CHAPTER 5

Big Deals: Aligning and Motivating Strategic Account Sales

A COUPLE OF YEARS AGO, we met with Robert, the CEO of a major telecommunications company, and his senior sales leaders to talk about their strategic account program. As we sat down, he animatedly described his recent meeting with a potential strategic account customer, a financial services organization in London that represented a global opportunity. Robert’s vice president of sales had asked Robert to attend a meeting with the prospect’s CEO to build the executive connection. The two CEOs hit it off and found some common points in their backgrounds, including the mutual objectives of their businesses. Following the meeting, Robert was confident his company had secured the deal. As he awaited the thumbs-up from the sales team, his vice president of sales called and, in a measured tone, delivered bad news. Robert paused, feeling a sense of personal frustration. Then it came out: “Are you kidding? What did we miss?”

A postmortem quickly ensued, with Robert (a keenly interested CEO) periodically hovering over the embarrassed sales team, anxious to get some answers. They discovered that while the financial services organization felt Robert’s company had offered a quality solution at a fair price, the people there believed the approach was too regional and fragmented. They thought that, as a global corporation, they would have had to coordinate too much from their side to make it work smoothly and, in the end, their total cost in fees and internal resources would be too high.

Unquestionably, Robert’s company had a global presence and a customer list peppered with major brands from around the world. Upon digging, however, we realized the customer had initially been pursued by the company’s regional sales team. Because the regional sales director was responsible for a regional P&L and was compensated for his regional P&L performance, his primary focus was on booking regional business in Europe. While he wanted to win all the global business with the financial services organization, he and his team had little motivation to coordinate resources from other regions around the world. The European team was stretched for bandwidth, and it would have been a huge distraction for them to have to put additional hours into amassing a larger team, dealing with varied opinions, and figuring out the commission splits.

Thinking back to the Revenue Roadmap in Chapter 1, the sales organization had operated only at the Enablement layer—they were driven purely by the incentives—when they should have begun way upstream at the Sales Strategy and Customer Coverage levels to develop a strategic account program that considered the customer, the sales process, and the right incentives to promote a global view of the customer.

Robert was irate. He understood why his company had lost the deal. The company had long operated regionally, with the assumption that its regional sales offices would work together when necessary. But this rarely happened, and the lack of cooperation had cost them over time. Now this situation had brought it to a head. Operating under assumptions had created a major revenue issue for the company, and it was time to shift to a set of clear processes and practices for managing strategic accounts.

Defining Strategic Accounts

Most companies have strategic accounts whether they officially recognize them or not. These are the accounts that are critical to the business and have the potential for bigger growth and partnerships between company and customer. Strategic accounts encompass global accounts, national accounts, enterprise accounts, or other major accounts.

Mike Lanman of Verizon Enterprise Solutions says his organization talks to major accounts about how to solve their business problems, and this involves a very coordinated effort by the account team. He states:

There is the magic moment where you’re going to share with your customer’s key business owners how our company can change and improve their business model. This meeting is the culmination of a lot of strategic planning and pre-work, and you typically only get one chance. So you had better get it right and absolutely nail it when you have that opportunity.

The reps have to be motivated to do that, and that’s part of the shared compensation structure—the willingness and motivation to work together. Without it you would have people saying “You do your part, and I’ll do mine,” where you end up with a Frankenstein’s monster result—everybody brought their piece to the table and it doesn’t connect well. Today we have it very well threaded, and we put a lot of effort behind making sure these briefings are buttoned up tight and focused on the customer and their needs. We walk out of well-constructed team presentations with focused projects that turn into sales dollars.

We segmented our business into verticals, because there’s no faster way to get to the root of the customer’s problem or opportunity than to be regularly calling on customers in a common industry. If I focus all my time dealing with transportation companies, I can more quickly understand the concerns that they have. And not only that, I can drive back into the business the actions that our product, marketing, and legal teams will take to build the right products and service portfolio and the right contract terms to address that market. Before the vertical approach it was hard to nail the magic moment with the customer. Now we’re coming in and saying, “We know your industry needs this, we have solved this for others, and we can help you, too.”

