2 | 2014
The Magazine of WorldatWork©
The Great Balancing
Act of Sales and
Human Resources
By Garrett Sheridan and
Donncha Carroll, Axiom
Consulting Partners
Communication
between sales and
human resources
can lead to a
successful sales
compensation plan.
L
ike acrobats in a high-wire act,
human resources and sales walk
a fine line in creating sales
compensation plans that promote
the appropriate behavior and lead
to sales growth.
Sales compensation plans fall
into two basic categories: commission (paid as a percentage of every
dollar sold) or bonus (paid based on
percentage achievement of a sales
goal). That seems straightforward,
but a host of complex factors must
be considered in creating a sales
compensation plan that drives the
right behaviors and results.
Human resources and sales must
work closely to address plan design
issues, including:
❙❙ Roles: How will we reward all the
various roles that contribute to
closing a deal (e.g., global account
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While there was some variance in compensation
at the individual level, it was not effectively or
consistently differentiated based on
performance.
Commission or Bonus?
Choosing between commission or bonus-based plans should not be a “one and
done” exercise. Commission-driven plans tend to be more straightforward. It’s
very simple to calculate payouts for different sales because all you typically have
to do is multiply a commission rate times the value of a deal. However, these
plans are generally more appropriate for roles that are focused on new business
generation (vs. resources that renew or up-sell business). Because almost all
revenue is typically generated from new sales efforts, it can be an attractive
proposition when the HR department is tasked with recruiting salespeople in
“hunter” roles. However, because the hunter resource is not assigned a book of
business, they have to hustle to win business. It requires a specific type of talent
to be successful in that role.
There are, of course, some disadvantages to consider with a commission-based
plan. To achieve similar levels of compensation for markets with different levels of
opportunity, plan designers must calculate and administer different commission
rates. That can be challenging to communicate and manage. Additionally,
increasing sales goals year over year requires rates to come down to deliver the
same incentive amount.
Bonus-based plans are typically more complex. The mechanics of the plan often
include more performance measures and require greater rigor in setting goals,
performance thresholds, accelerators and in measuring performance. But they
make sense when territories or accounts are unbalanced across the sales team
and the company wants to provide the same incentive opportunities for different
situations (such as penetrating a new market). A key advantage to a bonus plan is
the ability to move accounts between salespeople (from “hunters” to “farmers”)
without requiring plan design changes; you simply adjust the goal based on the
amount of business that’s moving.
In addition, they can provide the same incentive opportunity for different goals
where a similar level of effort is required. On the down side, set sales goals too
low and bonus payouts can be excessive because it’s much easier to overachieve
on a small denominator. Furthermore, payout calculations can get overly complex
as the company tries to translate goal achievement into a payout percentage. Too
many goals, not enough clarity around metrics and payout calculations can get
messy in a hurry.
44 | workspan february 2014
managers, sales engineers, inside
sales people product specialists)?
❙❙ Deployment productivity: How
can the compensation plan be used
to ensure that the right people are
motivated to get involved at the
right stages in the sales process?
❙❙ Sales cycle times: How can
the sales plan be modified to
account for often vastly different
sales cycle times due to product
complexity, deal size or the
number of customer stakeholders
involved in buying decisions?
Human resources and sales also
need to determine the incentive
plan details that will achieve the
desired outcomes. Those details
typically include:
❙❙ Goals: Does the plan balance shortterm sales goals with the long-term
value of customer relationships?
Does the plan support the overall
financial interests of the business and
provide competitive compensation?
❙❙ Credit: Who gets rewarded for what
kinds of effort? Do payouts get
distributed on the basis of individual
performance or that of a team?
❙❙ Weights and measures: Are
measures linked to results or effort?
Does the plan payout curve appropriately reward exceeding goals?
Because of that complexity, human
resources (including compensation
leaders) and sales (including sales
operations) must work hand-in-glove.
The collaborative approach several
companies take is instructive
for any company revisiting its
sales compensation practices.
Moulding & Millwork (M&M) is a
leading North American manufacturer and distributor of architectural
moulding and doors. The company’s
products are featured at landmarks
like Caesar’s Palace in Las Vegas
and the Trump International
Hotel in Chicago.
Kent Bowie, M&M’s executive vice
president, explained that as its business
becomes more complex, its compensation plan has evolved. Traditionally,
everyone was eligible to earn a bonus
based on companywide performance.
While there was some variance in
compensation at the individual level,
it was not effectively or consistently
differentiated based on performance.
“We’re now developing sales
compensation plans that focus more
specifically on the performance of
each individual against their respective
performance goals combined with the
success of their business unit. The variable component of the plan is based
on how the overall regional or market
segment sales are doing.” Bowie said.
“However, compensation for salespeople
devoted to penetrating the hospitality
market, where sales cycles of four
years are not uncommon, has to be
addressed a little differently.”
Human resources also has to be
nimble enough to adjust plans when
the organization faces significant and
sudden changes. For example, when
M&M decides to make an acquisition
of a company with a different sales
plan, it works to align the plans to
ensure total investment in compensation as a percentage of sales does not
go up significantly. To do this “HR
carefully crafts a transition plan that
protects the economics of the deal but
also stays true to our compensation
philosophy,” Bowie said.
comScore Inc. is a global leader in
digital measurement and analytics,
delivering insights on web, mobile
and TV consumer behavior. With
more than 150 salespeople, a
portfolio of complex products and a
variety of customers, keeping sales
compensation focused on driving
the right behavior is essential.
