CHAPTER 9

The Role of the C-Level: Getting Involved in the Right Way

LATE LAST YEAR, we met with a couple of the senior sales leaders of a leading high-tech hardware organization at a local coffee shop in Dallas. It was a great off-site retreat for them and a good occasion to discuss some ideas about sales compensation. However, the sales team wasn’t at the beginning of their design process. They were actually at the end, almost literally, and they were looking for ideas to propose to the executive steering committee, which included the CEO.

Their problems really began 10 months earlier when the sales leaders embarked on their annual sales compensation review and design cycle. They went through the rounds of interviews and surveys with the sales organization, worked through alternatives for the plan, and arrived at a final set of compensation designs. Edward, the CEO, heard updates throughout the design phase and deferred to the executive steering committee. The process took a long time that year because the company had shifted its focus slightly to include some additional software that complemented its hardware products. The sales leaders worked through the complexities with the executive steering committee and kept the sales compensation program relatively simple. The CEO continued to receive updates and defer to the executive steering committee.

As November passed, the sales leaders met with the executive steering committee for final review and approval of the new sales compensation program. The plan had been financially modeled for any imaginable situation, but it still had to be communicated to sales directors, sales managers, and opinion leaders in the field. All that remained was the formality of getting the CEO’s “nod.”

“What do they say about the best laid plans?” one of the SVPs of sales asked rhetorically, back at the coffee shop. “We had the presentation down. It was very simple: a few pages, big diagrams, the strategy, where we are now, and what we’re going to change. He had already seen it all, in pieces, as we designed it. But we got a few pages into the presentation, and he started asking questions that sounded like he hadn’t seen the plan before.”

The other SVP chimed in:

The first question was about our planned mix of software and services by segment, and why we didn’t have an incentive that measured that for each rep. We talked about that a number of times with the executive steering committee months earlier and agreed to keep it at the sales management level and have them manage it during year one until we had some reliable numbers to set goals. Then Ed started digging into the financial modeling and challenging us about why the plan would pay more than the targeted cost of sales if we hit our company goal on average but had a lot of high performers. The team had agreed on the above-quota accelerators, and that’s what happens with accelerators. There were a bunch of other questions after that but I started to get a little irritated, because it was clear that Ed just wasn’t connected. We worked hard on keeping him informed, but when he finally locked in, we were at the end of the game. We ran this program by the field, we worked through all the details, and now it’s like we’re starting back in September and it’s practically December. So, we need to make some adjustments pretty quickly to keep the wheels on this thing for January.

We followed up with the sales SVPs a few months later and learned that, unfortunately, the redesign took a bit longer than the team anticipated. Closing out sales at year-end, working back through sales compensation design iterations with the executive steering committee, and handling the energy of a CEO recently engaged in the sales compensation design who now wanted to see every detail dragged out the redesign of the plans. In January, the company started paying reps on a bridge plan that continued their incentive pay at the same monthly rate from December. This bought the company time, but the team knew the bridge payments were too high in some cases and too low in other cases, which meant that individual reps and managers would have to be trued-up when the new plan finally came out.

The team finally completed the plans and rolled them out for an introduction during the second quarter. Was the redesign better than the proposed design? The CEO thought so, but it was hard to say. The senior sales leadership team had a lot of cleanup to do with recommunication and incentive pay true-ups. Sales leadership had lost some credibility with the sales organization. And the executive steering committee, including the CEO, may have learned a lesson about getting real C-level engagement and support much earlier in process.

C-Level Involvement in the Sales Compensation Process

C-level executives (CEOs, COOs, CSOs, CMOs, and presidents) get involved in various ways during the sales compensation process. Sometimes, as we saw in the situation above, it’s not in the optimal way. Too much involvement too late can wreak havoc on the labor-intensive and time-consuming design process. It can also undermine the heavy lifting already done by the design team and the confidence the C-level has placed in the team. On the other hand, zero C-level involvement isn’t the right strategy either. While the compensation design team may be brilliant, a brilliant sales compensation plan must line up with the vision for company-wide growth, which most often must come directly from the corner office.

We looked at C-level participation across a range of companies and found that high-value involvement peaks at a number of points, as shown in Figure 9-1: at the start of the process to provide strategic direction, at occasional review points to keep current and test the team, and again toward the end to review, approve, and support the plan from an executive level.