Internally we call it “creating the engine for innovation.” It really works, and it’s amazing how fast the corporation starts to deliver against the requirements of the customer when you centralize those requirements under a vertical organization. The skill set of the sales team rapidly moves up-market when you go vertical. Prior to this, they had struggled to absorb too much and were failing to become experts in any one industry.

Too often, companies work with their strategic accounts in a fragmented way. They haul out their laminated logo sheet of big brands, yet when asked about their program for those accounts, they look perplexed. When companies define strategic accounts, they often think about them only in terms of the current revenue that comes from those customers.

While it’s natural to look at the accounts producing the most revenue as strategic, there are other ways to more effectively define a strategic account.

Sales Potential

One common approach is to consider the total addressable sales potential in the account. This number represents what a sales representative could provide to his customer if he won all opportunities in a given year. While it’s unrealistic to win every deal, it’s a good gauge of the ultimate size of the account. Classifying by revenue rather than potential can cause an executive to under-classify about 20 percent of his accounts and overlook some big opportunities. He might position a Fortune 500 account at a lower level in his customer pyramid because he’s looking only at current revenue flows, not the business he could potentially do with them. Thinking about current revenue alone puts him in a defensive posture because he’s thinking about what he has rather than investing in what he could have.

Determining potential can be a comprehensive exercise of identifying predictors of sales or compiling competitive intelligence that indicates what each customer’s total spend might be for each of the products and services. While getting an accurate estimate of potential is important for segmentation, and particularly for goal setting, the emphasis for strategic accounts is around prioritizing those accounts that really matter.

Strategic Value

Another method of defining a strategic account is by understanding its overall importance to the company. Strategic value could encompass a number of factors, including revenue potential. Some of the important aspects of strategic value are how well the customer aligns with the mission as a company, how significant that customer could be to the growth plan, and how well the company’s expertise and competencies match that customer’s needs.

Determining where to draw the line for strategic accounts is one of the most common pitfalls. While some companies select a handful of strategic accounts for focus, the more common situation is including far too many. This happens when there’s a lack of process or clear definition and unrealistic expectations of sales capacity.

We recently evaluated the global account program at a technology company. As a first step, we ran an analysis of the distribution of revenue, distribution of profit, and distribution of sales potential within the company’s top accounts. We basically asked the question: What percentage of revenue comes from what percentage of the accounts? (This is sort of a modern twist on the Pareto rule, which says that roughly 80 percent of the effects come from 20 percent of the causes. In the case of sales, often 80 percent of the revenue comes from 20 percent of the accounts.)

As we expected, a sizable portion of the revenue came from these global accounts. In fact, approximately 80 percent of the company’s revenue was represented by 15 percent of the company’s accounts. Because the company had classified its global accounts by revenue, there were numerous Global 2000 accounts that fell below the cutoff line that could have been considered global, if we examined their full potential and not just current revenue.

One of the big findings was that while global accounts represented about 80 percent of the company’s revenue, the global accounts included a group of more than 125 unique companies, which is a large number for any global account program. The sheer size made it hard to have a truly focused program and focused resources. What was surprising was that when we started to remove accounts from the 125, starting with the smallest and working up, the percentage of revenue and potential didn’t change much. After carefully paring the list, we found that about 30 accounts of the original 125 represented about 90 percent of the original 80 percent of the company’s revenue and potential—or about 63 percent of total company revenue and potential. From a focus and resource allocation standpoint—including headcount and compensation dollars—we could see that the company was spreading its limited global account sellers across far too many accounts. Very simply, the company had drawn the line too low for global accounts. It had become a program that was diffusing focus from those top few accounts that, if they were more highly penetrated, could help the company grow significantly.

We solved the problem by tightening up the definition of global accounts and developing a true global account program that would provide the company with a stronger value proposition for those customers. With segmentation clearly articulated in the Sales Strategy layer of the Revenue Roadmap, the company could then flow into the right decisions around sales roles and compensation.

Understanding How the Customer Makes Decisions

Recognizing what’s important to customers and how they make decisions can direct a sales organization to the types of strategic account roles organization members will use and how they’ll credit and compensate those roles. In general, large accounts that operate across multiple locations make their purchasing decisions in one of three ways: centralized, preferred provider, and decentralized.

