2022 Pay Practices and Trends Survey Readout:
Plan Governors and XaaS

Mark Donnolo
Yeah. Okay, so let's go on to the next point story and plan. Governors, I'm not supposed to talk about the election or governors, so we're not going to talk about that.

Mark Donnolo
We're gonna talk about governors for the plan that's open. So there is a general trend here that we're seeing in terms of during the pandemic, things like caps and thresholds came off plan. So companies are saying we want you to be able to earn earlier, we're going to take the thresholds away. We want you to be able to earn the upside if you can get it.

Mark Donnolo
We're going to take the caps away. So things opened up. Those governors removed from from the plans. And then what we're seeing now is a shift from 2021 to 2022 in the following year. So caps are reducing to some degree now, we're not big fans of caps here at SalesGlobe. We think about caps kind of like free range chickens, right?

Mark Donnolo
So you got this chicken sitting in a very small cage in that very small cages is the pay cap. Right. And that that little very small cage is kind of depressing because it kind of influences how I perform as a chicken. Right. So so that's our pickup. But you want a free range chicken, you want somebody who's positive.

Mark Donnolo
And when you when you talk to two people about a compensation plan and they talk about the cap on the plant, we don't like the black cap and the plane. You asking the question? Well, have you ever hit the cap? No, I never hit the cap. But I know a guy that hit the cap. It was a couple of years ago.

Mark Donnolo
Right. So so nobody so the cap is more psychological. So back to the free range chicken thing. I'd rather have a free range chicken that has aspiration. Right. I want somebody who's who's who wants to go out there and blow out the plan because like the free range chicken, we know there's a fence out there somewhere, right? There's a natural limitation to how far we can go.

Mark Donnolo
So the cap is hugely psychological, so so those are starting to pare off a little bit, but other things are coming along. Bloomberg and megadeal policies increasing a little bit you'll see. So that's that's those unforeseen deals are huge deals where we take them outside of the plan remaining even as is thresholds for hunters and you can see that's holding even from year to year and also your thresholds from fire for farmers holding even year to year.

Mark Donnolo
We could talk separately about why use thresholds, but those are holding pretty consistent and then regressive payouts are increasing as well. Let's swing by theirs and see that. Okay, so progressive payouts are increasing as well. Regressive payouts are basically when you get to that excellence level, they start the effective commission rate starts to slow down on the plan.

Mark Donnolo
So so it's slowing down the payouts. So that's kind of like a soft cap in a way. Yeah, right. So that's a little bit what's happening on plan governors.

Michelle Seger
All right. So let's get into the plan measures. This is where this came from. So we went across industry and this is also for your field and hybrid sales roles. It was an the inside sales is in here too. So whether I'm doing account acquisition, account management or I'm doing both that we grouped in all the different jobs together.

Michelle Seger
So what we found is top performance measure across all three areas. So whether I'm a hunter, a Doberman or I'm out there doing count management, penetrating accounts or I'm doing both, revenue appears to be the number one measure. It's number 52 call it. You know, it was 62 on acquisition in management. So call it more than half of companies are using that as the top measure in their plan.

Michelle Seger
Secondly is coming in bookings, right. So that's when I book that order and then gross profit as a third measure with 39 and you know, about 35% of companies using that as well. So that's just a little bit of a breakdown. And again, as Mark said, we've got this broken out by industry and by job role as well.

Michelle Seger
But we want to aggregate this to show you what it looks like.

Mark Donnolo
So a question came in from one of the viewers on, are we seeing compensation on price increase at all? Price increase? And that would be kind of inherent in revenue.

Michelle Seger
But so it hits in revenue, but also on gross profit. And that was the question that came back to us, which was if I can if I'm understanding the question, right, because you're looking up and I never know what his thinking was looking up. But anyway, what one of the questions that have come back to us is if I can give them control across the price that they offer.

Michelle Seger
So they've got, you know, a starting and then a higher price. Obviously, that higher price brings in greater margin for the company. And the thought was, you know, should we could pay them for that spread, right? So the answer is yes, we are seeing some of that. However, Europe has to be in control of that and it has to be realistic, right?

Michelle Seger
Yeah.

