Improve your sales force effectiveness with job clarity

We often address the topic of increasing the effectiveness and productivity of the sales force. This typically concerns motivation, pay, work methods and/or standards. In this issue we will shine a light on perhaps a more fundamental element of sales force performance—job clarity.

“Job clarity, what do you mean? Everybody knows what selling is!”  Really?  Let me tell you a story.

I was once asked to assist a client that manufactured and sold high-quality office furniture. The company’s sweet spot was selling to large corporations or government agencies that were upgrading their executive or manager offices or moving to new quarters—with the obligatory requirement for new furniture.

The client had a sales force that was disbursed in 4 local sales offices with showrooms (branches) in major markets with large populations of corporate and governmental offices (New York, Boston, Chicago and DC). The sales force sold directly to the company or agency, or would be recommended (or “specified” as acceptable) by architects or engineers engaged in the design of new office space for the buyers. The architects and engineers were customers and treated accordingly. The sales process was pretty simple: know your customer, get a subscription to the local construction/real estate trade journal so you know who is doing what, stay in the face of local architects and engineers (coffee & donuts) and plan to make a lot of sales calls on both known buyers and influencers.

The company was becoming concerned that it was not getting the sales or market share it desired (or deserved), and was convinced that its current sales-pay plans were at fault (and, the sales force had already suggested that paying more money would surely help improve performance). We were contacted to help evaluate and then redesign the current sales-pay system, if needed.

To begin, we started with a series of field sales force and manager interviews to understand the sales process, the motivations of the sellers and impediments to success. When doing such interviews, the first question we always try to answer is: Is this really a sales-pay problem?

What we found was startling! First, as you can assume when a potential client is buying or replacing furniture for 1,000 offices, the sales proposal can be very detailed and fill many notebooks. It was taking up to two weeks of uninterrupted sales-rep time to complete each proposal. They had little or no administrative support to help with the task.

Then we found something even worse. Not only was the sales force spending nearly 100% of their time preparing the sales proposal, they were also doing all of the detailed design & logistical work to deliver and install the 1,000 suites of furniture. In short, every time a furniture deal was closed, the client lost a sales rep for the next 2-3 months.

By our estimate the sales reps spent 2/3 of their time doing non-selling activities.  Hence, if there were 8 sales reps shown on the organizational chart, in truth there now were effectively only 3 reps selling. The sales force was routinely doing the wrong job.

Everyone was shocked by what we found except the members of sales force—this was their normal “deal.” They accepted limited company resources in the field and generally did not want to complain as many were more comfortable doing back-office work than making sales calls.

Well, the deal promptly changed when the client recognized that its real productivity issue was a confused and misdirected sales force. What did they do next?

1. The sales force was no longer involved with installation of future closed furniture projects. That work was now shifted to engineers and administrators assigned from the home office and managed by corporate resources. In addition, each branch had a specific support person assigned to writing sales proposals. In parallel, any current sales rep who wanted to change from selling to installation & logistics was allowed to promptly make that transfer. (Management also strongly suggested to three of the sales incumbents that they consider the transfer.)
2. The sales force was now expected to make a set number of sales calls every month on current and prospective accounts, and their progress toward reaching this goal was measured& reported frequently.
3. The client started to manage the sales “pipeline.” Members of the sales force were responsible for having 4-5 deals of 500+ office suites or more working at any given time and be able to assess the probability and time of close for each.
4. Finally, there was something wrong with a pay plan that provided good (market+) earnings for a sales force that only spent 1/3 of their time selling. In response, the commission-based plan was modified to continue to reward for volume, but some pay dollars were now shifted to rewarding for closing big deals with new high-potential customers. Hence if you wanted to make money, you had to make that sales pipeline sing.

Suddenly, the sales force had no time left to manage an installation or anything else not involving a sales call.

Over the years, Wilkening & Company has recommended a number of tools for improving sales force effectiveness. But, assuring that your sales force clearly understands their job and your expectations may be the most fundamental tool of them all.

What is your sales force doing today?

Rewarding & retaining non-family executives in a family-owned business

Discussions and analyses of compensation or reward practices within a family-owned and operated business often focus solely on family members—really not a revelation nor a surprise. This narrow focus can create difficulty and a challenge as the firm begins to grow. This typically happens when the hiring of non-family executives increasingly (and suddenly) becomes part of top company leadership discussions. Hence, the pay game suddenly can change.

Why are family-owned and operated businesses often challenged when non-family executives begin to appear on the horizon? In our experience two factors explain this.

1. Owner and partner pay practices in family-owned and operated businesses are often different and unique. These unique practices may include such factors as: pay premiums for family members, a reliance on owner’s cash distributions in lieu of “normal” salary or bonuses (“who needs a bonus when I get money as an owner?”) and pay levels based upon ownership stake or family generation rather than job or contribution. In such an environment, fair or market-based executive pay may have little meaning. But if you are hiring a new non-family CEO or promoting an insider, fair pay means nearly everything to them.
2. Members of senior leadership in a family business are generally all (and substantial) shareholders and owners. Conversely, that new non-family CEO or EVP you are looking to hire will likely not be a shareholder. Now, shareholders generally have a pretty good feeling for how their actions and those of other leaders/owners will impact future company value and return (i.e.: their stock). But, if the new CEO or EVP is not an owner, that fabric of “pay” and performance can change.