Centralized Process

A company may make its purchasing decisions from a single point, which means that most decisions are made from headquarters for all of the locations, as seen in Figure 5-1. For example, a company might select a financial institution to administer its 401(k) program. That decision would be mandated for all company locations. It wouldn’t make sense for each location to determine its own 401(k) plan, since it’s an enterprise-wide purchase. However, individual employees may not contribute to the plan without a local representative explaining the value of the program for retirement savings.

FIGURE 5-1. CENTRALIZED BUYING PROCESS.

In this case, there are several important roles for strategic account sales. A primary strategic account manager would likely build the relationship with the decision makers at the centralized buying location. To do this, she learns their needs for the program, develops some compelling options, and differentiates them enough to win the sale in a competitive situation. As she finalizes the deal, she lines up the support team of 401(k) enrollment specialists to deploy to the customer’s regional and local offices. While these enrollment specialists may not sell to the local locations, they operate in a service capacity and have significant influence on the sale by educating and enrolling employees in the 401(k) program. If the enrollment specialists do their job, the customer employees fund their retirement plans, and the 401(k) provider realizes revenue. If they don’t do their job, the headquarters sale becomes an under-realized opportunity.

This centrally mandated decision requires a unique sales compensation model and crediting. Primary sales credit usually goes to the strategic account manager. If the company is using local support, whether service or technical sales specialists who provide expertise, those support teams usually receive some level of overlay credit for the pull-through of revenue in the account. That overlay credit may be specific to the locations they cover or may be for the account overall, or some combination.

Preferred Provider Process

A company may also make its purchasing decision locally, following the lead of headquarters, as shown in Figure 5-2. In this situation, headquarters might make the decision to purchase the product but not actually buy anything. Instead, headquarters gives the selling company either exclusive or preferred provider status in the account. This means that the sales organization then may work with each location to offer the product. For example, an office products company might sign a national contract with a major bank. The bank approves the program, the products within the contract, and the contract terms. Each local office may then purchase products from the national contract—or each local office might ignore the contract and use another vendor. Knowing this risk, the strategic account manager’s job is now to work with the local sales organization to create revenue by persuading each bank location to purchase off the contract rather than buying through an alternative source.

FIGURE 5-2. PREFERRED PROVIDER BUYING PROCESS.

The preferred provider model requires its own unique sales roles and compensation solutions. At the headquarters, the strategic account manager works with the decision makers to understand the customer’s needs, develop the right type of approach, finalize the contract, and close the sale. As part of the plan, the strategic account manager coordinates with her team to cover all of the customer’s buying locations. This team is made up of sales-people who can influence and close the sale at each location. The team may also include technical sales specialists or product specialists to offer deep product or service knowledge. In contrast, while the centralized model may require only fulfillment or service people, the preferred provider model requires local sellers to persuade and close the deal amid competition from other alternatives, possibly including a second competitor that is also a preferred provider for the company. Depending on the company’s deployment model and strategic account team structure, the salespeople could be dedicated to the strategic account, or they could be field sales reps who cover smaller, geographic accounts in addition to local offices of the strategic account.

This account team structure can determine the level of focus the company will have on the strategic account, so decisions around the configuration should be made thoughtfully. If the local sales representative is dedicated to the account or if the account carries a high priority in the rep’s portfolio, then the company will likely have better sales results. This is especially true if the local sales representative has a dedicated strategic account incentive, or if she receives greater credit for strategic account sales than for sales of her territory accounts. On the other hand, if strategic account locations are blended among a group of other accounts in the rep’s territory, or if there’s no differentiation for incentive pay on strategic accounts, then the rep will pursue whatever opportunities are easiest or most attractive. Not differentiating strategic accounts in the field territories can significantly weaken the strategic account program and revenue performance.

A credit split is a popular approach for crediting multilocation accounts. For example, the strategic account manager may get 60 percent of the credit for revenue and the local sales representative may get 40 percent of the credit. While this seems like a simple solution, that 40 percent weight for the local rep may actually be less than what he receives for his local accounts, thereby putting strategic accounts at a lower priority for that rep.

An alternate solution is to give multiple credit, so both the strategic account manager and the local account manager receive a full revenue credit for every dollar sold. In this case, a sales organization might give strategic accounts the same or greater incentive weight than territory accounts to emphasize the importance of strategic accounts to the territory sales representative.

