1. Performance Based Compensation Some Ideas to Think About

2. It’s become obvious… “I like my life a whole lot better when I make quota. I am far less likely to kick the dog or hang up on my brother-in – law.” Anonymous Sales Manager In order for You to make quota, YOUR SELLERS must make quota! How can we keep them focused on the same job we’re focused on? “I like my life a whole lot better when I make quota. I am far less likely to kick the dog or hang up on my brother-in – law.” Anonymous Sales Manager In order for You to make quota, YOUR SELLERS must make quota! How can we keep them focused on the same job we’re focused on?

3. 3 Major Types of Corporate Culture Influence Compensation Manufacturing- focus on PRODUCT quality, features, efficiency –Reps not valued…see this as a place to spend time until real job opens Numbers- focus on PROFIT, revenue, growth –Reps, especially good ones, turn over –Numbers don’t come in, you go hungry Market –Great value on relationships with customers –Focus on market based strategic goals Manufacturing- focus on PRODUCT quality, features, efficiency –Reps not valued…see this as a place to spend time until real job opens Numbers- focus on PROFIT, revenue, growth –Reps, especially good ones, turn over –Numbers don’t come in, you go hungry Market –Great value on relationships with customers –Focus on market based strategic goals The Sales Compensation Handbook

4. Manufacturing- focus on PRODUCT quality, features, efficiency Sales Repetition Products are substitutable Seller’s Role is Minor (Google) Sales Repetition Products are substitutable Seller’s Role is Minor (Google) The Sales Compensation Handbook

5. Numbers- focus on PROFIT, revenue, growth Short Selling Cycle Incidence of Sales Is Predictable High Number of Transactions Short Selling Cycle Incidence of Sales Is Predictable High Number of Transactions The Sales Compensation Handbook

6. Market No Two Sales Alike Incidence of Sales Is Unpredictable Sales Situations Are Multifaceted Customer seeks solutions, not products No Two Sales Alike Incidence of Sales Is Unpredictable Sales Situations Are Multifaceted Customer seeks solutions, not products The Sales Compensation Handbook

7. Cost of Recruitment Double the cost of annual compensation Job description Advertising Recruiter Your time Aptitude testing References and background checks Interviewing Orientation and initial training Double the cost of annual compensation Job description Advertising Recruiter Your time Aptitude testing References and background checks Interviewing Orientation and initial training

8. Cost of Compensation Hard costs include: Guarantee period Draw or salary Commissions Bonuses Incentives Vacations Training Legal Hard costs include: Guarantee period Draw or salary Commissions Bonuses Incentives Vacations Training Legal Health insurance Life insurance Dental insurance, etc. Client expenses (entertainment) Special expenses, i.e. parking Severance Unemployment

9. Other Retention Costs Parties and station employee events Group activities Banquets and awards presentations Bonus time off Flex-time Parties and station employee events Group activities Banquets and awards presentations Bonus time off Flex-time

10. Purpose of Compensation? 1.Reward performance 2.Establish loyalty 3. Reinforce or modify behavior 1.Reward performance 2.Establish loyalty 3. Reinforce or modify behavior

11. Purpose of Compensation What kind of performance do you want to reward? What kind of behaviors would you like to reinforce or modify? What kind of performance do you want to reward? What kind of behaviors would you like to reinforce or modify?

12. Selling Goals Making goal Exceeding goal Missing goal Business Type Agency Direct New Category Business Model NTR Internet Multi-platform Non-spot Selling Goals Making goal Exceeding goal Missing goal Business Type Agency Direct New Category Business Model NTR Internet Multi-platform Non-spot Reinforce / Modify Behavior Business Objectives Inventory maximization Special events Cluster selling Weaker stations Category business LONG-TERM BIZ Management Objectives CNA’s Written proposals Testimonial letters Collections Co-op utilization Business Objectives Inventory maximization Special events Cluster selling Weaker stations Category business LONG-TERM BIZ Management Objectives CNA’s Written proposals Testimonial letters Collections Co-op utilization

13. The Traditional Model Straight commission Some variation based on type of business Draw against commission Small salary for new hires 3-6 months Two weeks vacation Make budget and keep your job! Straight commission Some variation based on type of business Draw against commission Small salary for new hires 3-6 months Two weeks vacation Make budget and keep your job! Does this model allow us to effectively reward performance and reinforce / modify behavior?

