To boost productivity, you can’t just dust off an old compensation plan. You have to be up to speed on modern trends, including the shift from just focusing on closing deals to measuring the overall customer lifecycle and how new industries use variable compensation to raise their numbers. Join Evan Ellis, President of Xactly, as he discusses the current state of sales compensation and shares insights into what best motivates salespeople.

 
 
 
 

Tim Clarke: Thank you for joining the Quotable Podcast. Before we get started, the best way for you to keep up-to-date with all the great things coming from Quotable is by subscribing to our newsletter at quotable.com/subscribe. Now, today we’ll be discussing the state of sales compensation with Evan Ellis, President at Xactly. Welcome, Evan.

 

Evan Ellis: Thank you, Tim. It’s a pleasure to be here.

 

Clarke: Thank you. I know you’ve got a great sales background and we’re going to dig into that on the podcast today. But, perhaps, at a high level you could just talk about your role at Xactly.

 

Ellis: Sure, I’m happy to. In addition to being President, I’m actually the Chief Operating Officer at Xactly. And, of course, that role is different at various companies. And what it means here is I basically have responsibility for insuring that the customer experience is an excellent one. And it begins with sales, so the sales organization is part of my team.

And the product, as well. So product development, the implementation group with professional services, customer support, and, of course, since we’re a SaaS operation, the data center operation is part of the team, as well. So based upon that entire group working together in a cross-functional team environment, we’re able to ensure our customer success and that the experience is a great one.

 

Clarke: Perfect. Well, thank you. And today I’m also joined by our guest host, Lynne Zaledonis, VP of Product Marketing at Salesforce. So welcome, Lynne.

 

Lynne Zaledonis: Thank you so much, Tim. I’m excited to be here. And thank you, Evan, for joining us. I look forward to learning more.

 

Ellis: Oh, thanks, Lynne.

 

Clarke: Great. And for those of you that aren’t familiar, I’m Tim Clarke, Product Marketing Director at Salesforce. So let’s dive straight in, and I already referenced it. Evan, I want to talk a little bit about your sales background. Perhaps you can just talk us through some of the different roles that you’ve held over the years. And then we’ll start to lead into some of the changes that you’ve really seen in the industry.

 

Ellis: Sure. Well, Tim, that really is my beginning. I started my career as a sales trainee and I came up to be a sales rep back with IBM. I spent about 12 years with IBM and went up through management there. My last job at IBM was back at headquarters and I was assistant to the gentleman who ran all of sales for IBM. When I left IBM I actually headed west to Silicon Valley and have been in various companies out here ever since, both in sales management and executive roles.

And then in the last 10 or 12 years is when I began to do a little bit more general management and picking up, in addition to sales, roles such as product development and running the rest of the organization. But once a sales guy always a sales guy. The most enjoyable things in my job even today is getting out and dealing with customers and prospects and trying to understand their problems, and talk about our solutions and ensure that it’s a great match and bringing them onboard. 

 

Zaledonis: So how has that background and being in sales as both a rep and as a leader influenced your current role as the president of a compensation application company? Is that impacting what your priorities are and what you’re focused on as a company?

 

Ellis: Absolutely. The thing that’s so great about where I am now — and I’ve actually been at Xactly for nine years in this role — from the very beginning I started my career I’ve been on variable comp the entire time. I happen to be a big believer that variable compensation can dramatically influence what somebody does and what they do on a given day. Now, it’s got to be done properly.

 

You can also do variable compensation quarterly. But through my career I’ve been on some great comp plans and I’ve been on some bad comp plans. And the thing that got me so excited when I first came to Xactly was to be at an organization that was all about trying to optimize that experience, and trying to get variable comp to work the way it’s supposed to. And to work with companies to see that if it’s done properly, that it can help drive even stronger business results.

 

And it allows you to really work with sales folks, both at the rep level and at the management level in a continuing way. And so it’s definitely the fact that I came up as a sales rep, and that now we have a solution that’s focused on trying to help sales reps and sales management do a better job for the company. It’s really rewarding. So it’s had a great influence on it.

