In this episode of FP&A Unlocked, host Paul Barnhurst and co-host Glenn Snyder sit down with Josh Miller to discuss effective sales compensation plans, aligning incentives with business goals, and avoiding common commission mistakes. They also explore balancing base salary and variable pay, setting realistic quotas, and improving collaboration between finance and sales teams.
Josh Miller is the Head of Sales Compensation at CVS Health and Managing Principal at OnTarget Incentives, LLC. With over 20 years of experience in sales compensation, he is a Certified Sales Compensation Professional (CSCP) through WorldatWork and a frequent writer and speaker on industry best practices. He holds bachelor's and master's degrees from Arizona State University.
Expect to Learn:
How to design sales compensation plans that drive the right behaviors.
Why finance, HR, and sales teams must collaborate.
How to balance base salary and variable pay.
Why commission caps and unrealistic quotas can discourage salespeople.
How to avoid common sales compensation mistakes.
Here are a few relevant quotes from the episode:
“I'm definitely not a fan of overall payout caps.” - Josh Miller
“You want it to be as clear and simple as possible, and that does not happen by default.” - Josh Miller
Josh explains why successful compensation plans start with clear sales responsibilities and realistic incentives. He also shares how simple plan structures, fair performance targets, and cross-functional collaboration can improve sales performance and prevent costly mistakes.
Follow Josh:
Website: ontargetincentives.com
LinkedIn: https://www.linkedin.com/in/jmilleraz/
Follow Glenn:
LinkedIn: https://linkedin.com/in/glenntsnyder
Disclosure: Portions of this episode (such as the introduction or promotional segments) use AI-generated voice narration produced under human editorial review.
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In Today's Episode:
[00:00] - Trailer
[01:17] - Hard Coded Opinion
[06:04] - Introduction to Josh Miller
[07:27] - What is a great FP&A?
[12:43] - Structuring Sales Compensation Teams
[17:18] - Sales Compensation Plan Design
[26:28] - Commission Sharing & Pay Structures
[34:49] - Compensating New Salespeople
[46:09] - Commission Payment Timing
[59:49] - Sales Compensation Resources
[01:07:24] - Closing Remarks & Thanks
Full Show Transcript:
Guest: Josh Miller (00:00:00):
I'm definitely not a fan of overall payout caps. Now, are there instances where it's necessary to maybe put a cap on how much a salesperson could make on an individual sale? Yes, that can be appropriate because a person could make too much on one sale and have no reason to push harder on the rest of their opportunities in that year or future years. But it's really a big disincentive to a salesperson if they get an overall payout cap, even if they might not reach it, just the fact that the company is telling them there could be a point where you couldn't keep making sales and we will stop paying you for those sales, that's just a clunky bad message for a salesperson here, even if the odds of them reaching that cap are low.
Host: Paul Barnhurst (00:00:46):
Hard coded opinions, where Glenn and I tell you what we're really thinking.
Co-Host: Glenn Snyder (00:00:56):
All right, welcome to the latest edition of Hard Coded Opinions. Today, I want to talk to you about efficiency. A lot of companies focus on efficiency. I love efficiency. I love efficiency so much that when my wife and I go for walks, I'm like, "Well, let's have a destination so I could do more than one thing at a time." So I'm all about efficiency, but what drives me nuts is when people are so focused on efficiency, they forget the other aspects of the business. When you're going over and talking to someone, maybe in accounting, who says, "Oh no, we don't want to add more GL accounts or add more departments, it's going to make it less efficient." They're forgetting about why those accounts are there. It's to help the business understand what's going on. And if you could drive greater transparency and better usage of the data, then you know what?
(00:01:43):
Put efficiency aside. No one's going over and saying, "We need to go over and add a thousand more GL accounts." But if you're talking about five or 10 to get the insight, absolutely you need to do that. In fact, when I worked at a company, we were implementing an FP&A system and there was a consultant who said we should be combining the legal entity location and department all together into one dimension because it would make for a more efficient system, which is absolutely true. The problem was it was a freaking nightmare to get the data out. So I love the idea of efficiency. By all means, make things efficient, but don't forget why you're out there in the first place is to help the business make better decisions. And so if you're doing something and it's harder for the people who are running the business to figure out what's going on or understand the data, the efficiency doesn't matter.
(00:02:33):
You have to go over and be more flexible around how many GL accounts and how many departments and so on and what dimensions you're setting up because it's about the business and helping people make better decisions, not about how efficient the system is.