14. It attracts “high performers” willing to share risks Gets rid of non-performers Compensation costs easy to understand, completely variable Encourages maximum sales effort Allows us to treat reps like independent contractors It attracts “high performers” willing to share risks Gets rid of non-performers Compensation costs easy to understand, completely variable Encourages maximum sales effort Allows us to treat reps like independent contractors Why Pay Straight Commission? The Sales Compensation Handbook

15. Rep’s success can’t be measured completely and accurately in a short time Longer selling cycles FOR BIG DOLLARS Seasonality makes it hard to live on Reps need to do more than just sell- service, receivables, etc. Creates conflict between seller’s need to sell volume vs. company’s need to focus on profitability It leads to turnover Rep’s success can’t be measured completely and accurately in a short time Longer selling cycles FOR BIG DOLLARS Seasonality makes it hard to live on Reps need to do more than just sell- service, receivables, etc. Creates conflict between seller’s need to sell volume vs. company’s need to focus on profitability It leads to turnover Why Not Pay Straight Commission The Sales Compensation Handbook

16. Attracts reps who have more than pure selling skills Helps retain key employees in tough times Allows management to direct salespeople in non-selling activities Still keeps tight link between pay and performance Allows companies to construct career paths based on selling and non-selling skills Attracts reps who have more than pure selling skills Helps retain key employees in tough times Allows management to direct salespeople in non-selling activities Still keeps tight link between pay and performance Allows companies to construct career paths based on selling and non-selling skills Why Pay Salary Plus Commission The Sales Compensation Handbook

17. Can be overly complex Can be RUINED when management designs plans that try to micromanage the sales force Higher fixed level cost relative to commission only plans Can be overly complex Can be RUINED when management designs plans that try to micromanage the sales force Higher fixed level cost relative to commission only plans Why Not Pay Salary Plus Commission The Sales Compensation Handbook

18. Allows for rewarding volume AND quality of the business generated Allows management to direct and reward performance of important non-selling activities Allows for flexibility to realign territories or reassign accounts without affecting the reps pay. Allows for rewarding volume AND quality of the business generated Allows management to direct and reward performance of important non-selling activities Allows for flexibility to realign territories or reassign accounts without affecting the reps pay. Why Pay Salary Plus Bonus The Sales Compensation Handbook

19. Depending on performance measures selected, management may not be able to accurately predict compensation as a percentage of sales Tempts management to create plans that are complex, unfocused and difficult to administer Allows for plans that reward for activities rather than objective, measurable results Depending on performance measures selected, management may not be able to accurately predict compensation as a percentage of sales Tempts management to create plans that are complex, unfocused and difficult to administer Allows for plans that reward for activities rather than objective, measurable results Why Not Pay Salary Plus Bonus? The Sales Compensation Handbook

20. Salary Commissions on personal performance Bonuses / rewards on personal performance Bonuses / rewards on group performance Non-financial rewards & incentives Recognition Salary Commissions on personal performance Bonuses / rewards on personal performance Bonuses / rewards on group performance Non-financial rewards & incentives Recognition The Performance Model ? All while maintaining a reasonable cost of sales

21. You build strong teams by treating individuals differently. Everyone has to feel that they have a stake in the game, but that doesn’t mean that everyone has to be treated the same. Jack Welsh, Chairman, GE Corp Fair, but not necessarily equal Is Everyone Treated The Same?

22. Individual Compensation Customized compensation plans should be based on… –Company goals –Management objectives –Seller’s goals –Seller’s EXPERTISE! –Seller’s proven ability –Seller’s work style –Seller’s hot buttons Customized compensation plans should be based on… –Company goals –Management objectives –Seller’s goals –Seller’s EXPERTISE! –Seller’s proven ability –Seller’s work style –Seller’s hot buttons

23. Performance Compensation Customized compensation plans should be –Collaborative –Personal –Immediate –Certain –Flexible in certain circumstance Customized compensation plans should be –Collaborative –Personal –Immediate –Certain –Flexible in certain circumstance Goals should be –Collaborative –Specific –Attainable –Time sensitive –Written Goals should be –Collaborative –Specific –Attainable –Time sensitive –Written Lack of goals lead to lack of focus

24. Don’t overlook the value of non $$ Trips Training Dinners Tickets Clothes Time off (with pay) Thank-you notes…the value of the Lottery Ticket Don’t overlook the value of recognition Awards Celebrations Support Don’t overlook the value of non $$ Trips Training Dinners Tickets Clothes Time off (with pay) Thank-you notes…the value of the Lottery Ticket Don’t overlook the value of recognition Awards Celebrations Support Performance Compensation