 

Clarke: Evan, clearly you work so closely with many different customers and you must see a whole variety of different challenges around some of the sales compensation issues that they have. Could you give a high-level summary of what are some of the things that you’ve really seen, whether it’s trends or challenges over the last few years around sales compensation?

 

Ellis: Well, in sales comp probably the most interesting change that we’ve seen is that more and more industries are looking at variable comp as a way to drive performance. Even on the pure computer sales side, which is kind of interesting. I look back to the early days and some of these companies are gone.

Many of you don’t remember this company, [DEC]. DEC, none of their sales reps in the early days were on variable comp, believe it or not, which is kind of interesting. I go back to the days, too, when part of my career I spent nine years at Silicon Graphics. And in Japan — we’re a great international company, but our international sales team was not on variable comp. Now, those things have changed.

And we’re seeing both in specific industries here in the U.S., as well as around the world, more and more teams that are responsible for selling are going to variable comp. Now, some are just tiptoeing into it and it might just be bonus-oriented or around MBOs. And others are going purely to pure commission.

So the good news is, this drive of pay-for-performance that we’d heard increasingly, not just at the executive level, but down to the individual contributor level, more and more people are looking to variable comp. And then there is a lot of ways to implement it, but I think across the board the most exciting piece is that people think it is a lever and that gives us a great opportunity to work with them to both introduce it and expand it in a meaningful way.

 

Zaledonis: That’s interesting to hear that it’s working for those companies. Can you talk about some of those industries that are leading the way in variable comp? I’m curious if it’s specific to those industries, or if this is something that could be applied across the board.

 

Ellis: Yeah. The industries that probably could have the most experience with it have sales teams that are selling high-ticket items. So, certainly, in the technology industry, whether it’s software or large hardware, they’ve got great experience over time with relatively higher paid sales reps that have a very high variable component. And those folks, those are entrenched, they’re doing well. Most of them have seen good results with it.

And then as we kind of go to some other ones, interestingly, in retail we’re seeing more and more retail organizations now, even hourly employees that they want to put on variable comp. We’ve seen automotive industries, where they are changing tires and batteries, etcetera. They now are putting people on variable comp. We’re seeing call-center-oriented organizations.

A little bit less pay in those organizations and a little bit less variable, but they’re definitely beginning to move to that environment. Some are very individual-oriented on their own individual performance. We’re seeing other companies that want to do more of a team-based environment. And one of the interesting things that we’re seeing in the last couple of years in some of these organizations like World at Work and some of the others that study variable comp, they are saying that there is more of a move to introduce a team-based component to places where at one time it was just on individual performance.

So trying to come up with this mix in what is right, it will vary by industry, it will vary by the kind of job that they’re in, whether they’re in a hunter role or a farmer role. It will vary a lot. But people are seeing a lot of these different options in trying to come up with the right mix based on what their objectives are.

 

Clarke: So we’ve certainly seen from some of our recent research many organizations are recognizing the benefit of moving away from a deal lifecycle to a customer lifecycle, recognizing that so much more of the upsell and cross-sell is going to come from existing customers, the importance of keeping the same account teams, and really building those trusted advisor relationships up there.

What are some of the things both from your experience, obviously, running the sales organization, but also with your customers that you’re seeing on how they’re making these transitions over to, not just being focused on that deal here and there, but actually looking at the wider relationship with that customer?

 

Ellis: Absolutely. That’s a great point, Tim. One of the great things about the SaaS environment and this move to software-as-a-service over the last 10 or 12 years is just that. That customers now are seeing the importance of keeping this customer over time and, certainly, they’ve got to renew or else the SaaS model doesn’t work.

And it is getting more focused on the customer, and as a result, it’s causing management to say, “Hey, we’ve got to incent our people, not just on selling up front, but how do we keep that customer? How do we add on down the road? How do we get them to renew?” Again, that total lifecycle. So we are seeing some of the compensation plans, some of the key elements, in addition to getting the software sale up front.

Also, measures of customer satisfaction, the importance of add-ons, all of that we’re seeing in the elements in the comp plan. I think it’s a great thing. I think as a result of it, in addition to trying to change the comp plan to reflect the important metrics of the business, it’s also great for the customer experience. The customer wins, as well.

