So You Think You Are Fairly Paid??

Some interesting data from Payscale, the compensation software firm, about people's perceptions over whether they are paid a fair wage or not . It isn't Sales Engineering specific, but I've a few thoughts about that at the end.

This is the data from a survey of 71,000 . it shows that even if you are paid at or above the market rate, there is still a good chance that you feel you're underpaid relative to your peers. A massive 60% of employees who are underpaid say they intend to leave - compared to 39% of employees who are overpaid. (The report notes that presumably they are unhappy for many other reasons!).

The lesson for SE Leadership here is that if someone is being paid under the market rate - there is a 5 in 6 chance that they know it and a 60% chance they will take action. Even being paid at market (so at the 50th percentile) 2 in 3 SE's will still think they are underpaid. So .. if your pay package (it's more than just base salary + commission/bonus) is truly competitive - make sure the SE team knows it!! Reinforce it, with realism, at every opportunity.

And a word to the wise, don't rely on those comparison reports HR/Finance obtain from independent salary/consulting companies unless the companies surveyed are a true comparison to yours (and they rarely are). Remember that there is always some other company out there who is willing to "buy" your SE's and pay more for them. Money is one of the major reasons that SE's leave a company, Management is another, and Lack of Belief in the product is a close third.

Perception is reality!! Get real.

 

The Magnificent SPIFF

Have you ever wondered about the impact of a SPIFF? (That’s a Sales Performance Incentive Ffund) . Does it really make a material difference to sales performance? Should pre-sales engineers participate in a SPIFF? What happens if you reverse a SPIFF and exclude Sales?

Well – this may not answer all of those questions – but it will lead you to some interesting conclusions. Here are the long-term results of a SPIFF program, paid out by an enterprise software company, over a 7 year period.

Bottom Line Up Front - Here is the Data

Year	Participants	SPIFF Design	Product Pull Through
2006	None	None	14.2%
2007	Sales only	1.5x quota credit	24.2%
2008	Sales only	Sell 500k , get 25k bonus	20.5%
2009	Sales + SEs	5k/sale ; split 75/25	41.0%
2010	SE’s only	2.5k / sale	35.2%
2011	SE’s only	1.25x quota credit	34.9%
2012	Sales only	1.5x quota credit	26.1%
2013	None	None	12.1%

 Here is the Background

Every year (from 2007 through 2012) the company had a 2^nd quarter special where they incented part or all of the sales team to upgrade existing customers to the latest release – and potentially cross-sell them an additional module. They measured the amount of additional product sold as “product pullthrough” – the last column. As I cannot reveal financials it is expressed as a % of the installed base which is in direct proportion to revenue because of their business model.

There were also three different combinations who had differing opinions about the efficiency and structure of SPIFFs. Those are the three shaded areas.

And The Analysis

By dividing the program into three different periods some factors emerge.

1.       Reps are more motivated by quota credit than a bonus (2007 and 2012 vs 2008)

2.       As soon as you add SE’s to the SPIFF, performance rises quite dramatically from approx. 22% to 35%). That’s comparing 2007/8 to 2009-11.

3.       With just SE’s receiving a SPIFF you get better performance than just Reps, but not as good as the 2009 team-based SPIFF which yielded a 41% pull through.

4.       SPIFFS in general made a difference raising an average 13% pull through with no incentive to 31% with an incentive.

Now you can argue that the product upgrade or module additions may have been better in some years than others, the economy changed, personnel changed – and even that this was an upgrade into an installed base, rather than net new logo sales. All perfectly valid points which are difficult to prove or disprove, but unless you have something better and data to back it up you are arguing emotion versus facts.

And my ultimate point – if you practice team-based selling then you should practice team-based compensation and share the SPIFF. That’s where the revenue is!

Should SE's Participate in SPIFF Programs?

Before I answer – a quick piece of trivia about the origin of SPIFFs. Although there have been numerous explanations about the SPIFF acronym (like the humorous Sales Performance Incentive FFund) it is not an acronym. The use of “spiff” or “spif” derives from the 1850’s. It was a term used by tailors to describe a payment in kind of fine cloth they gave to their best salespeople. The salespeople would then use the cloth to have suits or shirts made to “spif” themselves up.

As far as data, the one number I can share is that about 45% of software companies allow presales to participate, to some degree, in SPIFF programs. I continue to collect data within other industries as I don’t have a large enough sample size yet – but I feel that hardware, services and devices are all about the same.

That said, I am a firm believer in presales participation, when appropriate. Here is the reasoning I have always used with VPs of Sales and Finance.

1.       If we are truly engaged in team-based solution selling, then you need to encourage team-based rewards to reinforce the behavior.

2.       Salespeople bear far more risk (both financially and job stability) than presales, so they should clearly receive the largest portion of a SPIFF.

3.       Most presales people care more about inclusion in a program than the actual payout amount. (The best thing a VP of Sales can do to gain the respect of a presales team is to show that he/she considers the impact of every program and initiative on both sales and presales.)

4.       I define “where appropriate” in this manner:

a.       A SPIFF to encourage linearity of bookings in all three months of a quarter, or to include faster payment terms to reduce DSO (Days Sales Outstanding) is a SALES SPIFF only.

b.      A SPIFF to encourage the uptake of a new product, or cross-selling across multiple product sets is a joint SALES/PRESALES SPIFF.

c.       A SPIFF To encourage customers to upgrade from an old version of a product to a newer version is a PRESALES SPIFF.

5.       I define ‘sharing” using this great example. A hardware company was originally planning to rollout a 10,000 Euro SPIFF to salespeople who sold a certain amount of new product to new accounts in a quarter. Their goal was E40M. After looking at who would truly be doing most of the work (demonstrating, configuring, benchmarking etc.) they elected to modify the SPIFF. The revised version gave E7,500 to sales and E2,500 to presales. The result was maximum engagement, team selling and E62M of new product sales into the new accounts market.

6.       I once helped the finance department of a software company analyze the historical results of multiple SPIFF programs over a three-year period. Those that included presales had an average incremental effectiveness of 26% over those that did not.

So the summary is that presales should participate in SPIFFs when a case can be made that they drive a significant part of the end goal – although to a lesser extent than sales.

FINALLY – A WARNING. One of my customers decided to implement a 20% additional sales quota credit for all deals that were implemented through a new partner program. In one quarter, partner deals increased from 17% to 85% - resulting in 5/6 deals going through partners, even when they shouldn’t have – to the detriment of the customer. Presales, who received no credit – had to clean up the mess alongside services and support. Compensation drives behavior.

Money. Money, Money

Makes the world go round. The topic of Pre-Sales Engineering Compensation Plans is always an interesting one.

If only most companies would put half the effort and thought into the Pre-Sales Engineering compensation plan that they put into the sales plan we'd all be better off and motivated.

Here are some best practices, insider tips and lessons learnt over the past twenty years through my experiences of designing, implementing and then defending Pre-Sales Engineering compensation plans. Even if you are an individual contributor at some massive software or hardware company it is still worthwhile to understand the behavior your plan is trying to incent, and if you are aligned with the expected behavior of the salesforce.