Mark Donnolo
Yeah. And probably the most common measure that I think I'm seeing on price increases is price realization. So it's a target price and. How close can you get to that target price if you don't like you said, Michelle, if the rep does have control over price and margin, or even if they don't, one of our clients said recently that our reps are our best our customers best negotiators.

Mark Donnolo
I mean, they'll come back and tell us why we need to lower the price for the customer. Right. So so that would say the reps not highly impacted or were compensated for price in that situation? Yeah, good question.

Michelle Seger
So the other thing is we just wanted to bring up a consideration point because we're being asked this a lot as well, whether you're paying on bookings or that's where it starts. But then it's like, okay, how do we measure what what the value looks like? And it starts with contracts. And then you've got though we mentioned that TCV and ACV are being used most frequently for bookings by companies in this study.

Michelle Seger
But then you've got MRR monthly recurring revenue. And how long should that be paid out volume in units? It could be whether it's new business versus renewals, do we pay for renewals and how much? And then one time sales, right. There's all these different things you need to be thinking about in bookings and revenue and get very specific on how that's defined and make sure that's communicated very well in your plan and very well defined for the sales reps so they know what they're going after.

Mark Donnolo
Yeah. Yeah. And I think one of the biggest challenges that I see in this area is that we're trying to align the SAS payment with what used to be the the perpetual license or the premise payment. And the other one is the concern about annuity. So I don't want to create something that's going to be a long term annuity that people are just going to continue to earn that money over and over and over as long as we have the account.

Mark Donnolo
Because what it starts to do is it starts to offset the the new customer selling. So you've got questions about what are the right roles. I'm not going to sleep. Swing over here for a second. What's the timing of your payout? So when you when you're doing your TCV or your ACV, how much of that are you paying at the time of the deal?

Mark Donnolo
How much of that are you paying a year in or it's certain certain points? Who's eligible, eligible for RPN responsibility, like I mentioned, retention, penetration, and new customer acquisition responsibility. And then finally rules of engagement. So how does the team work together? So again, going back to the revenue roadmap, the answer to a lot of the the SAS questions is going to be how do we want that that sales process, those rules of engagement, the sales strategy to work?

Michelle Seger
That's exactly right. So as you're thinking about, you know, you're being asked to solve or a plan, you're being asked to create a plan around everything as a servicem or as a service. There are these other questions that need to be answered. And this is, again, I think, a good tool, Mark, to get the conversation going with sales and finance and those you need to get their buy in.

Mark Donnolo
Let me bring up another question here. Any thoughts on how to attach value to bookings for hunters in a consumption based SAS? Yes. The challenge with a consumption based SAS model for a hunter is that we have some kind of soft commitment from the customer that we're going to use your product or use your service to a certain level, but we don't really know what that level is going to be until we get some time further out.

Mark Donnolo
If you have a true hunter or a true Doberman, you don't necessarily want them hanging around and babysit in the account for a year to see what that consumption level comes in at. One good solution, and there are a number, but one good solution that I liked was a company we worked with that had two different sales organizations.

Mark Donnolo
One was a software based organization where they sold an actual license, the other was a service based organization that was SAS in nature. And what they found was the software based license organization. People would get paid on billings. They'd work all the way to the end of the year. They worked through the holidays because they knew a bookings.

Mark Donnolo
I'm sorry if I booked something I would get credit for it. Right. The other organization, the consumption based organization, was paid on revenue or actual billings. Well, the consumption based organization, they were enjoying the holidays in a different way there. They were going home because they're like, well, if I sell something in December, it doesn't matter because I'm not going to see any any revenue or billings come through from it anyway.

Mark Donnolo
So what they did, being good analytical people, is they figured out what is the typical percentage of committed consumption from the customer that will come in because they had such a history of that. And what level can we actually commit to the salesperson paying them? So it actually turns it into a pseudo bookings measure and it changed totally changed the behavior of the organization.

Mark Donnolo
And because it was financially modeled well, they didn't lose money off of it. It was highly predictable. Yep.

Michelle Seger
So like you said earlier, that might not be the answer for your company. Whoever asked this question, it was a great solution for that business. So we can, you know, we'd be happy to talk further about that. But there's a lot of answers out there and they're out there. It's just a matter of figuring out the one, the right one for your business.

Michelle Seger
So a little bit about M&A, because we said that over half of the companies that were involved in the study were part of M&A over the past 12 months. And so, you know, we've got one, two, three, four, five, six top challenges are the top three role definition alignment across the organizations. And we hear this time and time again.