Decentralized Process

A company may make its purchasing decisions in a decentralized fashion as well. (See Figure 5-3.) An account with multiple locations may leave the purchase decision up to each of those individual locations. For example, a company that uses ground shipping might decide which provider to use on a case-by-case basis at each local location. In the decentralized model, the selling company may align local sellers to local customers or may deploy a strategic account manager who attempts to coordinate the sale of those multiple locations even though the customer makes decisions locally.

The buying approach for an account may be different for different types of purchases. As a service, like ground shipping, becomes a more significant line item and moves up higher in the expense hierarchy, a decentralized model often shifts to a preferred provider model to take advantage of a centralized contract. For instance, the company that allowed its local locations to make independent decisions on shipping services might select a couple of approved vendors for the business to lower its overall costs. If that company reaches a level where the expense becomes a core component of its product—say, it uses ground shipping to move finished goods from its plants to warehouses—it might decide to consolidate that decision and increase its buying power by offering an exclusive arrangement to the shipping company and establishing a national buying contract. The sales organization may also influence the customer to move from a decentralized model to a centralized model to capture a majority of the business. While a centralized program may reduce the total price the customer pays for the services, it may be a better long-term solution because it will establish a better partnership between the two companies.

FIGURE 5-3. DECENTRALIZED BUYING PROCESS.

In the example that opened this chapter, the telecommunications company had an under-developed global account program in which account managers attempted to either cobble together global programs or tackle the account regionally. In reality, it was a loose confederation of regional sellers operating on principle and goodwill that didn’t provide any real benefit to either the customer or the sales organization. The customer would have preferred a coordinated approach about how the two companies could partner to provide financial and operational benefits, but Robert’s company couldn’t speak at that level. The winning competitor, however, found a way to make the customer part of its true global account program and thus won the business.

Promoting a Solution Sale

Much has been made in the past several years about solution selling and consultative selling. Billions of dollars have been spent on training programs that attempt to teach people how to listen to the customer, understand his issues, fashion a solution that differentiates the company from competitors, and ultimately win the deal.

We’re often asked how to drive the sale of a solution and what should be included in the incentive plan. The truth is that solution selling can’t be motivated through incentives alone. What’s important is an alignment of the disciplines in the Revenue Roadmap, including:

Customer segmentation. Has sales leadership targeted the right segments to provide solution opportunities for the sales organization?

Value proposition. Does the company have an effective value proposition around its solution, or is its value proposition centered on its products?

Sales process. Has leadership defined a sales process that will align the sales organization with the right buyer levels and take them through the right course of knowing the customer’s business, understanding his needs, developing a business case, and providing the right answer?

Talent. Does the sales organization have the right people in place to offer solutions?

Training and coaching. Have people learned how to sell solutions, and are they being coached to continue to develop their capabilities?

Only when these upstream disciplines are aligned can an incentive plan motivate solution selling.

The danger in measuring and paying for solutions is that the company may force the rep to promote a solution that fits his incentive plan, rather than offer a real solution for the customer. That just promotes a more complex product push. The right way to look at incentives for solution selling is to first ask, “What is the definition of solution?” Unfortunately, a solution may not have hard edges for attaching measurements and incentives, so many companies use some type of surrogate, like a product or service mix. For example, a telecommunications company may look at the blend of voice, data, and video revenue from a customer to determine whether a solution has been sold. The assumption is that by selling this combination of products, some broader value proposition has been articulated to the customer that binds these pieces together into a solution.

When thinking about solution incentives, the right answer for a sales organization may range from hardwiring solution incentives in the compensation plan, to paying solution incentives as upside or add-on, to simply managing the organization to sell solutions. Consider these four options in Figure 5-4. The options range from absolute measurement to absolute management.

FIGURE 5-4. INCENTING SOLUTION SALES.

Motivating Creative Sales Roles

Often, sales roles at the strategic level accomplish their growth objectives through truly creative means. While companies often refer to selling solutions, which are adaptations and combinations of pre-defined products or services, creative sales roles may develop a customer solution that is derived largely from a unique concept that is customized to a customer need. This solution may extend the value proposition by not only offering something unique but also providing new ideas the customer may not have considered before.