Providing Strategic Direction

From our research, shown in Figure 9-1, 82 percent of C-level executives provide strategic direction on the priorities of the business relative to sales. These are the C-Level Goals described in Chapter 1. About 55 percent also provide direction on how these strategies should be emphasized in the sales compensation plan. Here are some highlights of our interviews and research for how the C-level can provide strategic direction to the sales compensation design team.

FIGURE 9-1. C-LEVEL INVOLVEMENT.

To cite Jeff Connor again, regarding his strategic involvement:

My role, at the end of the day, is for sales to function as a center of excellence. I sit down with the people and make sure that we’re thoughtful about the strategy, the insights we’re building off of. I look at all the comp plans from a benchmark perspective and try to help people understand whether they align with the strategy.

Recently a business unit was looking at the Insight area, to use the Revenue Roadmap, and the strategic alignment. They built a model and straw person example. When I got involved, my first role was to push and poke around the model to see if in fact it makes sense. Another thing I do, because I grew up here and was a direct seller for nine years, is to always put myself in the shoes of a sales executive. Do I understand it? Is it simple? Are the incentives things that I can control?

At Salesforce.com, the president provides clear direction. “Our job is to understand what his expectations are, and then present to him the plans based on his guidance,” says Lucky Young, the company’s director of compensation design and operations. “Then he’ll assess the plan to determine whether it’s going to drive the right focus and behavior. He knows a lot, but at the same time he’s easy to work with. You can throw out ideas and he’s open to them, which is unlike a lot of other leadership that I’ve dealt with. It’s the leadership style at Salesforce.com, regardless of what business unit you’re working in, that makes a difference. They’re very open to listening to new ideas.”

Al Kabus, formerly of Mohawk Commercial, asks three specific questions.

My first question is, “Does the sales compensation plan bring up our strategic initiatives for that year—the five or six initiatives we as an organization are going after? Show me how it’s going to impact those five initiatives.”

The second question I’d ask them is, “Have you gone back and retrofitted on last year’s sales, and how would that have affected our top 20 percent of performers? How would it have affected our bottom 20 percent? And how would the middle be affected?”

The third question I’d ask is, “What is the behavior you’re looking to drive next year by making this change? How is it going to drive that behavior? What are the risks of this strategy, and what are the potential long-term benefits?”

Kathy Ledford, senior director of sales compensation at Comcast—one of the world’s leading media, entertainment, and communications companies—says finance is a strong force there. “We look at cost per unit generated as comp cost, training cost, and other sales costs. But, the CEO is increasing his visibility into sales compensation. We’re focusing on growth through excellence in sales and marketing execution. We’ve had five years of revenue growth and we want to maximize what we have, including new products. The CEO needs to know what organic growth levers we can pull.”

Autodesk’s Jim Sides says it’s a best practice for the C-level to align early. “I think a big part of aligning with your CEO is understanding the philosophy and what you’re trying to drive and making sure that you’re going in the right direction. Is there anything that we’re trying to do differently in terms of coverage? What are the behaviors we’re going to drive as part of that sales strategy? And then what’s the right compensation design that drives those behaviors?”

Meanwhile, Doug Holland of ManpowerGroup North America notes that CEOs with a sales background will be more engaged than an executive without sales experience.

Our president is very engaged. Not in terms of, “I want to see all the stress testing you did on the design to make sure it works,” although he is capable of getting to that level of detail. He wants to make sure the organization is emphasizing a few key areas from a strategic standpoint, that our sales compensation plans reflect those things. Do we want to get better margins this year? Are we trying to grow a certain aspect of our business? He is very engaged in the parts of the plan that pertain to our three-to five-year strategy.

When we begin designing the plan, we sit down and we talk about two things. First, clarifying total business direction. Where does he see us going next year? And second, giving him summaries of variable pay plans, our experience from the previous year, what we’ve paid, distribution of people above and below plan and how it aligns with how the business is doing. We give him a high-level summary by line of business; we don’t give him job-by-job detail. He expects us to come back and tell him, based on the conversation, some options of how we might align comp to business strategy.

