Incentive Compensation

David Miller’s Insights on Crafting Quotas, Commission Draws, and Gaining Strategic Edge in Sales Comp

Siva Subramanian
min read
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In the first Uncappd AMA, we chatted with David Miller, Senior Manager of Global Incentive Compensation at Integrated DNA Technologies, on setting up right quotas, tackling disputes, becoming strategic as Sales Comp, and many more! 

Ranjuna Sajeevan [Uncappd]:

Hey everyone! We're super excited to kick off Uncappd's very first AMA, and we have David Miller with us today!

David's got 15+ years of experience in Sales Compensation, and right now, he’s the Senior Manager of Global Incentive Compensation at Integrated DNA Technologies. If you’re curious to know more about David's journey in the world of Sales Comp, make sure to listen to our chat with him on the Uncappd Insider podcast!

David, we're thrilled to have you here to tackle all the questions our community has for you.

Siva Subramanian [Uncappd]: Thanks for joining us, David!

David Miller:

Thank you Ranjuna Sajeevan [Uncappd]! Hello everyone - I'm really excited to be here, and looking forward to being on the hot seat for the next hour taking your questions.  While I may not be able to answer all of the questions, hopefully we can get some good dialogue started.

Also, I want to state up front that I will be sharing my own personal opinions and not the opinions of my employer in this session.

Ranjuna Sajeevan [Uncappd]:

Awesome! So let’s get started. The topics for the day are:

1. Setting up the right quotas
2. How to become strategic as a Sales Comp person
3. How to get your accelerators, SPIFs, and Clawbacks right
4. Tackling disputes in Sales Compensation

We’ve already collected some great questions from the community, but if you folks have anything you want to ask, please feel free to jump in!

Anirhudh [Uncappd]: Woohoo, looking forward to this

Ranjuna Sajeevan [Uncappd]: Here’s the first question from Diana Roman: What are the best practices for setting up quotas and ramping quotas?

David Miller:

I believe that good quota setting requires time and a lot of attention to detail.  Whereas with commission plan design simplicity is best, I do believe the best quotas take into consideration all of the complexity within your territories.

The key to kicking off good quota setting is to first conduct good territory planning.  To pull this off, it's important to do the bulk of your territory planning 3-4 months before the end of the year.  You can then spend the final two months of the year modeling out what actual prior year revenues would be for your new territories.  This allows you to set realistic growth expectations that take into consideration all of the accounts in your newly designed territories.

I believe good quotas are set with a wide level of input - Finance, Sales leadership, sales managers, and sales operations should all work together to do top-down and bottom up quota setting.  Individual sales reps can also contribute by submitting territory plans for the coming year.

Finally, it is important to make sure that quotas roll up to your actual growth goal for the year.  This seems obvious but I've seen this step missed before and it's a way to get your organization off to a bad start at the beginning of the year.

In terms of ramping quotas, I think a flat guarantee is most appropriate for new hires.  I have typically seen three months of guarantee, but the length can vary depending on the nature of your business.

I am not a big fan of giving new hires lower quotas than experienced sales reps, because you are impacting your overall growth by doing this.  However, this can be appropriate if you are dealing with a hunting role that has to prospect to get most of their customers.

Shiva Ranjani: Hi David, what are the most common and repetitive disputes you have come across and how did you handle them?

David Miller:

The most common disputes I encounter are due to sales reps not reviewing their commission statements until after they have received their commission check. 

Since this is a dispute that can be avoided, I work each period to remind sales managers to have their team review their statements before commissions are finalized.  This avoids the tension of a dispute and saves the extra work and cost of adjusting payouts.

Another issue that can cause serious headaches are disputes over quotas.  If you entrust the communication of quotas to your sales managers, it is good to follow up with a formal document that details quotas.  This helps address any potential miscommunication about quotas before the year gets started, as opposed to several quarters in.

I would also add that when dealing with disputes, it's key to recognize that when dealing with someone's compensation, things can get emotional.  As a sales comp professional, it is good to acknowledge the employee bringing the dispute and listen to their reasoning (even if they are incorrect).  Taking extra time to communicate and provide good customer service can make the resolving of disputes much easier.

Ranjuna Sajeevan [Uncappd]: We have a question from Cheryl Sbordone: What is the current best practice on sales draws?

David Miller: 

Thanks Cheryl.  Before moving to the corporate side of sales compensation, I did work for about 10 years as a sales compensation consultant.  My observation over the past couple of decades is that draws are becoming less prevalent overall, with the exception of a few industries where they are still common.  We live in a world now where the stability of a salary is more essential than it was in the past.  Draws are typically seen by potential employees as stressful and unfair.  Draws are also very hard to administrate, especially recoverable draws where negative balances can snowball from period to period.