We see this type of creative selling in organizations that are striving to differentiate themselves and that have reached a more in-depth understanding of the customer’s business. What makes these sales roles work and what options should be considered for incenting creative sales roles?

As with solution selling, the upstream disciplines of the Revenue Roadmap must be aligned to enable these roles to be successful. This includes defining the right segments, value proposition, and sales process as well as equipping theses sellers with the knowledge and skills to enhance their creative solution development capabilities. We address these creative approaches with clients and their sales teams with our Creative Sales Quotient process that helps them build methods for developing innovative sales solutions.

As far as motivating and aligning incentives to creative roles, this topic has received a lot of attention in the business press at a conceptual level, but leaves much open to interpretation and experimentation at the company’s risk. From our work with leading sales organizations on highly-cognitive, creative sales roles, and from my personal research as a “closet art school MBA” making the transition from design and advertising in New York to a combined right brain and left brain role developing creative sales strategies, we’ve learned a lot about what works and what doesn’t work. Here are a few principles to consider when developing incentives for creative sales roles.

Discern Between Creativity as an End and Creativity as a Means to a Sales Result

A good creative process includes clearly defining the challenge, destroying false assumptions, connecting possible solution components, strengthening the concept, and developing vertical solution alternatives. For a creative role in research and development, marketing, or advertising, the successful outcome may be the solution itself followed ultimately by profitable revenue enabled by the company’s sales channels and sales organization. Placing an incentive on developing a more creative solution may not drive greater creativity but instead may generate greater duress and lower conceptualization and creativity. For these roles, tapping into methods of recognition, leveraging inherent intrinsic motivators, and potentially rewarding as a result of success usually align well with the creative process.

For sales roles, and some marketing roles with tangible revenue results, the line of sight between the creative solution and profitable revenue is much more direct, as shown in Figure 5-5. The result of a successful creative process isn’t just coming up with a new idea, it’s winning a new sale or growing revenue for a customer or part of the business. In this case, the creative process is a means to get to a revenue result by understanding the customer’s situation, solving the problem in a differentiated way, and winning the deal. Placing an incentive on that end result, with the latitude to work through the creative process to get that result, maintains that role’s alignment with the ultimate outcome that’s important for the business. Supplementing with recognition and intrinsic motivators can enhance the program. Determine the blend of creative output and creative enablement and balance incentives to match.

FIGURE 5-5: CREATIVITY AS A MEANS TO A SALES RESULT

Consider Fewer Directive Incentives and More Incentives with Latitude

As a total compensation level is reached that is perceived by the individual as significant and as the sales role becomes increasingly creative, the effectiveness of highly-directive and incremental incentives tends to decrease. Good examples of this principle are sales roles in major consulting, outsourcing, and facilities management companies. These roles often create customized approaches for customers that are based on a set of challenges and a resulting concept that is co-developed by the seller and the customer. The product or service is simply a functional component that enables the concept.

In this situation, specifying a certain product mix, as you might see in a solution sale comprised of a pre-defined bundle of products, or adding incremental incentives for certain desired behaviors simply won’t move the seller against her will or produce a better outcome. The seller has reached a level where the prospect of a few thousand dollars more for moving in a different direction is less important than the possibility of the bigger reward from growing the customer’s overall revenue.

We saw this principle play out recently in a global outsourcing firm. The design of the incentive plan did not align with the firm’s strategy of developing solutions seamlessly across countries. The firm’s organization and financial structure made it difficult to implement sales incentives for customers with locations in multiple countries. However, counter to what you might expect, the senior sellers in the organization still put together multinational customer solutions and did the right thing for the business and the customer even though, on paper, the incentive plan didn’t support it. The reason was that these sellers as a group had reached a level where their overall rewards, both financial and intrinsic, for developing the best answer for the customer far outweighed any mechanical disincentives to sell across borders. Their overall incentives provided them with the latitude to create and make decisions as long as the outcome produced the desired growth result. Don’t over-direct with incentives but allow creative latitude that supports the role.

