Manufacturing Case Study

Redesigning Sales Comp to Support Acquisition Integration

Introduction

Energy Solutions Leader Seeks Support for Future Growth Strategy

A market leader in AI-driven energy solutions needed to assess the effectiveness of its sales compensation plan to reinforce future growth strategies. The company was the result of an integration of a hardware focused company with a provider of an ‘as a service solution’. However, management identified several concerns with the compensation program as it related to the newly formed integrated sales team.

The newly formed company sought to integrate the software (SW) and hardware (HW) legacy organization, which proved challenging as each organization’s sales comp plan had different plan constructs, including measures, commission rates and crediting rules.

In addition, the legacy HW business had long deal cycles, and crediting policies resulting in lengthy wait times for payments to sales representatives. This had a direct impact on both talent retention and new seller recruitment.

The top three objectives for the company were as follows:

Develop a compensation plan structure allowing for payout for both one-time and recurring revenues from its multiple project-based, HW, SW and service offerings.

Design a split crediting and commission policy on large deals involving multiple sellers.

Establish a governance and administration process to eliminate inconsistent and late commission payouts.

The company chose Alexander Group, the market leader in sales compensation design, due to our deep vertical go-to-market expertise, which enabled us to assess their business situation and drive implementable solutions quickly.

Approach

Benchmarking Against Market Best Practice

Using Alexander Group’s proprietary database of sales compensation plan cost, productivity and design, the company was able to benchmark its existing compensation structures to market best practice. Alexander Group conducted a comprehensive assessment of the current sales compensation program to determine how well it supported and reinforced the strategy, market practices and best-in-class principles.

Leveraging our 35 years of curated best-in-class design principles and frameworks, we were able to help the company devise optimal solutions and deliver meaningful results.

Key Findings

Fundamental Disconnects Creating Complexity

Based on our assessment of the existing sales compensation plans, we worked closely with the company’s revenue leaders to identify the following fundamental plan design challenges:

Ambiguous SIP eligibility criteria resulting in non-sales resulted roles on SIP plans
Inconsistent pay mix approach leading to varying levels of pay at risk for sellers in the same role
Unnecessary complex plan measures and mechanics resulting in confusion amongst the salesforce
Multiple quota and payment crediting events lead to a lag in persuasion activity and commission payout
Subjective split crediting policy resulting in multiple reps being paid on the same deal.

Recommendations & Outcomes

Reconnecting Sales Compensation to Business Objectives

Alexander Group made the following recommendations based on our expertise in sales compensation plan principles and best practices.

Verify eligibility requirements for roles in the commercial organization based on: the level of customer contact, ability to persuade customers to purchase a product/service, and the ability to set clear and quantifiable sales objectives.

Ensure the pay mix matches the degree of influence of the job role, using a company-wide pay mix structure that accommodates each position.

Define compensation measures and mechanics that reinforce corporate product mix goals (e.g., HW vs. SW vs. services) that are simple for sales representatives to understand and calculate.

Align quota crediting and payouts to representatives’ responsibilities, customer commitment and corporate philosophy.

Credit multiple resources on appropriate sales. Each resource involved in the sale receives a percentage of the credit, and the total credit adds up to 100%. The benefits of this approach include:

Providing adequate reward/recognition
Supporting modest teaming of sales resources
Varying rewards based on contribution

Provide plan documents for each role, including the plan objectives, plan overview, specific details for each measure and calculation examples. Develop an Excel tool that the employee and manager can use to understand how the plan pays and to estimate their payouts.

As a result of our consulting approach and recommendations, the company has the following outcomes:

Eligibility requirements for sales team compensation are consistent across the organization
Pay mix strategy that aligned to the level of persuasion of the job role
Plan measures and mechanics that reward the seller for selling the entire suite of portfolio offerings

Refocusing Your Sales Investment

Rapid growth and acquisitions can result in misaligned sales compensation approaches. Understanding corporate strategy and role deployment will allow organizations design a holistic compensation program to support the strategy of the business.

Alexander Group has unrivalled expertise in best-practice sales compensation design. We help manufacturing leaders assess and optimize compensation programs for improved sales performance, productivity and ROI.

About Alexander Group

Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.