Robb Harrington, vice president of
sales operations at comScore, points
to two key factors in simplifying the
sales compensation balancing act.
The first factor is governance.
Companies need to clearly define and
communicate performance measures
and plan design elements — and then
stick to them.
“We’ve made it much more difficult
to change quotas during the year,”
Harrington said. “A senior vice
president of sales, for example, can no
longer unilaterally change sales reps’
goals 10 months into the year, but must
have the president of sales’ approval
to make that change. It’s important
to keep the salesforce clear on what’s
expected, and discourage changes to
the plan that can create misunderstandings and needless complexity.
The second factor is focus. The
measures and weighting used in a
sales compensation plan must be
clearly defined and commonly understood. Measures must be linked to
results, not just effort. And in most
cases, the number of performance
measures should be limited. The
often-cited “back of the napkin” test
applies. If a recruiter can’t rattle off
the performance measures and the
mechanics of the plan to a candidate,
chances are good that the compensation plan suffers from too many
components and too much complexity.
comScore has eliminated less
tangible performance measures that
can quickly become a layup, such
as contribution to strategic objectives, from their sales compensation
planning. Over the past 18 months,
the emphasis has shifted toward individual performance and accountability.
Adding to complexity at some
companies is the fact that resources
in service roles that may have
indirectly contributed to solution
delivery received compensation
for sales performance even though
their level of influence was limited.
comScore is diligent about making
sure people get paid only for
performance outcomes that they
directly influence. By establishing a
high-profile “comScore President’s
Club” that recognizes individual
performance, the value of team performance, except in rare cases, has been
de-emphasized. The key is to use the
right combination of tools (i.e., sales
compensation, recognition programs,
President Club-type rewards).
“Clarifying the various roles in the
sales process makes it much easier to
identify who is influential in closing
sales,” Harrington said. “Rewarding
people who ride on the coattails of
a team’s performance carries a lot of
risk. By focusing on individual performance, we’re reducing the risk of
attrition among truly high-performing
salespeople because they’re rewarded
better for exceptional performance.”
An unintended consequence of
team rewards is that they can actually reduce the penalty for poor
individual performance. If your
sales compensation plan has a team
component, it should also provide
a means to differentiate and reward
best-in-class performers from their
peers. Plans perceived as inequitable
to high performers, who carry others
on their backs, can cause the people
a company most wants to retain
to look elsewhere.
The Role of Human Resources
According to M&M’s Bowie, the HR
department “is a key collaborator.”
Human resources essentially drives
the process — from collaborating
with others to designing the various
plans to setting incentive targets
and managing plan administration.
“The HR department brings forward
the ideas and options that we evaluate against our strategic plan,” Bowie
said. “They do the market research to
ensure our compensation is competitive. They calculate different formulas
of base, bonus and total rewards so
we can determine the best way of
rewarding the behavior we need to
execute the strategy.
february 2014 workspan | 45
“The HR department brings forward the
ideas and options
that we evaluate against our strategic plan.”
—Kent Bowie, Moulding & Millwork
“HR also helps communicate
changes to the plan,” Bowie added.
“Changes in compensation plans can
cause some anxiety, but by ensuring
transparency with plan participants
throughout the process, we build trust
and help our people appreciate what
we are trying accomplish. We help
them make the connection between
their efforts, the results delivered
and their pay.”
At comScore, sales operations
focuses on goal setting and administration of the plan, leaving Michael
Meehan, director of compensation
and HRIS, to address compensation
philosophy, plan design and overall
pay competitiveness. Sales operations
has the information and the ability
to set quotas, while human resources
supports the processes used to
manage talent to ensure the company
has the right sales resources to
achieve strategic, revenue and profit
goals. Human resources also ensures
compensation plans are competitive
with the market and structured to
promote the desired behaviors that
are required to meet company goals.
Harrington and his comScore
colleague Meehan are joined at
the hip, even though they sit a floor
apart at the company’s headquarters
in Reston, Va.
“Sales operations leaders should be
best friends with their HR counterparts,” Harrington said. “Mike and
I speak several times a day. We are
always comparing notes about what
46 | workspan february 2014
we hear from the field, what issues
about quotas and compensation are
surfacing, and how to address them.”
Meehan added: “Sales compensation
isn’t a ‘one and done’ exercise. Once
the plans are set, there is a constant
need to communicate with the
salesforce to build — and maintain —
their buy-in. We don’t rely on some
grand event. We make a real effort to
stay connected and consistent in our
communications.”
Constantly educating sales leadership
about the importance of keeping the
sales plan on course is a best practice
at other companies, too. Salespeople
can lose sight of the larger consequences of changing the plan measures,
revising goals or ignoring other team
members who can contribute to sales
productivity. The task of education
should be a responsibility of human
resources and sales leadership.
Forging a Relationship
The best sales compensation
plans — the ones that are easily
understood, promote the right
behavior and enable the company
to meet its revenue and profitability
goals — are a joint effort between
human resources and sales. Together
they set the right measures of sales
performance and ensure the right
balance of base salary and incentives. They maintain the governance
necessary to keep the plan on course
or change it when it’s necessary to
adapt to changing market conditions.
And human resources and sales speak
with a common voice so the sales
team stays focused on what is really
important.
Garrett Sheridan is president of Axiom
Consulting Partners in Chicago. He can be
reached at gsheridan@axiomcp.com.
Donncha Carroll is a principal at Axiom
Consulting Partners in Chicago. He can be
reached at dcarroll@axiomcp.com.
resources plus
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❙❙ Sales compensation
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❙❙ Sales compensation plans.