25. Planning Compensation Determine goals and objectives Company Management Individual Prepare a detailed job description Job clarity = job satisfaction Do the math Calculate old program against new program Achieve goals and objectives Maintain or reduce cost of sales Determine goals and objectives Company Management Individual Prepare a detailed job description Job clarity = job satisfaction Do the math Calculate old program against new program Achieve goals and objectives Maintain or reduce cost of sales

26. Decide how you want to reward results Write down your plan Solicit input Get buy-in of overall plan –From entire team or leadership committee Treat everyone fairly and equitably –But not necessarily equally Be patient – change is hard Consequences for under performance Communicate clearly Be firm Decide how you want to reward results Write down your plan Solicit input Get buy-in of overall plan –From entire team or leadership committee Treat everyone fairly and equitably –But not necessarily equally Be patient – change is hard Consequences for under performance Communicate clearly Be firm Planning Compensation

27. Chances are you have two sales staffs: Veterans who are making a lot of money They MAY think they have a birthright to the list they're sitting on. Veterans who are making a lot of money They MAY think they have a birthright to the list they're sitting on. Up and comers who are your futureUp and comers who are your future They can’t make the money they want because a lot of the key accounts really ARE taken.They can’t make the money they want because a lot of the key accounts really ARE taken. Up and comers who are your futureUp and comers who are your future They can’t make the money they want because a lot of the key accounts really ARE taken.They can’t make the money they want because a lot of the key accounts really ARE taken. Let’s let the Sales Manager re-distribute some of the accounts in a way that makes everyone happy!

28. A B C

29. However, These guys are Your Future

30. Here’s A Commission Plan To Super-Motivate the 30% of your team that has 80% of the billing back into the behavior that made them Super Stars to begin with!

31. Our Senior AE’s Responsible for our BIG number Are sometimes spending BIG time on small accounts We want them to spend BIG time on BIG potential billing Therefore – the insurance industry model... Responsible for our BIG number Are sometimes spending BIG time on small accounts We want them to spend BIG time on BIG potential billing Therefore – the insurance industry model...

32. The SAT System (Senior Account Transfer) From the Insurance Industry

33. How it works Senior has average account value of $5,000 p/m (Money On Month, or “MOM”) Steady High of $10,000 Steady Low of $500 Start moving accounts less than (say) $750 per month to Junior list Senior has average account value of $5,000 p/m (Money On Month, or “MOM”) Steady High of $10,000 Steady Low of $500 Start moving accounts less than (say) $750 per month to Junior list

34. The SATS System Senior doesn’t have time to improve Low Money On Month Accounts, but Junior has time! Let’s pay Junior to work them, and Senior to mentor Junior – Senior Junior –1st Qtr75% 25% –2nd Qtr50% 50% –3rd & TFN 25% 75% Junior thinks its a big deal -Needs Senior’s help Senior gets billing from ever increase accounts...and starts to help you LEAD the team! Still have fallback person if Jr. leaves! Senior doesn’t have time to improve Low Money On Month Accounts, but Junior has time! Let’s pay Junior to work them, and Senior to mentor Junior – Senior Junior –1st Qtr75% 25% –2nd Qtr50% 50% –3rd & TFN 25% 75% Junior thinks its a big deal -Needs Senior’s help Senior gets billing from ever increase accounts...and starts to help you LEAD the team! Still have fallback person if Jr. leaves!

35. A Couple Other Ideas New sellers get 50% on any orders they write within 1 st 120 to 180 days at the station Sliding Scale: X% for 90% or less, Y% for 100%, Z% for over 100% New sellers get 50% on any orders they write within 1 st 120 to 180 days at the station Sliding Scale: X% for 90% or less, Y% for 100%, Z% for over 100%

36. Food for Thought Team bonuses for entire staff Quarterly make-good options Customer satisfaction rewards Rewards for customer retention Rewards for collection results Sliding scale on all reward systems Praise in public; reprimand in private Make sure contest are fair and fun Team bonuses for entire staff Quarterly make-good options Customer satisfaction rewards Rewards for customer retention Rewards for collection results Sliding scale on all reward systems Praise in public; reprimand in private Make sure contest are fair and fun

37. Performance Based Compensation Some Ideas to Think About