podcast | June 29, 2015
Case Study: Designing the Incentive Compensation Plan for the Sales Team
Click here and listen to this podcast. It is an interview with Dave Loeser. Dave is currently the SVP of WW HR at Unisys, and is a bona fide heavy weight in the HR field. Dave has 30 years of experience leading HR teams at major corporations such as Pepsi, Quaker State, and Hostess Brands.
Listen to this podcast and hear from Dave:
If you are wondering if you are paying too much, or too little, click here and hear from Dave a fresh perspective on how to design the comp plan for the sales team.
Speaker: Welcome to the SBI podcast, offering CEOs, sales and marketing leaders ideas to make the number.
Greg Alexander: Good morning, good afternoon, good evening. This is Greg Alexander, CEO and cofounder of SBI, a sales and marketing consulting company focused on helping you make your number. This is the weekly SBI podcast series. Today, I have an outstanding guest with us. Dave Loeser is the senior vice president of Worldwide Human Resources for Unisys Corporation, which has 23,000 employees across the globe, does three and a half billion in annual revenue by providing a portfolio of IT services, software and technology that solves critical problems for its clients.
Dave is a bona fide heavyweight in the HR field. With 30 years of experience driving business results from the HR office at some of the world’s great companies. Companies such as Pepsi, Continental Airlines, Quaker State, Hostess brands, and Mitel Networks. Dave has an undergraduate degree from the University of South Carolina where he was recently recognized as alumni of the year and also recently gave the commencement address. He also has an MBA from the University of Toledo. Dave, welcome to the show.
Dave Loeser: Greg, thank you very much, and that’s a very kind introduction.
Greg Alexander: Well it’s all factual, so we’re thrilled to have you. Today’s topic is compensation design for the sales department. Dave, when this episode airs, HR executives across the country will be in the annual compensation planning season. Guess what, the sales leader will be complaining about the comp plan, saying he cannot attract superstar sales people with the current plan. What advice do you give your HR peers when confronting this scenario?
Dave Loeser: Well, you know, Greg I’m going to kind of circle around a little bit. One, I got involved with you guys because I think you’re doing some terrific things with the shifts in technology that are distant or mediating the sales force. The selling processes. I think those same kinds of shifts are occurring, the industrial age is falling behind us very quickly. You know, it’s interesting. Now there’s more transistors made than grains of rice around the world.
Greg Alexander: No kidding.
Dave Loeser: Maslow’s pyramid hierarchy of needs is being redefined because people in nations that, you know, they’re lacking water and food and shelter, one of the things that everybody seems to want are cell phones. Information is becoming kind of key to running things. You guys opened my eyes to that 52% of a sale occurs before somebody shows up. Taking that to the kind of compensation area, there’s going to be very different ways. I believe that this is done in the future. Currently, what happens is you go out, you look at your peer group, you look at whether you want to be paid the 50th or 70th percentile, you get as much data, you look at benchmarking, and of course, having spent a good bit of time at sales in Pepsi myself, I’m kind of trained in my background and my passion is in human resources because it’s all about people. The sales organization and leaders often feel like if they pay a little bit more, they’re going to get more.
One of the shifts I see in this compensation area, and I’m trying to get my teams to think about it differently, is that if you go out now and you look at some of the applications out there, Autodesk, PeoplePerHour, Elance, they’re putting people, their skillsets, how the customers rate them, kind of like Ebay out there. People are doing more interim assignments. I think in the future, I’m a believer that we should put this on people’s desktops so that they can actually see what people make for the job that they’re doing instead of … I’ve jokingly said in life “There’s three things that I don’t talk about. Religion, politics, and compensation.” Because everybody has a different point of view on it. Information is getting aggregated faster that are going to give people a better understanding of what their satisfaction level should be with their pay.
Obviously, and I think you’d agree with me, that leveraged pay is certainly something that I strongly believe in for sales organization. I’ve always jokingly said good sales people are coin operated.
Greg Alexander: Mm-hmm (affirmative). Let’s talk about this a little bit more. There’s this traditional way of doing things which you just articulated, and you’ve been through this many, many times, and yet we’re at this time here where something like benchmarking may no longer be relevant because the way that people are buying and the way that people are selling is going through this massive disruption. Comparing myself to what happened in the past is less and less relevant. If I can’t rely on that, and if I agree with this new paradigm and I want to project myself into the future and define a compensation program for the sales force that’s progressive, that embraces more leverage and is more free-market-based, what do I do?
