Joining us for today’s show is Eric Schwab, a Chief Commercial Officer who knows a thing or two about revenue growth. Today’s topic is incentive compensation planning to hit your revenue goal. Eric answers questions from the Sales Compensation phase of SBI’s How to Make Your Number in 2018 . Turn to page 395 of the Sales Strategy section to review emerging best practices for compensation planning.
Eric Schwab is uniquely qualified to speak on this topic of compensation planning as the Chief Commercial Officer for TEN: The Enthusiast Network. TEN is the company that brings us iconic media brands such as Motor Trend, Powder, Surfer, and HOT ROD to name a few. As a content creation and media solutions company, TEN has transformed from a legacy media provider into a new media company. Eric has lead the sales team during this transformation. Listen as Eric demonstrates how to design incentive compensation plans that get you to your revenue goal.
This show is a must-watch episode for any corporate leader wanting to tie the achievement of the corporate strategy to the day-to-day behavior of the sales force. This show captures how Eric recognized the tie between a revenue miss and how the sales force was motivated through the comp plan. Listen as Eric discusses the steps Eric took to design the right sales compensation plan that would drive the right behavior and reward performance.
Why this topic? Compensation plans are often too complex, and sometimes they might even be too simplistic. As your company evolves its strategy and you evolve your sales strategy, the comp program needs to keep up. Old compensation concepts are both a blessing and a curse. Stick to the way you have always done things and you’re sure to miss your revenue targets, but over-rotate to the new concepts and you’ll push talented reps out the door. It’s imperative to refresh the incentive compensation program at least once per year if you want to hit the revenue target.
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Compensation plan design became a major focus when Eric’s company missed the revenue number three years ago, yet was over budget with sales commissions paid to the sales organization. The discussion goes deep into compensation planning with Eric acting as the practitioner, the CRO in the seat, solving this particular problem at his company. Also, joining us for the discussion is Dan Perry, a principal at SBI. Dan’s role today is to share compensation planning best practices from his experience helping companies solve this problem across industries. For the audience, you’ll benefit from a specific use case to think through and a broader discussion about the key things to think through when planning compensation across industries and companies.
Listen as Eric explains the past compensation plan and why that plan was not producing the desired behavior. The past plan was set at a 65% ICR (Individual Commission Rate) for every individual salesperson. Sales reps didn’t get paid commission until they hit a 65% threshold on any given month, quarter, or end of year. What we had with that was it was very complex. It was hard to understand, so about three years ago, Eric transformed the comp plan and went to a dollar one plan.
Fast forward to moving into this next fiscal year, Eric is taking his compensation plan to a blended rate. That blended rate is going to be basically a two-tier ICR system. It’s still going to be dollar one, but it will be two tiers. There will be one Individual Commission Rate for the first tier from zero to 85%. The second tier if for ICR from 85% and beyond that will be three times the ICR. Your compensation rate from 85 beyond is three times higher, still paid monthly, still paid as a mix of the dollar one. This plan adjustment is built to incentivize good performance and penalize the poor performance, while protecting the company in the process.
As an additional resource, review a recent article that is the most read and shared compensation post in the past month: Is Now the Right Time to Pull the Compensation Trigger?
Finally, Eric describes how he included a 2x multiplier for a product that has strategic importance to the company. As his company has transformed, Eric has leveraged compensation levers to incentivize the right behavior throughout the transformation.
Have expectations gone up and left you wondering if you can make your number? Here is a tool that will help you understand if you have a chance at success. Take the Revenue Growth Diagnostic test and rate yourself against SBI’s sales and marketing strategy to find out if:
- Your revenue goal is realistic
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- You will keep your job