Sprint …a cautionary tale. Beware the business-critical ramifications of badly managed sales compensation

Anyone happen to see the recent news item highlighting what can happen when companies engage in non-effective sales compensation management in December 2nd’s Information Week?

The article says “Sprint is facing a lawsuit from thousands of its store employees who say the wireless carrier has failed to pay them proper commissions.” It goes on to state that “19,000 former and current employees are potentially affected,” and that it was the integration of Sprint and Nextel’s back-end systems that led “to more than $5 million in lost commissions.” Ouch!

According to the article, court documents say that Sprint knew there was a computer problem, spent $10 million to fix it, and “did not acknowledge employees hadn’t been paid correct commission.” Double ouch.

From my perspective, regardless of whether the commissions were paid correctly or not, the damage is done. And it is considerable.

There’s nothing like having your employees this riled up – not to mention 19,000 of them. Hence the first question facing any company in this unfortunate position is how much trust – and indeed motivation – will their employees have going forward? There’s a lot of damage needing to be repaired – and that’s true whether you have 19,000 reps or 19. Then there’s the enormous financial impact around the settlement to deal with. And all the time and effort that will go into handling the case and its aftermath. And the potential for balance-sheet revisions and corporate financial restatements. And the erosion of shareholder and analyst confidence.

But the clincher is, this is the type of corporate mess that can so easily be avoided. Providing sales reps with real-time, web-based visibility into their commission plans can help nip a problem like this in the bud, long before it snowballs to class-action suit status. This visibility, combined with accurate, rules-based commissions calculation (emphasis on rules-based), is the foundation for effective sales compensation management.

And the bedrock on which this foundation rests is the effective integration of all the data used to determine compensation. Any competent compensation-management solution absolutely has to get this right. And, with the advent of Software-as-a-Service (SaaS) solutions, it doesn’t take a lot of costly on-premise software and expensive consultants to nail this particular kind of data integration either, at least not anymore.

Finally, complete compensation audit trails are mandatory, and entirely possible. The attorney representing Sprint’s store clerks alleged the company made the internal process for appealing shortages in commissions too “time-consuming and burdensome.”

Sprint is a reputable company, and it’s certainly not in its interest to purposefully, as the article has it, “shaft employees.” The company obviously needs to overhaul its current compensation-management process, and fast.

You don’t have to be the size of Sprint to take a lesson here. Sales compensation management is a business-critical function for any organization. It doesn’t pay to confuse, betray and anger the employees that feed you, no matter how inadvertently it may happen. And there’s certainly no excuse for it with state-of-the-art SaaS-based sales compensation management solutions that are available today.

Ride the Economic Wind…Don’t Get Blown Away in ‘09

It’s been a wild economic ride—slide, many would call it—this past year. And the only thing certain about the coming year is that it will be shaped, squeezed and knocked around by continued consumer uncertainty. Because buying cycles promise to be so unpredictable in 2009, companies need to equip their sales organizations to be able to move smoothly and productively with the dynamics of the business and with the gyrations of local and global markets.

This means acting right now to put in place highly adaptable sales compensation plans for 2009 that enable sales and finance to align with corporate objectives, both long and short term, and clear a path for meeting them. Today more than ever, to hesitate is to lose.

Nonetheless, despite the enormous stakes, experience tells us that only half of all 2009 sales plans will be ready for primetime come January. And if that isn’t dismal enough, regardless of whether they’re delivered late or on time, the vast majority of these plans will be dumbed-down or else overly complex and confusing. Either way, they’ll be ineffective at a pivotal time.

But experience also shows us a way out of this dilemma. Here, distilled into seven key practices, is what you need to do in order to arm sales to make the most of the coming uncertain year:

1. Automate. It worked for CRM. Now try it for sales compensation management. Companies still using spreadsheets to manage compensation are pouring scarce administrative dollars down the drain. Worse, they’ll never be able to achieve top sales performance because they lack the requisite visibility, flexibility, scalability and accuracy that come with automation. You should wish this problem on your competition, not yourself.