Dave Loeser: Well, number one, the human resource function is behind. I think what you said is exactly right. Our traditional, the people methods and traditions don’t work anymore. Now the example I … I’ll give you a couple that are I think a little bit different. I think you can measure things better and more effectively, the classical example of a performance review, whether it be for a sales person or any other function, for that matter, was the supervisor might get input, but basically give feedback to the associate, sales rep, in this case. I’d look at … I think it’s going to change drastically. Look at American Airlines, if you fly a lot, you get these coupons that you can give and recognize a flight attendant for a flight that does an outstanding job. They get to turn those in for some gifts, or for some free travel and the like.
You know, the fact of the matter is the airlines haven’t gotten smart enough to understand that the flight attendant that gets the most of those coupons are really the best performer. You need to get feedback from the customer. The customer is where everything starts. I respect your company so much because everything in business starts with a sale. I tell people, we’re talking in this compensation area, they kind of talk about their pay. The fact of the matter is the employer doesn’t pay the wages. The employer just handles the money. The customer pays the wages. It all starts with a sale. There is a really cool application out there now for how you can measure sales people more effectively.
I had probably about 500 sales people when I was a general manager, and I was in a consumer products business, and we were in the grocery stores. I would set out goals for people to set an end cap display in a store, and then I’d have to go to an outside company to go take pictures, measure whether that is getting executed well. There is an app out there now, that’s like Uber. It basically sends a message out, a pin map, every store, and it says “The first person to take a picture of the end display for Frito Lay, as an example, and send it back will get electronically mailed ten dollars.”
Greg Alexander: Wow.
Dave Loeser: What used to take three to six months for me to measure as a sales leader in terms of the effectiveness of setting displays and getting space, all selling kinds of initiative, can now be done in a matter of days. People can be measured differently and then rewarded differently, I believe.
Greg Alexander: Okay. We’re talking to Dave Loeser, senior vice president worldwide human resources at Unisys and we’re talking about how many of the things we’ve relied on over the years, performance reviews, kind of bureaucratic compensation design, they’re falling by the wayside. We’re going to take a quick break here, and I want to make the audience aware of the new SBI Magazine. In particular, an article with Kelly Weiss, who’s the head of HR at Extreme Networks that talks about these subjects. If you’re not subscribed to the SBI Magazine, here’s some information on it.
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Greg Alexander: Okay, welcome back everybody. Right before the break, Dave and I were discussing how the world is being disrupted and people’s lives are changing with some of these advancements in technology. We were discussing how the old way of doing compensation design for the sales force, which was finding a peer group and determining what percentile the pay gets, etc. is no longer relevant. Dave gave us some enlightening examples of how to do everything based on the customer. He shared with us some apps that are disrupting consumer goods and gave us an example at American Airlines.
Dave, let’s turn our focus to this customer measurement. It seems to me like the purest form of determining who’s doing well and who’s not doing well in the sales force, and therefore, who the top performers are and who the bottom performers are, that should warrant the majority of the compensation budget, it seems to me that that’s obvious. But many companies aren’t doing that. They’re not going out to the customers and doing a sales rep satisfaction survey. They do these rather generic customer set surveys. If we wanted to put the customer satisfaction level at the center of designing a comp program for the sales team, how would we do that?
Dave Loeser: Well, there’s a lot of classical methods. One that I’ve always liked to use is I’ve liked to survey the companies and a tool I used was Tell it Like it Is. It was a tool designed to just get genuine feedback in terms of our presence and effectiveness. Greg, I’ve got to tell you, I’ve done this for a long time and people always ask me “What do you think of John?” Or “What do you think of Sue?” And having done this a long time, my opinion really doesn’t matter, because people are looking for my opinion really to validate their opinion, or to invalidate it.
At the end of the day, I kind of tell people now I’m going to give you some things to think about as a sales leader in this example, and then go sleep on them and if it helps you kind of understand how you might feel about this sales later, great, if not, then come back and I’ll ask you some more questions, and I generally start out by saying “Are you reporting the number, or are you making the number?” Think about this individual. Are they reporting their number, or are they making their number, and are they driving the business, or are they reporting the business?