Does any of the above sound familiar? If so, let me suggest that you and your company take some simple and proven steps to assure that key non-family executives are attracted to your company, are properly rewarded for their efforts and that these key players (and non-owners) are highly motivated to remain with the company well into the future. We suggest that you take two steps if you have not already done so.

• Find out what it will take to adequately and fairly reward top non-family employees. Do this by "pricing" or comparing your positions versus similar positions and similar companies within the market place. The investigation will typically include both salary and annual bonus.  Methodologies and information for such analysis are both available and generally well known. (If you find that is not true in your case, call me. I will direct you to the right techniques and “books.”) Plus, you should also consider the competiveness of the benefits you offer. In our opinion, you want to assure the company is paying at or above the market for similar executive talent. Beware of findings that suggest that you are underpaying. That is potentially a risky situation.
  
  As you read this, I presume you are only thinking in terms of non-family employees & executives.  Actually, the objective process that I have briefly described above is exactly what you should also be doing with all of your family employees, as well.

• Next, find out what other companies & competitors are doing to retain & reward their key executives for the long term—in addition to competitive pay. In our experience, the most oft-used and mentioned tools will typically fall under the broad description of long-term incentives (LTI’s) offered to encourage outside executives to act like owners. These can include such plans as: stock options, phantom stock, stock appreciation rights or other performance-based cash awards. Now I used the term “stock” three times above, but these arrangements seldom (if ever) involve actual private-company stock—just something that acts like it.  The trick is to offer rewards to executives that will be determined (or valued) and paid a number of years into the future. The value of such payouts will generally be established by: 1) increasing enterprise value, 2) the executive staying with the company in an increasingly productive role, 3) some other performance benchmarks or events, or 4) all (or some) of the above. It is also important that the company assure that these rewards are competitive and fair in the eyes of the receiving executive.

While we have found that both steps are valuable, often clients will address the broader issue of market competiveness first. This is a prudent starting point.

As your firm considers the hiring of top executive talent, know that you are competing in the marketplace with firms that may be larger, sophisticated, savvy, and may be publically-traded. They will use whatever tools are necessary to win. This will include the “right” annual pay package and perhaps long-term executive incentives.

Do not get surprised by a letter of resignation, or by a prospective CEO or EVP who turns down your offer and goes to a competitor. Prepare to compete—and win.

Wilkening & Company has assisted a number of family-owned and operated firms with building competitive pay and reward structures to attract, reward and retain non-family executives. If you would like to discuss the how’s & why’s in more detail, or speak about what other companies have done, do not hesitate to call or write.

Long-term incentive eligibility: The make or break decision

The most important decision a client will make when designing and implementing a long-term incentive (LTI) plan concerns who should participate in the plan. While eligibility seems like a simple and somewhat innocuous decision, it can have a great impact on the effectiveness of the plan—as a sustainable & cost-effective tool. This can be a crucial decision for the CEO and Board.

So, why is eligibility so important? In short, if you pick the wrong person for plan participation you will significantly overpay for their retention (if you even needed to retain their services, at all) and they will absorb scarce “value creation” compensation dollars that would be better awarded to a more deserving executive or contributor.

Further (and more painfully), if you find that you have chosen the wrong contributor (or they just up and quit) after they have been in the plan a couple of years, unwinding their agreement can be complicated and costly—particularly if they hold vested rights. 

What can a company do to select the right participants for their long-term incentive plan? Try our three selection criteria or tests.

1. Only include cannot-lose executives. If you are trying to retain key talent for, say, five years, be sure that the selected participants are those who will have the greatest impact on company success for the next half decade. And, they are one of the very few contributors you cannot afford to lose to competitors. [the competitor test]
2. Minimize rewards for past contributions. Often clients desire to use LTI plans to reward executives for past contributions or loyalty. If you have such a group of executives and they do not meet the competitor test, limit their participation in your LTI plan. Better yet, create a separate Founder’s Reward plan that is not part of the LTI plan—or is a limited branch of it. [the save your money for the future test]
3. Limit eligibility to a small group. If you are firm under (say) $100 million in revenue, our experience suggests you will generally select no more than 2-4 eligible executives or contributors. As a company grows to twice or three times that size, you can consider doubling participants. But always ask yourself: “How many key players does it really take to run this company?” We typically find that the answer is less than more. [the run the company test]  

As you can see, we generally come down on the side of limiting the number of select LTI plan participants. This generally yields the most deserving participants, provides better outcomes and preserves future flexibility. And, you can always add more later.

If you are considering a long-term executive incentive plan, weigh the decision of eligibility carefully. Selecting the right contributors will make your plan cost effective for the company and a real winner for company and participant alike. Try applying our three rules and see if they help. And, if you have more rules you believe are helpful, please pass them along.

Wilkening & Company has helped privately-owned and operated clients design and implement long-term incentive plans for key executives for over 20 years. Eligibility is one of the key decisions that must be made as part of LTI design. During the remainder of 2013, we will discuss other decisions.