Because, again, one of the great things of the SaaS model is that there is more focus on the long-term relationship with the customer. And we’re seeing that in comp plans. It’s very, very effective.

 

Zaledonis: I’d love to dig a little bit more into the actual incentive part of this. You mentioned this, the incenting at the rep level. I used to be a rep myself, so I have an opinion about this question. I’m curious, Evan, from your perspective, what’s the impact of having visibility for an account executive or a rep into the deal? And does that change their behavior? Does it motivate them if they know how this deal is going to play out, how it’s going to impact their wallet?

 

Ellis: Absolutely. And it really begins prior to the sale itself. One of the really neat things that we’ve been able to do with our customers is show them — again, the importance of total visibility to the rep from the beginning of the sale — right up front, when they’re dealing with an opportunity and actually dealing with their CRM system, with Salesforce, if you will, when they look at the opportunity itself that they’re trying to get ready to do a quote with a customer, they can actually estimate what their commissions will be.

And that’s part of up front when their comp plan itself is configured into the system. It knows what their metrics are and it looks at the opportunity itself. And depending upon how they configure it, if they change it, add products to it, a different mix, etcetera, it can see what their commissions on a deal will be.

Which is really a very effective way of letting the rep know that, “Boy, here’s how you’re going to get paid if you close this deal. And if you do it with more products, the mix itself, you’re going to get paid more.” Right up front they’re very motivated to see that, “Hey, I’m going to make this amount of money, so let me go out and close this sale.” So that’s a very effective part right up front.

Then a very effective thing is once they have closed the business, it’s very important to show them right up front, right away that they got credit for it, they got the credit that they thought they were going to. Most companies just pay commissions on a monthly basis. But let them know up front, even before they’ve gotten paid, that they got the proper credit, here’s what they’re going to make, so that they can get on to selling other stuff.

So, again, one of the very important things around behavior is give them total visibility to what they’re going to make, then give them total visibility that they got the proper credit right away. And then when they get paid, exactly how they got paid. A very, very important element.

 

Zaledonis: Yeah. I can imagine the impact of productivity. I’m remembering my days as a sales leader, where half of my team is in spreadsheets trying to figure out what they’re going to get paid at the end of the quarter, instead of hitting the phones and talking to customers.

 

Ellis: Absolutely. Lynne, I can remember myself sitting in there and just kind of scratching it down. Here’s what I think I’m going to make, and then not being quite sure. And then, boy when I got that statement later on, trying to go back and forth. Did they do it right, etcetera? And so you do, you waste a lot of time when you don’t have an automated system that can give you that visibility right away.

 

Zaledonis: Yes. Playing devil’s advocate, does that drive the right behavior? I’m imagining some sales reps trying to squeeze in one or two extra licenses just to make sure they’re hitting a certain number.

 

Ellis: Again, these are people, so the people have got to use the right judgment and so forth. They’re probably going to do that anyway. Most reps will do it anyway. But I think that by having a system that they can play with it and see based upon this product mix, based upon the timing, based upon all those variables, they’re going to be able to make a better decision — a more informed one versus just guessing and just trying [to impress], etcetera.

I’m just a big believer. Give somebody all the facts, and then people are going to make the right decision. But it’s most important to make sure that they’re just not guessing. And just give them the facts to be able to do that.

 

Clarke: Great. And both of you have clearly talked about visibility there. I know when I joined Salesforce in sales, as well, it was a breath of fresh air to be able to have that visibility and really be able to see everything. I want to move slightly on to a different type of persona, the sales operations role, and the importance of automation.

Now, I think there’s an obvious benefit for the visibility to that sales rep and sales manager level. But what have you seen in some of the organizations, where they’ve got some really manual back-end processes, from the point of actually closing a deal to tracking it all the way through to collecting the revenue from the customer, and then paying out to the sales rep?

 

Ellis: Well, you are right. The flipside: There is actually a couple of pieces to this. One, we talk about rep behavior and the importance of making sure they’ve got the right comp plans. There is just a whole side of this equation, which gets around efficiency and effectiveness and the rest, and that’s just managing the whole compensation process. The state of the industry today is still that the majority of companies are doing this in spreadsheets.