Host: Paul Barnhurst (00:02:46):
Hello everyone. Welcome to another episode of FP&A Unlocked where finance meets strategy. I'm your host, Paul Barnhurst, and this week I'm joined by my trusty co-host, Glenn. Glenn, how are you doing?
Co-Host: Glenn Snyder (00:02:58):
Doing great, Paul. Always happy to be here.
Host: Paul Barnhurst (00:03:00):
Excited to have you. I almost said Glenn Hopper and then I was like, no, this is Glenn Snyder.
Co-Host: Glenn Snyder (00:03:04):
I know. You know what? We're just multiplying all over the place. Glenn everywhere, I'm sure.
Host: Paul Barnhurst (00:03:08):
So Josh, just so you know, I host shows with two different Glenns, both with two Ns. So every so often they get emails and they're like, why are you sending me this?
Guest: Josh Miller (00:03:18):
Yep. I have the same problem with the curse of the name Josh Miller. There's always other Josh Miller in any large company.
Host: Paul Barnhurst (00:03:24):
Yeah, definitely your case. Fortunately, Paul Barnhurst doesn't show up too often as another -
Guest: Josh Miller (00:03:29):
Not as often, yeah.
Host: Paul Barnhurst (00:03:30):
Josh would be a common one. Alrighty. Well, very excited. We're going to do an episode this week on sales compensation. Glenn, do you want to go ahead and just welcome our guest and share anything about the episode and then I'm going to share a little history about Josh and I before we get started.
Co-Host: Glenn Snyder (00:03:46):
Yeah, absolutely. So Josh, thrilled to have you here. We'll let you introduce yourself to the audience in a second. I think this is going to be a really interesting topic because in my very many years of FP&A, I have constantly had to work with sales ops, doing comp plans, working through figuring out what the right balance is going to be. It's not a topic that a lot of people in FP&A think is core FP&A, but it really is. If you're supporting a sales team, you've got to be engaged because of the expense. So I think this is going to be a great topic and I'm looking forward to it. But Paul, I'll turn it back to you because you guys got a little history here.
Host: Paul Barnhurst (00:04:27):
All right. So Josh Miller, well, how long have we known each other now? What's it been? 20 years?
Guest: Josh Miller (00:04:32):
I think it's been 20 years exactly. Yeah.
Host: Paul Barnhurst (00:04:34):
Yeah. So Josh and I both went to grad school full-time at Arizona State University, and so we had several classes together and got to know each other over those two years. And we've loosely kept in touch over time. I've seen him on LinkedIn a few times. We've had a few sales comps conversations. And when Glenn and I were thinking, "Hey, who's someone to do sales comp? I know he's ran his own business. I know he's worked for several companies." I thought Josh should come on the show. So I reached out and he was kind enough to say yes. So anything you want to add? Anything embarrassing you remember about me from back then?
Guest: Josh Miller (00:05:06):
No, nothing embarrassing, but I remember those years very, very fondly. Those were good times.
Co-Host: Glenn Snyder (00:05:12):
It's a good time. A lot of
Host: Paul Barnhurst (00:05:13):
Fun. And it
Co-Host: Glenn Snyder (00:05:13):
Was pre-Beard, right?
Guest: Josh Miller (00:05:15):
Yes, it was pre-beard.
Host: Paul Barnhurst (00:05:17):
Yeah. Although I did have a goatee for one of the years, I think. You
Guest: Josh Miller (00:05:20):
May have, but definitely not as memorable of a beard as your -
Host: Paul Barnhurst (00:05:24):
No, no, definitely wasn't anywhere near this long. This is I think four and a half years of growth now.
Guest: Josh Miller (00:05:30):
Yeah.
Host: Paul Barnhurst (00:05:31):
So why don't you go ahead and introduce yourself to our audience. Tell our audience a little bit about your background.
Guest: Josh Miller (00:05:35):
Sure. So Josh Miller, I am currently head of sales compensation at CVS Health. In that role, I oversee all of the sales compensation strategy and plan design across the many, many business segments that CVS Health is in, including Aetna as a large one. I came into CVS Health through Aetna. I was previously head of sales compensation there. I also oversee the sales comp administration, so all the ongoing calculations and payouts and reporting to make all those bonus and commission plans actually happen. I've been in sales compensation for virtually my whole career since graduate school and a little bit before then as well. Worked for several different companies along the way and I've consulted as well, have a consulting practice where I do a few projects a year for other companies called OnTarget Incentives.