Understand Motivators for Highly Cognitive Sales Roles

Cash compensation, including salary and incentives, are a major part of the offer to the sales person. Long-term incentives and benefits can increase the value of the offer. However, other motivators can play a big part in making creative sales roles compelling to the individual. These include reward and recognition programs that acknowledge success in non-monetary ways. Some of these approaches are described in the chapter on managing sales management.

However, beyond incentive and reward programs designed by the company, some of the most powerful motivators are the intrinsic rewards that come along with the success of creating and winning. A great illustration of these intrinsic motivators is Michael Jordan’s “love of the game” clause in his contract with the Chicago Bulls that allowed him to play basketball off-season without risking his compensation if he was injured. He had reached the level where playing the game was so intrinsically important that he wrote it into his rewards package. Tap into creative sellers’ love of the game by understanding their motivators, emphasizing the intrinsic rewards, and providing them with opportunities to share their passion and expertise as mentors to the next generation of aspiring reps.

Involve Creative Sellers in Creating Their Own Goals

As we explore in the chapter on quotas, setting effective goals is a critical connection between sales compensation and performance. If the organization is creating unique solutions, especially for strategic accounts, a simple financial goal may not suffice. Sometimes, the financial result extends beyond the annual time-frame, the types of solutions the team will develop may not be clear, and objectives and leading indicators may be more fluid with significant input from the sales team who has a good understanding of the business environment and the customer’s challenges.

Ramesh Ramchandani of Semicoa Corporation describes the flow of new technologies in the semiconductor industry. “In some cases for strategic sellers, the path is very visible. Automobiles have advanced electronics today and evolving future technologies like the iPad, wi-fi, automatic parking, and smart cruise control. The automotive industry has defined a roadmap so we have a sense of where the market is going. By comparison, in the consumer space, no one knows what smart phones will look like three years from now. But we do know the enabling technologies that are developing. The sales person needs to understand these drivers. The incentive design and goals can be dynamic and we continue to fine tune them. But the sales organization has to come to us with new insight on the market.”

Account plans for strategic accounts can provide this type of insight to effective milestones and goals that can be incorporated into the goal setting process. The team can also provide periodic sensing of the market and patterns of issues valuable to setting objectives. Consider involving creative strategic account sellers in building their goals to increase the relevance of those goals to the account, improve the transparency of the process, and enhance buy-in.

If innovative sales solution development is a priority for your business, define where it fits within your sales strategy, power it with a creative solution development methodology, and support it with the right incentives and motivators that match your team.

The Sales Crediting Balance

Occasionally, we receive a call from a finance executive with a direct question: “How many people should get paid on the same dollar of revenue?” The executive is usually concerned about how much compensation his organization is doling out to each person in a particular deal and wants to know how the organization can start cutting back all the credits to those “undeserving, overpaid reps.” The answer is not in the credits or the dollars. It’s about who influences the sale and the behaviors the company wants to motivate. Cutting credits in the wrong place can sever a critical tendon that unites the sales team—saving money but losing motivation.

While the temptation to lower compensation costs sometimes results in reducing crediting, a better answer is to consider each role on the team and determine the desired behaviors in the sales process. Then identify which roles typically have influence on the sale through those behaviors. Next, decide what type of crediting approach will be used—for example, a set number of credits for each sale, a split credit, or a multiple credit. Finally, look at the financials to understand the cost implications for the crediting approach. Then ask:

Does the organization credit and compensate too many people for the sale?

What effect does it have on motivation, teaming, and performance?

How can crediting be trimmed down to the essentials?

What are the cost implications of the crediting approach?

At opposite ends of the spectrum, there are some important behavioral differences between a single sales credit and a multiple sales credit, as shown in Figure 5-6. A single credit is easy to understand and straightforward to pay. Costs are simple to calculate because there is one compensation credit or one commission percentage for each revenue dollar. The problem is that a single credit creates a competitive situation. That may be fine in an independent seller sale. However, if the company depends on team selling between direct sellers or a combination of direct and indirect channels, it creates an “attract and repel” situation. The single credit immediately attracts reps’ attention and creates action. But once that credit is claimed by a rep, all other reps who have no piece of the action are repelled. If the company depends on the team to actually make the sale, the team members have all gone away by now, looking for the next deal and the next credit.

FIGURE 5-6. THE SALES CREDITING BALANCE.

