carefully weigh all pros and cons before going down this tricky road. Good luck to all Sales Strategists out there!
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