2. Model. Don’t rush blindly into implementing new plans or plan changes. This is no time to experiment. Model your plans and plan changes up front to gauge their impact. If you’ve automated, modeling shouldn’t be hard to do.

3. Keep it simple and consistent. If you have more than four key performance indicators, or 10 or more conditions to determine credit allocation and payment release, then your plan is too complex and risks confusing your reps. By the same token, as lead-to-sales times invariably lengthen in 2009, try to keep the long-term mainstays of your plan consistent, to keep reps focused on selling, not calculating.

4. Keep it visible. Give the troops in the sales trenches real-time visibility into plans and compensation processes so they can see how they’re doing towards plan, and how much more they stand to make if they do “x,” “y” or “z.” Once you’ve automated, this kind of visibility via the Web becomes easy.

5. Keep it flexible. Plans should ultimately drive long-term behavior, but you want the flexibility to drive short-term activity as well. Make sure you can react to sudden opportunities and challenges through SPIFs and contests without altering the long-term framework of your plan.

6. Analyze. Knowledge is power. Automating compensation provides a bonanza of useful data on who bought what from whom and for what price and conditions. Leverage this data through analytics for insights into selling patterns, commission spend, plan effectiveness and how to further drive sales performance.

7. Measure constantly. In turbulent times, it helps to use all your senses all the time. Don’t wait until the end of 2009 to measure your plan’s effectiveness. There are bound to be numerous bumps and sudden shifts along the way that will impact your business. You need to stay on top of them with mid-year, quarterly and even monthly sales performance reality checks accompanied as necessary by fine-tunings of quotas, commissions, territories, etc.

While 2009 isn’t likely to yield blow-away financial results for all that many companies, there are key steps that can be taken to keep a business from being blown away altogether - and even to help it prosper in a challenging environment. More closely managing sales performance is one of those steps. Late, confusing, hard-to-manage or overly simplistic compensation plans are roadblocks to optimal sales performance, in both good years and bad.
Why wait for a good year to find out how much of a roadblock your plans have been?

Incent Right? Incent Differently

Earlier this week, this article on Yahoo Finance caught my eye. The article is titled, ‘Firms Try to Shore Up Incentive Pay’, and talks about how many companies today are faced with sagging morale among their employees, and as such, are looking for ways to keep their staff whole – especially when things like stock awards, MBOs and other variable compensation targets are not being achieved.

Obviously, this is a topic that much interests me, seeing as how I’m in the business of helping companies to incent their people in the right ways. In the past, I’ve referred to this as ‘Behavioral Science’, and it’s an area that has become increasingly germane as the economy has soured.

This Yahoo article says, “As plummeting stock prices and profits pummel companies' incentive-pay plans, many firms are considering extra measures to reward employees… nearly three-quarters had implemented or were considering such measures, including stock awards or special bonuses. Respondents said they were worried about keeping key workers and boosting morale in the turbulent economy.”

Now, intuitively, one might say that it seems less likely that companies would experience employee turnover during turbulent times, as people who have stable employment would want to make sure that things stay that way. However, top-performers are always in demand, and those are the people companies can least afford to lose, especially now. Unfortunately, those are the people who are not making their bonuses currently.

“… many surveyed companies said they were thinking of tweaking bonus plans to increase their chances of paying out, and modifying long-term incentive programs to "improve the value" for workers. Nearly a third said they were considering additional programs to keep key employees -- often special payments to supplement regular bonus pools.”

One possible answer is the use of non-cash rewards as a way to motivate behavior and improve performance. Non-cash rewards have proven effective in motivating employees to excel in all types of economies. And they have proven effective not just for the sales team, but other functions such as customer support, marketing and other specific corporate audiences.

Non-cash rewards go where cash cannot in rewarding specific behaviors and creating a positive work environment. They provide greater agility anytime there’s a special opportunity such as rewarding up sell or cross sell, moving excess inventory in the channel, resolving customer-support cases, attracting prospects to marketing events, etc. The instant gratification factor of non-cash rewards also is attractive to many employees, particularly younger employees with little patience for annual or semiannual bonuses.