If your organization does use draws, non-recoverable draws are ideal as they are less complex and less likely to be viewed as unfair.  I strongly encourage you to take some time in new hire training to carefully explain draws, providing examples so they can understand what they are receiving up front.  It is challenging to try and explain a draw to someone who was expecting $4,000 in their commission check but only received $2,000.

Ranjuna Sajeevan [Uncappd]: Here's one from Bettina Kaemmerer: How to keep your plan design agile and adaptable to changes in the market/economy?

David Miller

Great question.  I think the best way to do this is to have a rock solid annual plan design process that allows you to adjust and align every 12 months.  I don't advocate mid-year changes unless it's a real emergency.  In my experience mid-year changes are demotivating and impact your ability to respond to customers.

I do like what I call "sweeteners," which are small but significant tweaks you can make mid-year in response to market dynamics.  For example, if you find that the market this year is much more challenging than was initially expected, you can lower the threshold on your incentive components mid-year.  You're not changing the plan components, weighting, etc., simply lowering a threshold so that sales reps can earn something for a lower level of achievement.  This helps show that you recognize the challenging environment and are doing something to address it, without having to redesign your plans.

Siva Subramanian [Uncappd]: 

Hey folks, just a reminder: Feel free to jump in at any time with any question you may have!

Hilary Green: Do you have any tips when dealing with sales comp plans that fully restructure on almost a yearly basis? For example, we have to adjust our comp plans because the package offerings available to our customers continue to change each year.

David Miller:

Hilary - that is a great question.  One way to deal with this is to maintain a common structure to your comp plans YoY by creating buckets that don't change, but can accommodate your shifting strategy/products.  For example, you could have a sales rep structure that is 50% Revenue, 25% Gross Profit, 25% New Business.  This structure doesn't change, but each year you adjust the design of each component to fit your new business needs.

I think there's also a cultural/communication aspect to this.  If you explain to your sales team that you are in a rapidly shifting environment and that change and adaptation are keys to success, you can help increase buy in when you do have to change every year.  This can prevent the sales team from misperceiving the constant changes as poor management, etc.

Shiva Ranjani: David, how should someone equip themselves if they want to step up to strategy level considering they have a good understanding on the execution side.

David Miller: 

Thanks Shiva.  In my own career, the best way to do this has centered on my learning more about the actual business of my employer.  It is easy as a sales comp professional to be a bit detached from the actual strategy of the company.  We don't usually interact with customers, and sales incentives are downstream in the flow of sales data.  It will probably take some initiative to get exposure to other areas of the business, but the more you can gain experience here, the better able you can begin to offer strategic support to sales leadership.

I would recommend starting with areas that are adjacent to sales compensation.  If you are housed in HR in your role, start learning more about recruiting/sourcing or base compensation.  If you are housed within sales, start getting involved in sales enablement, territory management, etc.

In addition, it is good to be connected to sales comp professionals outside of your organization.  The more you can keep abreast of current trends and insights, the more strategic you can be within your own sales team.

Ranjuna Sajeevan [Uncappd]: Diana Roman has another question: What are the indicators of success for a Sales Compensation Plan?

David Miller:

This is not an easy one to answer, to be brief I would say the following:

  • Sales leadership considers the sales comp plan a useful tool to direct their team
  • Sales reps are largely able to understand what the comp plan is asking them to do
  • Payouts are in line with actual business results
  • Sales comp as a % of revenue/profit/etc is within the expected range

Also - it goes without saying but excellent administration of sales comp calculations is key!  You can have a great plan but if you fumble the administration of it no one will appreciate the plan itself.

Siva Subramanian [Uncappd]:

Alright, we’ve got 10 minutes left. This is your last chance (for now 😉) to get your questions answered by David!

Samra: Hey David! Any tips & strategies on how to improve quota attainment?

David Miller:

I know that sales comp professionals often talk about having a good distribution of quota attainment - having a certain percentage of your sales reps hitting quota each quarter, etc.  However, in my own experience in our current economic climate it is really hard to set quotas with a high degree of precision.  I think if quota attainment is overall too low, the key is to quickly work to identify the root causes of this.  (The root causes are often not what we initially think they are).  If quota attainment is overall too high, it is much harder to adjust, but hopefully this is happening because your company is doing much better than anticipated.

Ranjuna Sajeevan [Uncappd]: And here's the last question for the day, David! - How do you set up accelerators when it comes to non-sales roles?

David Miller:

Accelerators for non-sales roles should be less "steep" than for sales roles.  Non-sales roles might pay 150% of target incentive for excellence attainment, vs 200-300% of target incentive for sales roles.

Ranjuna Sajeevan [Uncappd]  

And with that, we’ve come to the end of today’s AMA. Thanks again, David Miller, for joining us, and for everyone who participated 

David Miller 

Thanks Ranjuna Sajeevan [Uncappd] and everyone! I enjoyed this, hope everyone has a great rest of the week.

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