There is a leadership responsibility to make these determinations. In terms of … The customer isn’t always going to give you kind of the exact feedback that you want. Sometimes, we’re pushing margin and we’re pushing the envelope of maybe what the customer would be willing to do. I think you have to keep them both in balance, but the Tell it Like it Is survey talks about all kinds of elements that are important to a given company in terms of how their sales people approach the market, and it’s different, as you know, in different industries. I’ve spent some time with your folks, and your folks are good at determining what that is in different industries. Quite frankly, I know you guys are in the business because you know most people don’t know, and that’s where they need some help.
Greg Alexander: Mm-hmm (affirmative), yeah. This concept of reporting the business, reporting the number, or making the number. I’m fascinated by that, so help the audience understand the difference between the two.
Dave Loeser: You know, sales, and I’ll consider myself one because I’m more of a selling personality and that’s what I’ve done and I’ve enjoyed it, and I think the most valuable job in a company is the sales organization, so it needs to be treated and respected appropriately so. You heard me say it, it all starts with the customer and making a buck. The first buck, it comes from sales and marketing.
I tell you, at the end of the day, it’s about results. You have to get them the right way and you have to measure that, but a lot of companies have moved away from kind of ranking people, creating a healthy competition. Really good sales people like to compete. I played sports. I played sports all through my life, and I played basketball. Only five people walk out on the first string, and I loved the fact that, not all the time I walked out. I hated being the sixth man. As a matter of fact, early in my high school years, I quit the basketball team because some guy moved in twice as tall as me and took my spot that I had played for a couple of years, and I learned an important lesson. It’s about competition, and you don’t quit, you just figure out a way to get better, and it gets back to this how do you evaluate people? I believe that you need to move from rating systems and evaluations to feedback. I believe that feedback is a gift and that you have to make it worthwhile for people.
Greg Alexander: Mm-hmm (affirmative).
Dave Loeser: My dad told me a long time ago and I’ve done very well with it “If you want to make money, help other people make money, and you won’t have to worry about it.” If you as a leader these days want to have a great career, help other people have a great career and you won’t have to worry about yours. Some of these are intangibles, and I put into the category of leadership, Greg.
Greg Alexander: I’m going to paraphrase here, but the report on the number versus make the number, so report on the number is somebody who is really not making a difference, is just rolling up results and reporting them. Making the number is somebody’s affecting the outcome before it happens. Is that a fair way to summarize that?
Dave Loeser: Terrific description. I hear so many sales people, they have a budgeted number, a plan number, they are terrific turning it into an outlook or a projection or, you know all the other words that people try to get, and by the way, leadership puts up with an outlook versus did you get your number. What was your number, what was your target, and did you get it? There’s a big difference between a kind of a pathway there and a very clear “I got my number and here’s what I’m doing to exceed my number,” and the difference between, in my opinion Greg, and you’ll have probably a different opinion and a better opinion, is I think there’s two kinds of salespeople. There’s the kind of a salesperson that gets their number, and you can’t see any difference at how aggressive and hard charging they are to surpass that by 20 or 30 percent, and then there’s a salesperson that kind of looks like they’re on track to getting their number and they lay back and they slow down. What you want is the results-oriented person, because that’s the person that’s going to drive growth and development in your company, drive growth and development for all the people in the company, including themselves.
Greg Alexander: Okay, we’re going to take another quick break here. I want to draw the audience’s attention to a recent podcast with George Norton of Heidrick and Struggles who talks about what companies are looking for these days as it relates to hiring sales leadership, what some of the trends are regarding job specs and compensation, etc. I know you are listening to the podcast right now, but if you’re not subscribed to the podcast and want to get these things proactively, here’s how to do that.
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Greg Alexander: Okay, welcome back everybody. This is Greg Alexander with SBI, and I’m speaking with Dave Loeser, the head of human resources for Unisys, and we’re having a conversation around the different types of salespeople, how to replace performance review with ongoing feedback as a better way to drive performance and feedback as a gift, as Dave said that. Dave, tell me a little bit about that. How do you systematize the delivery of feedback?