Put on your behavioral scientist white lab coat and give it a try. Let’s get creative.

CIOs are a Smart Bunch

In talking to CIOs these days, I’m hearing a lot of commonalities when it comes to discussing their focus and priorities.

One of these common threads is the need to opt for on-demand solutions over traditional on-premise software options because of man-power constraints. It seems there simply are not enough skilled folks to administer to these bulky on-premise software tools any longer.

Doing a little casting about on the internet, it seems as though I’ve hit upon something that’s begun to pick up steam: CIO.com published this great article about that very same topic. To quote the author, Thomas Wailgum:

“…however, there is a bigger problem that on-premise software vendors face: The net effect of the skills shortage is pushing existing and potential customers to consider alternative software delivery models, AMR Research analyst Dana Stiffler contends.

‘I think what it really means long term is that people are really crying out for a different delivery model for enterprise software and business functionality,’ she says. ‘And it's my belief that combinations of SaaS and business process outsourcing (BPO) will eventually begin to emerge and make that gap be slightly less noticeable.’

I’ve been banging on the ease-of-use drum for awhile. Consistently, I’ve called attention to the lower cost of entry, lower TCO, instantaneous upgrades, plus the freedom and flexibility that come with a subscription-based service model, but now we must add: no need to hire specialized, expensive personnel to administer to the technology.

Those on-premise software vendors better think about founding some schools just to train qualified technicians for their applications!

Better yet, I don’t want to wake any of them up. Forget I said anything.



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Behavioral Science - Part II

I’m sure everyone has seen the coverage a major oil company received recently when they announced a quarterly profit of nearly $12 BILLION – the highest ever recorded in corporate history.

I’m a CEO, and my company is not a non-profit organization; which is to say, we’re all in the corporate world to make a profit. But twelve billion dollars a quarter is more than a little offensive to me.

The good news is that consumer backlash seems to have begun, and as a result prices at the pump have begun to fall. As a fan of behavioral science, I find these types of sociological tipping points very interesting indeed.

It has always seemed to me as though the demand for gasoline is relatively inelastic. In other words, demand and consumption of gasoline historically has not been materially affected by the price of gas; which is a pretty sweet position for big oil – no matter what ridiculous price they chose to throw at the American consumer, demand for gas wouldn’t fall.

That’s finally starting to change, and the falling prices are evidence of that (not to mention the plummeting sales of gas-guzzling SUVs) – oil companies have finally given consumers the incentive they needed to change their behavior.


Speaking of incenting to change behavior – hey, that’s one of my favorite topics! – let me relate a quick story.

Recently, I found myself on an Alaska Airlines flight, taking me from Here to There. After the flight attendant made the standard safety announcements, she launched into an elaborate spiel about an Alaska Airlines credit card offer. She talked it up in a big way, and clearly knew the program backward and forward. I was impressed – I’ve had sales reps who could’ve learned a thing or two from this young lady!

This got me curious, and upon de-planing at my destination, I made a point of going up to her; I wanted to know if the airline incented her to do this.


She confirmed that, indeed, Alaska Air paid her a small commission for every new credit card account that she managed to recruit from one of her flights.

I complimented her on a job well done and stepped off the plane with a small smile creeping across my face.

Clearly, more and more companies are realizing the power of this type of ‘behavioral science’ – incenting their people in order to elicit the desired behavior.

It does my heart good to see it.

Behavioral Science

The Roman historian Pliny the Elder wrote, “In Rome... the soldier’s pay was originally salt”. In the days before refrigeration, salt was widely used as a preservative and it was also believed to have healing powers, thus it became a currency of the realm.

Etymologically then, the word ‘salary’ comes from the Latin word for salt (‘sal’). Eventually this word salarium came to signify anything given in a stipend form or wages in exchange for labor.

We’ve discussed the idea of ‘non-cash rewards’ in the blog before, but salt was not exactly what I had in mind!