Paul Johnson is sales and marketing VP at Intuit. He says, “Our president understands everything, but she doesn’t need to understand the detail of what we have in the comp plans. She wants to make sure that our comp plans are in alignment with the strategic direction, and she is phenomenal at setting strategic direction and putting the objectives in front of us for the year and over the next three years. So, she’s laid out for us, in very distinct terms, what the business needs to accomplish at a reasonable level of detail, to where we can design the comp plans around that.”

Getting Involved in the Process

Looking at Figure 9-1, we see that 23 percent of C-levels participate periodically in design team meetings. However, most C-levels and their teams give caution about getting too involved in the details. It pulls the C-level out of his area of strength and sometimes turns him into a bull in the china shop. About 36 percent of C-levels get involved in the details occasionally, but very few (about 5 percent) get involved in the details frequently. For the inquisitive, high-IQ CEO or president, it takes a certain level of self-control and team reinforcement to prevent the C-level from getting involved too much.

At Salesforce.com, Lucky Young limits the number of proposals or options to the president. “It works very well,” Young says. “Too much information and too many options can be confusing. But our CEO got involved this year at the end of the process. We were pretty much done with the plans, and then all of a sudden he wanted to take a look at them. He comes at it with a very different style. He’s a salesperson. He’ll ask the questions about the value proposition of the plan to the sales organization, how you would sell it, and the key strengths. We had to change the plans, and it took us another month and a half to get them approved, which made it interesting. He was definitely involved to a degree this year to where next year, we’ll integrate his expectations before starting the design.”

Doug Holland, at ManpowerGroup North America, says, “Our president is a very, very bright man, and if we’re not careful he’d go into all the details. We could spend three hours on one aspect of a business development manager plan in one of our lines of business. But it’s probably not the best use of his time.”

Reviewing, Approving, and Supporting the Program

As the organization starts to see the results of the design process, C-level involvement is important to ensure that the final product aligns with the strategy articulated at the start. This is an area of heavy C-level participation, with 68 percent reviewing and giving final approval of the program and 45 percent supporting the program with leadership messages and spending time on the front line. These are key points, where asking the right questions can make a difference in the quality of the program. (We’ll look at these questions shortly.)

Mike Lanman describes his CEO’s role at Verizon Enterprise Solutions:

He’ll go to the front line salespeople and ask them, “How’s the sales strategy working? How’s the compensation plan working? Are you getting paid for the behavior that drives the strategy?”

He’s regularly checking to see if his front-line sales team understands the why of what we’re doing in compensation versus just the what. That’s a big theme we have in the business: We should never just tell our salespeople what we’re compensating on, we should tell them why we built the new compensation plan and be clear on the objectives we’re trying to achieve, and then what we’re compensating them on. The key is an open dialogue about keeping the business healthy and creating personal wealth for your sales team. That message is part of our comp rollout strategy every year.

According to CA Technologies’ BJ Schaknowski, “At their level, they’re dealing with the same ridiculous amount of stuff that we’re dealing with at any one time, and they’re not an expert in compensation. So, the more you come to them with something drawn out in crayons, the easier they can understand it and easier they can help ‘design it.’ Then [you] come back a second time with, ‘Based on what we discussed last time, here’s what we put together. It meets our objectives.’ That second meeting, you come back with a spreadsheet, but they know that it’s based on the crayon drawing that you did the first time. The bottom line is, ‘Did we agree cost of sales was a percent of X? Are we mapping to the behaviors that we talked about? Did we match our objectives?’ ”

The board gets a little tricky, however. “We do sales comp plans up through our board,” Schaknowski continues. “You are going to have somebody in the room that knows what you’re talking about, so you’ve got to get ahead of that person. Do that up front; spend one-on-one time with whoever that director is in advance, letting them see the plan and poke holes in it before you walk in. C-level folks are okay with surprises, because they know they don’t know every area. Directors hate surprises.”

Jim Sides at Autodesk says:

We’ll walk the CEO through the plan, to make sure he is comfortable with it. Now obviously he’s a lot more comfortable with the plan if the CFO, head of HR, and the head of worldwide sales have approved the plan. He wants to understand what the comp is driving, and he often is very interested in who we are rewarding.

Understanding the cost of the program is complicated. Particularly in high-tech compensation, it’s not a linear number. It costs you more money in acceleration than it does if 100 percent of your sales force hits the plan exactly. It never works out that way, because you have pockets of success. You have a certain percentage of population that’s going to be in accelerators. So in some cases there will be an education process for CFOs and CEOs to understand that. Once you explain it to them and walk them through how it all works, they get it. It makes perfect sense. But it’s not as intuitive as you would think because they’re not close to it.