Dave Loeser: Well, I just … We could probably spend the day on that, Greg, but people know the difference between kind of a routine exercise and somebody that leads with heads, hands, and heart, in terms of really the interest at giving feedback so that people get better. It’s not patronizing people, it’s about leaning in a little bit. It’s about encouraging people to own their own morale. I don’t believe in self-managed systems in self-service, I believe in self-management. It’s about creating and leaning in on people to make it more responsible, because in today’s world, Greg, it’s a lot more competitive than when I got out of school.
If you’re not moving and if somebody’s not pushing you and helping you get better, you’re getting passed. That concept and notion, good leaders can get that into teams that I’ve seen have been spectacular teams. I’ve used SBI in the past for hiring, and we’ve set job trials in place. You guys have helped tremendously and improved the capability of sales forces, you know, getting competent people on the job, but that’s just step one.
You alluded to it earlier. It’s how you pay ’em, how you develop ’em, and oftentimes the importance of feedback is neglected.
Greg Alexander: Let me ask you the question between feedback and comp. I have a lot of clients who feel that the ultimate feedback is comp, and that if I change the compensation plan, I’m signaling to the sales force what’s important to me. I understand that academically, but I don’t know if it necessarily works in the real world. What’s your opinion? Is feedback strictly a feedback to the comp plan, so therefore I should change the comp plan a couple times a year, or is feedback something entirely outside of the comp plan?
Dave Loeser: Feedback’s outside of the comp plan. The comp plan is an additive, in my opinion. One of the great philosophers, Herzberg, said pay is a satisfier, not a motivator, and if I was really the classical human resources executive, I’d probably stick by that. I think in a lot of jobs that’s true. I would tell you, though, in sales, it’s a combination of feedback, development, coaching, counseling, leaning on folks to get a little bit better, not patronizing them, but I said earlier in a five-cast tier, Greg, that I do think good salespeople are coin-operated, so I think to have leverage in a plan that’s meaningful for people in sales is very helpful as well.
Greg Alexander: Your opinion is it’s a balance, which I agree with. If somebody who’s listening to this podcast wants to embrace some of the concepts that you’ve said today and maybe enter the compensation planning season with more of an open mind and do things differently, how far in advance do they need to start with the redesign effort, you know, I don’t know, let’s say the fiscal year starts January 1st. When should I kick off the design of the new comp plan?
Dave Loeser: January 2nd. I say that jokingly. I can’t tell you how many companies, and how many cycles that I’ve been in that the sales comp plans get kicked off after the first quarter. Huge mistake. Demotivating, gets the sales force focused on what doesn’t work as opposed to what does work. I think that the plans of the future, Greg, are going to have to be more innovative. You guys are good at that, and I don’t think you can start the last quarter. I think that things are happening quicker, I think you need to be more planful, and I would tell you that we make these same kinds of errors of getting started too late, and we don’t kick it around, we don’t put enough friction into these things, I do like to get input from the sales group. They should be the people that are out, the hands and feet that are out making things happen. It needs to be more participative, and it needs to start way early the previous year.
Greg Alexander: Mm-hmm (affirmative). Okay, so the message there is don’t procrastinate and wait and do this last-minute, because if you do, you won’t have as much friction and as many different inputs as you would need, which I agree with, and I couldn’t agree with you more on the January 2nd comment. There’s no reason to be late with a comp plan, and why put people into this purgatory of uncertainty. Deliver the plan at the sales kickoff event or right away so everybody knows what it is that they should be doing.
Dave Loeser: You know, Greg, the pressure in sales organizations is high. The marketplace is global, so there’s a lot more competition. We’re just starting the first quarter earnings announcements, which look fragile in some cases at best. That puts the selling organization under more pressure because, as I mentioned earlier, business all starts with making a sale. You have to kind of work this on a 360, 360 days a year. Constantly be evaluating your sales processes, methodologies, and certainly the way you incent reward people that have these jobs.
Greg Alexander: If everything’s moving faster, can a compensation program last an entire year, or should it be changed more than once a year?
Dave Loeser: Actually, I, in the last several years, I’ve seen programs change multiple times in a given year. Especially as competition becomes more fierce. Especially as organizations see that they need to change the capabilities of the organization to bring some more outside-in thinking, if you will. A lot of companies are stale in their sales organizations. They have a lot of inside-out thinking. That doesn’t work anymore. Outside-in thinking, multiple industries, how it’s done effectively in different ways. That’s where it’s going.