And it’s hard to believe that with the very high expense item of variable comp to a company is being managed in spreadsheets on a laptop. It’s just incredible. There’s been all kinds of studies that, although everybody loves their spreadsheets and we love them and they’re great and I use them, too, but as the organization gets larger, the odds that there are going to be errors are very high.

There’s been all kinds of studies, from Gartner, etcetera, that there are three-to-eight-percent error rates in spreadsheets for sales compensation systems, which is staggering when you think that companies are spending millions and millions of dollars on variable comp. A three-to-eight-percent error rate tends to be very, very high. The other piece is around pure compliance and auditability. In more and more organizations it’s a very, very important audit item.

And not having a system that has all kinds of audit controls in it, such as spreadsheets, etcetera, is an audit exception for companies. So we’re seeing companies now that just purely on error rates, the importance of audits, etcetera, are moving to automated compensation systems, which is great. From our standpoint that’s just kind of the table stakes, if you will.

Trying to reduce error rates, make sure that you’ve got a system that’s auditable, those are all great and very, very important. And many, many companies are now migrating from the spreadsheet environment to us, and we think that’s great. The other piece on top of that, which is around, “Hey, let’s help you build better comp plans and drive business,” is kind of the next step and a really exciting one from our standpoint. But we don’t want to forget that a major reason that companies move to this just to begin with is around that.

And that’s clearly targeted in the sales-ops environment. And it varies by organization, whether sales ops or within finance, that are responsible for administering this big, big line item of variable comp.

 

Zaledonis: It sounds like there’s a lot of benefits, then, to the business in the compliance and in productivity, too, on the sales-ops and [rev-rep] side, and not just on the rep side.

 

Ellis: That’s absolutely right. And the other thing, too, that we hear from the sales operations piece and the team that’s responsible for compensation itself, is that so much of the time, prior to automation, just the questions that they have from the sales team and the sales management team after pay time. “Hey, I’m not sure I got this right. I think there’s an error here. I didn’t get the proper credit. The splits are wrong,” etcetera.

The amount of time that’s spent on that is greatly reduced once they move to an automated system with more visibility in it and some of the things that I talked about earlier. So they see great benefit just from that, as well, the amount of time that they have to spend answering questions and dealing with disputes and possible errors that may have existed before.

 

Zaledonis: You talked about companies moving from Excel spreadsheets and moving to an automated compensation plan. What factors should a company who is making that jump be considering when they’re making a comp plan? I don’t know if that’s a fair question, but what makes up a successful plan in your experience?

 

Ellis: Well, it’s interesting. We’ve seen a lot of comp plans. And what typically happens, which is kind of interesting, a lot of times people are very protective of their comp plans. And it’s kind of an interesting thing. We’re all victims of our prior experience. And maybe we learned early on of the kind of comp plan that we were on as a rep or as a first-time manager. We kind of might think those are great.

And a lot of times people will go on to other companies, other industries, get promoted and they’ll try to take that comp plan and use it in a place where maybe it doesn’t make sense. And we see that a lot. And so a lot of times we’ll come into a company and they’ll say, “We just want to automate this. We don’t want to talk about changing the plans.” And we’ll say, “OK. We got it. We got it. We’ll automate it.”

And we know that we’re automating something which might not be the best, but we’ll go ahead and do it. But then once we get it up and running, we’ll be back there again saying, “Hey, we might want to show you guys some data of how your comping versus how some other customers in the industry are comping,” and try to have the light go on for them that their plan is not as effective as it ought to be. What made sense in this industry or this kind of environment doesn’t make sense here.

And one of the really exciting parts of our business that is happening now is that since we’re this SaaS environment, since we have 1,000 customers in all industries, since we’ve got 10 years’ worth of compensation data, we’re now able to collect this data, put it in a way that is very meaningful for our customers to look at. And they can look at their plans, the effectiveness of their plans, not only how they’re doing internally, but we allow them to compare their plans versus other customers in their industry of like-size, of like-industry.

And it has really been an effective way of showing customers that maybe we’re pretty protective ahead of time, that their plans are not as effective as they ought to be. And that’s been a really, really exciting change in our business and something that we’ve been able to expose to our customer set here in the last 12 to 18 months.

