Incentive Compensation: Balancing Risk and Reward at Huntington Bancshares

I wrote a while ago about the new imperative for incentive compensation systems in banking (follow this link for that article http://bit.ly/rFlffE.)   That was all about the Federal Reserve and their guidance on Sound Incentive Compensation Policies. 

    

I was happy to see the following video (follow this link for the video http://bit.ly/vfSMwS) on Bankdirector.com.  The video entitled Incentive Compensation Plans: Balancing Risk Vs. Reward features Kevin Blakely, SR VP and Chief Risk Officer of Huntington Bancshares. It runs about 3 1/2 minutes and in it he discusses managing the risk in incentive compensation plans, how to minimize risk taking and the role of the Chief Risk Officer in incentive compensation.  He provides some insights as to how Huntington Bancshares addressed these challenges and manages the risk in incentive compensation.

Great Executive Interview questions for Sales Performance Management

When we talk about the keys to success when implementing a new sales performance management system, the issue of executive sponsorship always comes up.  It is critical to ensure that organizations are aligned across business functions (covered in this blogpost - http://bit.ly/vHkO5P ) but also that organizations are aligned vertically throughout the organization.

This week  I was talking with Mark Coleman, Managing Partner of Compensation Analytics (www.compensationanalytics.com) about some of the great research they are doing and the topic of executive sponsorship for Sales Performance Management (SPM) projects came up. Our mutual experience has shown that spending time upfront to make sure executive sponsor's needs are well understood is critical.  These will be things like aligning sales performance management capabilities with business strategies and providing sales management with the information they need to be more effective.  Getting in to the weeds too quickly (on a topic as complex as sales compensation) can result in your sponsor missing the value of SPM – it’s best to save the discussions on error rates, dispute handling, and pipeline processing for the subject matter experts.

When talking with executives it is important to understand their priorities and perspectives.  The following is a sample set of questions that will help guide an executive meeting.  Some of these are higher level and more strategic, and some of these are more tactical, but all of them are geared towards gaining insight as to where improve sales performance is on the executive sponsor's list of priorities.  These are intended as a guideline and should be tailored to your specific organizational needs.

 

1.      What are your top priorities and what do you need your sales force to do differently in order to achieve these goals?

2.      From your perspective, what is broken with sales compensation?  Why? What do you think are the underlying root causes behind these issues?

3.      What strategic capabilities do you think you’ll need in a few years that you do not have today?

4.      On a scale of 1-10, how would you rate the performance culture of your sales organization (1- what is performance management?, 10 – high expectations, active performance management)

5.      If you had 3 wishes for capabilities that would improve your sales performance, what would they be?

6.      After being out of the office for a while, what is the first Sales report you look at upon your return?  Why?

7.      What’s the number one thing you would like to know about your current sales performance that you don’t know today?

8.      If you could enhance the information you now receive to improve its value to you – what would you change?

When should the executive meetings/interview happen?

Some people advocate that you get all of the research done, figure out potential solutions and answers to these questions before meeting with executives.  You will have to judge your own organizational dynamics and culture, but I believe that you should go in early with these questions.  It’s only once you have the executive perspective that you can really go out and research potential process, organizational and technological improvements.

 

New 2012 Sales Performance Management research report from Aberdeen

Peter Ostrow of AberdeenGroup does a nice job again this year with his annual SPM research. (click here to read the research -http://bit.ly/wb9VjH

The survey results show how the market is progressing and the report provides some good advice for guiding SPM initiatives.  I wanted to call out one thing in particular.  The survey shows that the goals, in priority order, that organizations have for their SPM implementations are:

1. Higher Sales Margins
2. Increase Management Visibility into sales force and channel performance
3. Better sales hiring process
4. Universal rep understanding of compensation or performance plans
5. Balance territories to maximize revenue
6. Reduce administrative time for sales compensation or territory management
7. Reduce sales turnover

Higher Sales Margins was viewed by practitioners as the most important. It is interesting to see the quantification of a trend that we have been noticing for some time now.  That is, it’s not just the desire to grow top-line revenue, but profitable revenue that drives a lot of sales performance and sales compensation initiatives.

Higher margin business often comprises of selling back to customers, bundling products, cross-selling, multi-year and multi-product sales and/or some combination of the above.  Motivating your sales force to sell high-margin business is a challenge for most organizations. There is the obvious first problem of trying to collect and process the data in order to calculate margin by customer, product and channel so there is visibility into what is high-margin business.

Secondly, if we assume that sales people are motivated by their commission plan, then the idea would be to introduce new components to their plan that rewards this type of selling.   According to Gartner, nearly 90% of organizations are using spreadsheets and home-grown solutions to manage the sales commissions processing.  Without some SPM technology in place Commissions teams today are already hard-pressed to meet demanding deadlines, reduce errors and try and find efficiencies with today’s plans.  Adding requirements to drive Margin-based plans, versus Revenue-based plans is a daunting task.   This should not be undertaken without a review of existing processes, data flows and technology.

Lastly, there is a concern is that adding new compensation plan components that reward these higher margin activities can result in making the plans too complex and disenfranchising the sales team.  Note that the fourth priority on the list was Universal Rep Understanding of Compensation or Performance Plans.

There is a lot of data out there that suggests that sales plans are already far too complex and many sales people do not understand their current plans.  Adding more complexity can exacerbate this problem.  If you are moving to margin based plans, it must be done by considering wholesale changes to the commission plans, and specifically considering what components could come out when these new ones are introduced.

For clarification, the survey was partially underwritten by Varicent, Xactly and Callidus, but the survey itself, and the interpretation of the results were all done by AberdeenGroup.