Putting it all together, the more than 50 companies we examined that had this blend of C-level involvement had an average three-year compound annual growth rate of approximately 7.5 percent compared to the Fortune 500, which had growth of about half a percent, and the Fortune 100, which had growth of about 2 percent over the same period. While this type of C-level involvement in incentive plans is certainly not the primary cause of higher growth, it is likely indicative of greater C-level involvement in the workings of the sales organization overall and the practical drivers of growth.

Asking Good Questions

Most C-level executives know good questions are more powerful than statements. Effective C-level executives ask the right questions about sales compensation as well as more broadly about sales effectiveness.

When we asked C-level executives about the top few questions they ask their organizations about sales compensation during the process from evaluation, to design, to implementation, their queries were consistent and clear:

Are we driving the right behaviors? (65 percent of C-level executives) When we cut through all the structures, measurement, and math, sales compensation is really about moving the behaviors of the sales organization in the right direction.

What are the financial returns and risks? (53 percent of C-level executives) When making a change in the plan, the anticipated benefits and the known risks should be clearly understood.

Does it align with the strategy? (40 percent of C-level executives) One of the likely reasons the organization made a change to the sales compensation program was to support the current or near-future sales strategy.

How will it affect our ability to recruit and retain top people? (34 percent of C-level executives) The plan should address talent management objectives.

Is it easily understood? (20 percent of C-level executives) Sales compensation is ultimately a communications tool. Its ability to clearly get the message across within the organization’s parameters is a true test of its effectiveness.

As an executive, having a list of the top questions is valuable, but having a model to ask the right questions for the organization is indispensable. Those questions may vary based on the stage of the design process and the organization’s situation. Start by reflecting upon the C-Level Goals. The role of the sales compensation plan in supporting each of the C-Level Goals can be captured by a few C-Level Question Dimensions, as shown in Figure 9-2. We’ve suggested some questions within each of these dimensions, but your organization’s specific situation should determine the best questions.

FIGURE 9-2. C-LEVEL QUESTION DIMENSIONS.

Representation Questions

These questions ask how the sales compensation plan incorporates each of the C-Level Goals around Customer, Product, Coverage, Financial, and Talent. Looking back on Chapter 4, remember to include only the essential measures in the sales compensation plan and give management the responsibility to manage to the rest.

Motivation Questions

These questions ask about the types of behaviors the sales compensation plan will drive. While most organizations think about the positive behaviors, also test for behaviors that may conflict with the strategy or with the workings of the sales team. As we described in Chapter 8, this is a great opportunity to test the plan with experienced managers and reps to expose the full range of motivators in the plan.

Results Questions

These questions ask about the measurable, tangible results to expect in each C-Level Goal area. These questions seek specific answers rather than generalities. How much does the company expect to grow a particular customer segment or product group? What indicators will show that the organization has successfully supported its new sales coverage model?

Dependency Questions

Recognize that the sales compensation plan isn’t the only driver of performance in the organization but is a supporting program in the Enablement layer of the Revenue Roadmap. These questions ask about other organizational and environmental factors that could affect success.

Risk Questions

These questions ask about all the things that could go wrong, either with how the program operates or how the dependencies play out. In most cases, predictions about sales performance turn out differently than anticipated. The idea is to acknowledge that likelihood and anticipate those possible occurrences. A useful exercise when addressing major change is to identify the possible challenges, assign them probabilities, and determine how to address each. It simply helps to stay realistic and better prepare to make the change work.

Simplicity Questions

These questions ask about how to strip the sales compensation program down to its essence to make the message clearer and make managing the program easier. Asking questions about why the organization really needs a sacred component of the program can create some discomfort with a team that has invested so much hard work to that point. But these questions are valuable as a final push to the thinking around design.

Change Questions

These questions ask how to turn the design into reality. As described in Chapter 8, the team should be planning for change from the inception of the program and continue through finalizing the design and preparing for rollout.

When the team is discussing the objectives of the program at the start, working along the way, or evaluating the results of its work, using the C-Level Question Dimensions can help team members and executives cycle around a dynamic questioning model that stays current with the challenges at hand.