A multiple credit provides credit for more than one team member. The company may set a number of credits available for the sale or define credits based on the role each person plays in the sale—for example, sourcing the opportunity, managing the sales process, and supporting the sale. The multiple credit approach can work well in a team selling environment or in a multichannel sale where there is a combination of direct sellers (employed by the company) and indirect resources (third party partners like resellers or distributors).

The country cousin of the multiple credit model is the split credit model, in which the company uses a single credit but either designs the split based on roles or allows sellers to negotiate the split at the time of sale—a recipe for favoritism, side deals, and politics.

The multiple credit model must be carefully designed and managed. If not, it can spin out of control and create a chuck wagon effect with reps and channel partners finding creative ways to belly up for some incentive pay. It’s important to define multiple credit rules of engagement, to ensure that each credit links to influence in the sale, and to know the potential incentive costs under different sales and crediting scenarios.

Jeff Schmidt, global head of business continuity, security, and governance for BT Global Services—a global provider of managed networked IT services—rewards teamwork in his global sales model. He says:

You don’t want sales organizations fighting with one another—being territorial and not sharing information. Make sure that your reward system is flexible enough to reward the team and also reward the individual. And, I think you also have to be careful not to reward the team too much and not recognize the individual. If you did too much team rewarding, then potentially the person who’s doing the majority of the work loses the incentive, because they’re getting rewarded the same way as everybody else, and maybe everyone else isn’t pulling the same weight. It’s better to reward the individual, but also make sure the team is rewarded for its collaboration. The individual is recognized for the work, and hopefully you spur the rest of the team to do the same type of thing. Sales, to a large degree, is an individual sport.

The objective that we have is a uniform sales reward program across the geographic and cultural globe. The sales teams’ rewards are flexible in nature, but there is a consistency applied across the entire business. The objective is to not have somebody hide the nuggets of opportunity, because somebody else is going to get leverage in an account. One person takes the lead, but there are seven people in seven different geographies that also have to be on the same level to make sure they’re consistent. You want to make sure that there are rewards factors for sharing and collaborating.

Measuring Mega Deals

With strategic accounts sometimes comes the opportunity to win very large sales, often known as mega deals, which can make the year for a company. For example, for a company that provides outsourced services to major customers in the $2 million to $5 million annual range, a mega deal may be worth $50 million to $75 million. That extreme difference can throw the sales process and incentive pay out of whack.

We recently received the following e-mail from a chief sales officer:

I’m leading a sales organization that is about to sign a mega deal services contract. It blows out our sales commission plan and will probably need some good backup detail or comparables where large transactions have paid significant commissions to the sales team. Finding comparables and history has been difficult. Our sales plan currently has a cap set at 750K. Amounts above the cap are paid according to management discretion. In this case, the amount above the cap is 6M. Signing this customer is a watershed event for the company, and the sales executive targeted this company and had facilitated the entire sales cycle for two and a half years. Others were certainly involved, but now I’m in a difficult position of keeping the individual and convincing the company with such a large discretionary number.

Six million dollars in incentive compensation over the cap of $750,000. That attracts a lot of attention in any organization.

Mega deals present challenges on both the front end and the back end of the sales process. Selling a deal 10 times the average size usually doesn’t happen quickly. It’s not uncommon for a mega deal sales process to extend beyond a normal fiscal year into a couple of years. For a strategic account manager to have the staying power to work through a deal of that length requires belief, persistence, and a unique incentive solution. If the company pays on revenue within the current fiscal year, the rep may have zero revenue—or he may have 10 times the quota.

The dilemma on the front end is how to keep the rep engaged if he may not see revenue from a mega deal for a couple of years. One approach is to simply acknowledge that it takes time to sell mega deals. A strategic account manager usually has a sizable base salary that will carry him through a long sales process. When it happens, the mega deal can finance a rep for a couple of years, allowing him to weather the down years. It can even fund his family’s future, costing the organization a talented rep who decides to retire early.