 

Clarke: And you reference, obviously, comparing the plans between organizations within an organization. Do you have any best practices for varying the compensation plans based on role? For example, an accounting executive out in the field with one particular territory there’s one plan. Inside sales, clearly a really hot role right now, so looking at how you incentivize them to drive the right behaviors. Any top tips for people that are listening in?

 

Ellis: Yeah, a couple of things. One of the things that I will say that crosses all organizations first — and I’ll get a little more specific on what you just asked there, Tim — but one of the things that we find in all industries, in all roles is that people try to have too many elements in a plan. And that happens over time. But when you ask a rep to focus on six, seven, eight different things, you kind of dumb down the comp plan.

There is no guidance as to what the most important item is. And, therefore, you just don’t get the bang for your buck in the plan itself. So, for years compensation experts would say the most effective plan will have three elements, maybe a maximum of five. And a lot of people questioned that. And they said, “Well, geez. How is that?” And there wasn’t any information or data that would support that.

But we’re now able to show through our data that, in fact, they were right. They didn’t have the empirical data to do it. They were doing it on intuition and experience. But our data will show that the most effective plans, the people that are obtaining the highest percent of quota and being most effective have three elements in their plan and a maximum of five.

And it’s been really great to be able to show that. And that crosses industry, whether it’s a hunter rep or a farmer rep or inside sales, outside sales. You just can’t have too many metrics or too many elements in the plan itself. So that’s one main thing that we we’ve been able to show people in the data. The second thing, a little bit back to what are the key items for a hunter role?

Truly, if we want this individual just to go out and find new business, not be responsible for add-ons, etcetera — and some organizations separate it that way — then you’ve got to make sure that you’ve got elements that are just measuring that. If it’s a role that we want the long-term customer relationship, then, certainly, you want to have add-on metrics, you want to have customer sat metrics, you want to make sure that it fits that role itself, and that it’s targeted for it.

Those are just a couple of items that we’ve seen and the data will support.

 

Zaledonis: That’s very interesting, especially the variety of roles that people have these days. We’ve seen a lot of differences in the way people are selling and, of course, the compensation should align to that. We’re getting up on time a little bit here, Evan. I know a lot of the listeners are going to be making plans for 2017, and compensation will be a big part of that. Any parting thoughts or best practices on motivating reps to drive growth?

 

Ellis: They’re on the right track. And the thing that I would tell people is variable comp can drive the business in a very positive way. Increasingly, we’re seeing the data that supports that people are doing it right. They’re getting far more business results out of it than not. They should look at their plans every year. They should really dig into are they as effective as they need to be? And you need to look at the empirical data to support that.

And we’re doing that with our customer set now. And we’re going back and we’re going to them and saying, “Let’s do a little tune up. Let’s do a little check on your plans themselves. Let’s look at the plans. Let’s look at the data. Let’s see if it’s accomplishing the result that you expected it to. And if not, let’s change the plans.” So the big tips [on] variable comp is good. It can help drive the business, but you’ve got to take a look at the data to ensure that it is actually accomplishing the objectives that you wanted it to do.

And there’s a way to do it. And that could be done. It’s there today. And just my encouragement to folks is do it. Take a look at that and try to make sure that they’re accomplishing the business results that you want.

 

Clarke: Perfect. Well, thanks very much for joining us today. Thanks, Lynne, for being our guest host.

 

Zaledonis: Of course. Thanks so much for having me.

 

Clarke: And thank you very much, Evan, as well, for sharing your insights.

 

Ellis: Yeah, you bet. It’s been a pleasure to be here. Thanks, Tim. Thanks, Lynne.

 

Clarke: Thank you. And if you want to read more on this topic, you can read this great article on Quotable with Steve DeMarco called “Know If Your Sales Pipeline Forecast Is Accurate.” And you’ll find the link in today’s show notes. So thanks to everyone for listening in.

And if you like what you hear, please take a minute to give us a five-star rating and feedback on the podcast. You’re likely not the only one looking at sales compensation planning right now, so we hope you’ve really got some great top tips from this podcast. Please share this episode with everyone on your team that you think will benefit. Thank you.

 
 
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