Michelle Seger
So we had, you know, about 80% of companies saying that that was the top challenge. And I focused in Mark on enterprise companies here because for M&A, it's more prevalent on the larger companies, how big those challenges really are with a smaller company that might have five people buying, you know, in and there might be two more joining the challenge may be a little bit less.

Michelle Seger
So we want to get a get some good solid representation incentive compensation alignment that's everything from the pay philosophy to what the measures are used that people are paid on to the timing. You know, that is a big challenge as well. And then a big one we see that we're solving for all the time is total target compensation and pay levels across the organization.

Michelle Seger
So gosh, I remember I still recall our global client that, you know, it was they offered on prem bought a software company and their inside sales team at that the premise product was fairly entry level and they acquired company. Their AI inside sales organization was extremely sophisticated. In fact, their pay rivaled that of the field sales of the other company that was acquiring them and that was a highly compensated role.

Michelle Seger
Well, they immediately started to see Fallout where people were leaving the company and they couldn't figure out why the company that that they had acquired and they found out, you know, rumor mill. Right. Chatter at the chatter at the cooler and beyond. They thought that their roles were going to be diminished. So they started going to the competitor.

Michelle Seger
So, you know, there are other issues around integrating the sales organization and cultural differences, aligning the performance expectations. Again, that gets around to the culture of the company and what they expect. But, you know, I think the the big one here is get your role definition alignment across the organization set and everyone bought into that before you even tackled the other things.

Michelle Seger
That's what would be one of our lessons learned on that. And when we talk about and think about what the expectations are from an acquisition and so there's three, three big ones usually that we see and a couple of them fall into the sales organization. So cost synergy when we think about sales, that's reducing the overall cost. By combining the companies, a lot of times they're thinking they can leverage best practices, they can leverage what's best or cost the companies.

Michelle Seger
Maybe they're their structure and model that they have. Revenue synergies would be things around cross-sell, the ability to put products together, bring new products to the market, and grow your market share by having both companies take advantage of what the other company has to offer. And then, of course, capital synergies, right? So what kind of buildings and things that they have in place.

Michelle Seger
And then, you know, when we think about the outcomes that depend on sales revenue, big challenges, we know that you got cross-selling, new product solutions, bundles, geographic expansion and segment and sector expansion. And then the cost synergies we see around sales capacity improvement. Again, I talked about leveraging best practices, the belief that there can be a headcount reduction at some point and streamline processes.

Michelle Seger
So the big morning here is that or the big thing to be thinking about is 20% of that revenue synergy, synergy potential. It's typically put on cross-selling, but yet less than 20% of companies actually achieve that cross-sell goal. So there's a lot to be thinking about in as we delve into the root causes, why it goes back to that role alignment and the setting expectations of people understanding what it is that they need to do.

Mark Donnolo
You know, it's funny, Michelle, the the biggest barrier that we hear on cross-selling is risk. It's not like we're going to throw more spin offs or more incentives of somebody to cross-sell products of a company that's been acquired. It's it's the person says, hey, I don't know how how good those products are that I'm selling, how reliable those services are.

Mark Donnolo
I've got a really strong relationship. And in my best accounts, I don't want to put that at risk. And, you know, if I'm going to introduce somebody new as a person into the account to sell with me, well, that's a risk as well. So risk is the single biggest factor in in the single biggest thing that companies look for for synergies in an acquisition, which is cross-selling.

Michelle Seger
Yep. So you got any questions on that or you need some help around that? We're here to help now with that.

Mark Donnolo
Awesome. So that's what we have for today. A couple of action items for you. We have the Rethink Sales podcast, which is on Spotify and Apple. You can check out we have a ton of great podcasts out there on all sorts of different topics. We have books, as we mentioned before, some great practices and and call us, email us if you need advice.

Mark Donnolo
You need some ideas, you need some help making something happen, whether it's a significant transformation or it's focusing specifically on your sales compensation program, we we'd love to help you solve the problems of. Thanks, everybody, for joining us.

Michelle Seger
Thanks a lot. And we really appreciate you time out of your day to spend with us. We hope this was enjoyable for you and that you learned something new.

Mark Donnolo
Thanks, everybody. Have a great week.