Greg Alexander: Yeah, I agree, and I’m a believer in rapidly iterating the comp program as the year goes on to reflect these changes. Some of my HR clients disagree with me. They’re worried about the administration of the change, you know, how do we get the new plans out there, how do we get them signed, how do we change the systems that support them and bla bla bla. Should those things be a factor, or should you just blow past those and get it done?
Dave Loeser: Greg, they’re worried about the wrong thing. What they should be worried about is their job.
Greg Alexander: Mm-hmm (affirmative).
Dave Loeser: Because they’re not helping the company. The two functions quite frankly in the U.S., in my opinion these days, that are holding companies back from being as capable as they are, the finance function and the HR function. They get bogged down and defensive over compliance, over a lot of bureaucratic policies that just don’t work any more. Change is afoot.
Greg Alexander: Okay, I agree. Hopefully podcasts like this one will inspire at least the HR component to think more progressively.
Dave Loeser: I have to tell you, I’ve had a lot a lot of good folks that I’ve worked with in the people processes and HR and the people function. The company that I work for now, I’ve been blessed, and I have some very contemporary-thinking folks that are in my reward section. They’re demonstrating the ability to throw the rules out, and I think when you talk about compensation and you talk about some of these things, I kind of continually tell people I believe imagination is more important than knowledge because it drives the will. I think that that’s true in people that lead the sales organization, and I think it’s true in the way we lead compensation in the future. We’re going to have to be more imaginative.
Greg Alexander: That’s a great quote. Is that a Dave Loeser original? Imagination is more important than knowledge?
Dave Loeser: Well I’m sitting at a conference center at some lady’s desk and I see it written on the wall, no I’m just kidding, I just, you know, we’re going through a bigger change in business than the industrial revolution, and the problem that people don’t like their jobs is they don’t understand what’s going on. Work is going to be done very differently. Forty percent, almost forty percent of the jobs in the country are done by part-time, temporary people, and the younger generation really doesn’t want to work for a place forever. As a matter of fact, the futurists will tell you that people do want to work for themselves, they want to migrate in, they want to be on kind of an Angie’s List, where people can kind of hire ’em and bring ’em in based on specific skillsets and needs, and they say that even in companies, young people are going to pivot. They’re not calling a change job pivot every 3.9 years. Well, HR people get nervous about “Well how about my IP? If we go out with temporary people?”
It’s all, people are going as you know, Greg, you were one of the guys that did a great job of standing up EMC, but you know that they’ve all gone out to the competition and they’ve taken their tools and that’s going to happen more frequently. Then there’s companies like yours that are going to help companies figure out five or ten years from now what the future of that selling is and then try to bring it in as quick as you can. Those that get there first will win, and it isn’t going to be done from inside-out thinking.
Greg Alexander: Okay. Well, we’re out of time, so let me bring this home for the audience. If you want to study some more on some of the things that we talked about today, specifically sales compensation design more fully, you can go to our site, salesbenchmarkindex.com, and just simply type in sales competition into the search bar, and from there you’ll see dozens of excellent articles from a variety of different people. If you don’t have time to study this and you just want help, then go to the About Us section, click on the services page, and see the offering there for compensation planning. That’ll explain our services and how we might be able to help you.
I want to thank the audience for giving us their time and listening to Dave’s wisdom. We always appreciate you tuning in, and lastly, Dave, I want to thank you. You are a rock star, you really are. It’s amazing to me somebody’s been doing this as long as you have. You continue to evolve yourself and stay current, so thanks for giving generously of your time to our audience, and I hope someday to repay the favor for you.
Dave Loeser: Well Greg, those are kind comments, and I don’t … I do kind of my own thing and don’t do these things often, but I’ll tell you, it’s a credit to you. You and your leadership and the leadership that you’ve put together are really doing some cool things in the sales area, and you’re pushing the envelope. I’ve just been … It’s been really fun doing things with you and every time I talk with you or somebody on your team, I learn something, so I appreciate that as well.
Greg Alexander: Thanks, Dave. Take care.
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