ARAMARK’s Jeff Connor believes that when it comes to mega deals, companies need performance measurements that are behavior based and tactical. He says:

My guidance to the sales leadership is when we look at performance management in the major account people, you’re really looking at least a two-year window, probably a three-year window in aggregate value. So you don’t reshape the plan every year because they’ll get overpaid in one year and underpaid in another. And those reps understand the alignment between their comp plan and the business strategy, and I don’t want to lose the alignment to profitable growth. But I do want to understand, on the performance management side, that we have a common window to look at for performance. It is possible someone could have a very lean year. And there are times we make the strategic decision to say, “This one account is all I want you to work on.” If it doesn’t work out, our plans all contain a little bit of a safety. And we also have a house account, which helps people get paid for something unique or unusual.

I don’t think it’s about building the plan as much as being clear about the differences between compensation and performance that are interrelated. Your ability to be promoted is actually something you look at in a longer term view. So you don’t have to build into your plan the fact that somebody might have a lean year in between two great years. But when you look at whether or not they’re promotable, you might look at all three years in aggregate. It’s not really the plan so much as it’s about understanding the separation of compensation for profitable growth and performance management.

In our plans we have a target, and then there’s some scaling around the target. Once you hit the target you make a little bit more and then we run the revenue and profitability. It’s meaningful for the people who exceed target. The issue we have in our business, I call it the law of chunky numbers. It’s possible to sell a single deal that doubles your quota, if you had one, for the whole year. Theoretically, he could take the next seven years off and still be successful. But, among his other team members, some may not be as successful. So when it averages out, it behaves a little bit different.

Another approach is to use forecast measures in combination with financial measures. For instance, a company might look at the value of the pipeline—a list of deals the rep could possibly close and the potential value of each deal—at a certain stage of the sales process and pay according to that pipeline value as well as on actual revenue booked for the year. Of course, paying on the pipeline requires a rigorous definition of the pipeline stage that carries the incentive and clear confirmation from management that the potential revenue and milestones are indeed valid. For example, a rep working on an outsourcing contract might have a customer co-invest with the company to conduct research and planning for the outsourcing relationship. This demonstrates customer commitment and increases the probability of the deal ultimately closing. Three Fortune 100 high tech companies that we’ve worked with in the last year alone compensate for pipeline value for mega deals this way. The pipeline value approach runs counter to the principle of paying on results rather than activities, but properly managed, it can be effective.

On the back end of a mega deal, at the time of the sale, the company should be comfortable with its incentive approach so there aren’t any surprises. When designing the payout curve, determine whether it continues at the same rate or decelerates if the deal is 10 times the average deal size. A sales organization should know how it will address a situation like that possible $6.75 million payment before it lands in front of them. As the e-mail mentioned above from the chief sales officer describes, both company and employee are in difficult positions, although in later conversations the company admitted that the size of the deal was well worth the cost of sales. It was paying that level of compensation to one person, without precedent, that created a quandary for the company.

To sift through this type of issue, ask the following questions:

Is the sale highly valued by the company?

Will it have a disproportionate positive impact on company results for the year?

Was this an opportunity that was in progress and documented during the course of the sales process, rather than a fluke that came in over the transom without notice?

Did the rep have significant influence on closing the sale rather than being the recipient of a “lottery ticket” or the beneficiary of a team that actually drove the sale?

Is the potential payout within compensation guidelines?

Does the potential payout support the culture and create a “hero story” that will motivate others?

Would the incentive for this level of revenue fall within the acceptable compensation cost of sale and not create concern if it wasn’t all paid to just one person?

Answering “yes” to a majority of the questions above suggests that the company should make that payment. But before finance cuts the check, consider what type of behavior the organization wants from the rep with this customer in the future. If the company wants the rep to move to the next customer, it might make the entire payment at once, although there’s a risk then that the rep might retire early. If the company wants the rep to stay close to the customer to pull through the revenue, if the contract doesn’t guarantee the revenue, or if the company wants to retain the rep before he decides to retire, it might pay out the incentive over time. It’s not a good idea to adjust or cap the payment, because this can be a real morale killer for the sales organization. We all need our heroes. If the payment is within a reasonable cost of sales, the company might actually get some additional motivational value from that payment based on how it inspires performance in the sales organization: “If he can do it, so can I.” Be sure to understand the potential impact of mega deals to the sales organization. Don’t undervalue them or exclude them from how they should be treated in the incentive plan for strategic account managers.