These days, we see forward-thinking companies using compensation strategically; which is to say, companies recognize the need to pinpoint incentives in order to modify, enhance and refine the behavior of their sales team – or any group in the company for whom an incentive may modify behavior.

I like to think of the finance and sales executives who modify and tweak their teams’ compensation plans as “behavioral scientists”; like any good scientist, they experiment with various inducements in order to observe the resulting behavior and thus determine whether the desired effect has taken place.

While there is plenty of art to setting comp plans that achieve the desired effect, there remains a heaping helping of science to it as well – in the sense that one needs to fine-tune plans over a period of time to see what’s working and what’s not.

This harkens back to the crucial piece of why we pay variable compensation in the first place: we expect it WILL change behavior. With this in mind, why would you ever want to do this without giving everyone involved real-time, web-based visibility? Without this level of dynamic access to your data across your entire organization, how will you know in a timely fashion if success has been achieved?

Or when small tweaks do need to be made, how can one feel comfortable with the possible outcome without modeling the possible changes using some specific assumptions? Tinkering blindly with an Excel-based compensation structure is a recipe for disaster.

With an on-demand compensation system, a company achieves a real, tangible competitive advantage. Several models can be quickly tested and refined without affecting any of your field personnel. When a SPIF program or new comp plans are ready to be launched, your company has the ability to move in a swift, nimble fashion.

People like to throw around the idea of ‘strategic advantages’ that can help give a company a leg up on its competition, but few strategic advantages have this ability to streamline your entire organization.

Let me illustrate what I mean with a real life example: Recently, a nationally-known auto parts retailer instituted these types of changes in their company. Faced with a struggling economy, a set of executives decided to look for innovative ways to boost their same-store sales. They settled on incenting their floor employees with variable compensation in order to sell more product; and they extended this also to their shop employees as a way to get them to open (and close) a higher number of service tickets per day. In addition, they gave their people web-based visibility into the compensation system so they could see, dynamically, what they were earning.

Prior to the launch of this new direction, several executives of the auto parts retailer expressed their concern that there was sure to be backlash from parts of the rank-and-file, because hourly wages for these in-store employees were cut nearly in half – though their potential for earnings became far higher than before. Management even expected a noticeable amount of attrition; surely hourly employees would quit in significant numbers if they were unwilling to be subjected to this new, unknown direction?

However, the result was a roaring success. Same-store sales jumped significantly and one region reported that their shop employees were getting through roughly four times the number of service tickets they had previously.

What originally had started as a pilot that might slowly be expanded around the country, immediately became fast-tracked for a wide-scale rollout.

This forward-thinking company is experiencing the benefits of conducting some behavioral science in the name of improving their business.

Throw on a white lab coat and join me as a part-time behavioral scientist – I think you’ll enjoy it.

“Science is a wonderful thing if one does not have to earn one's living at it.”
--Sir Humphry Davy (1778-1829)
Scientist, inventor, the pioneer of electrolysis, laid the groundwork for modern chemistry

Connect the Dots between Pre- and Post-Sales Processes

I’ve written before in this space about the natural synergies that exist between CRM and sales compensation management applications. Pre- and post-sales visibility/automation are truly just different sides of the same sales performance management coin. In an article recently written for CustomerThink.com, I discuss these synergies in depth, and show how one company has been able to extend its CRM investment in a powerful way.

Specifically, the company has linked its sales compensation management solution directly to its Salesforce implementation so that reps now run “what if” scenarios based on Salesforce CRM “live” opportunity data coupled with accurate compensation plan data from their Xactly Incent implementation. Notably, they are able to do it all within Salesforce CRM.

The big benefit is that the people in the field can now easily see where to direct their sales efforts for maximum commission payouts. As these payouts are a reflection of where the company wants them to put their best efforts, the whole business gains. That’s powerful stuff. And it’s something that any company with a Salesforce, RightNow, or Oracle Siebel CRM On Demand implementation is in a position to take advantage of. For the details, please read the full story at: www.customerthink.com/article/connect_dots_crm_sales_compensation