Host: Paul Barnhurst (00:06:25):
Well, thanks for the background and you're definitely the right person to bring on with all that experience. I'm sure with a big company like that, there's a lot of different divisions, a lot of different plans to keep track of and calculations. We all know calculations are always easy. The data's always clean, but I'm sure there's some work around that.
Guest: Josh Miller (00:06:42):
Of course. Especially with small companies. Right.
Host: Paul Barnhurst (00:06:46):
We can all say that as finance and having done what sales comp is all. The
Guest: Josh Miller (00:06:49):
Data is always clean. Yes, a good assumption to start with.
Host: Paul Barnhurst (00:06:52):
We always know that that's BS.
Guest: Josh Miller (00:06:54):
Yes.
Host: Paul Barnhurst (00:06:57):
All right. So Josh, I always like to start every episode with this question before we get to our topic. When I say what is great FP&A, what comes to mind?
Guest: Josh Miller (00:07:06):
Great question. I think of FP&A as really just a key, key business partner in helping any business make the right decisions. I mean, to come up with a really, really vague way of describing it. Obviously, FP&A is coming into that set of responsibilities from a certain lens, a certain angle, but really the whole purpose of it is to help inform and make good business decisions. Now there's obviously a whole category of specific decisions related to FP&A when it comes to budgeting and forecasting and other things, but really all that is just meant to support business growth, make sure business is sustainable and FP&A is right there along for the ride, a key hat to work.
Host: Paul Barnhurst (00:07:54):
I like that. I like how you just summed that up so succinctly. It's like help the business make better decisions. And I think Glenn and I have talked a lot about that, so I appreciate that definition and I always love to hear what people who don't work in FP&A say versus those who do, because they always come with a different perspective. So thanks for that.
Co-Host: Glenn Snyder (00:08:13):
All right, so why don't we dive into the topic? So let's get everyone a little grounded. For those people who are in FP&A who maybe just have not had the opportunity yet to work with sales ops. Josh, describe just to start off, how have you worked with FP&A in your various roles and not just around the sales planning, but also sales comp planning?
Guest: Josh Miller (00:08:39):
Good question. Well, one of the things I think is unique about sales compensation is that there's really no single best practice answer of where in an organization it sits. And sometimes where it sits is in finance. So I have personally been part of finance owning sales compensation. Now, did that change how I ran sales compensation versus when I'm sitting in other parts of an organization doing the same thing? No, not really, but I just wanted to put that out of it. Sometimes it is actually part of finance depending on where a company puts it. But I would say sales compensation needs to work really closely with finance from many angles. Depending on the company, sales compensation can be a significant expense and it is obviously by definition a variable expense. So a key thing with sales compensation, aside from the decisions of how you craft it, is simply how you forecast the spend in any given year on sales compensation.
(00:09:41):
And because it's a variable expense, well, what does that depend on? It depends on headcount assumptions, sales assumptions, which come in many, many varieties of product mix and seasonality and everything else. And generally you don't want the sales compensation area making those decisions in a vacuum. Those should be collaborative decisions because those assumptions that are part of the sales compensation forecasting and budgeting should align in theory with assumptions made for other things that are being budgeted and forecasted so that things are synced up.
Co-Host: Glenn Snyder (00:10:17):
Let me follow up on that because I've done sales comp analysis, planning, so on at many companies. And one of the things that when you start by doing a budget or forecast, oftentimes you start with how are you forecasting sales? And you have to make sure that whatever finance is doing to forecast sales to generate revenue is the same sales figures that's in the sales comp planning. And oftentimes they don't connect all the time because people aren't talking in the right way. So I'm sure you've seen that many times where you're coming up with a forecast for what sales comp is going to be, but it's not exactly aligned to the bigger picture of the total company sales. Would you agree?
Guest: Josh Miller (00:11:01):
That's very common. Can be very common to be asked to budget or forecast sales comp, and the starting point is using the current data that you've got or even the past year of historical data that you have. But if there are big business changes going on, then folks in finance may know about underlying assumptions that are changing. And if the sales comp team doesn't know about those changes to come, then you're going to have a mismatch between the output of the sales compensation forecast and what's being used elsewhere.
Host: Paul Barnhurst (00:11:33):
We'll talk about this more later. I mean, the other thing as well is you know not everybody's going to hit quota, so there's assumptions that have to go into that to give you room to manoeuvre, for lack of a better word. And I've seen times where those aren't aligned either, like company says, "Hey, you should have this much between quota and what your sales target is, and then you see this much and you're like," Something's not matching here. "So I think there's a lot of areas, even beyond just working off the same sales target. There's a lot of assumptions and we'll definitely get into that. But before we do, I'd love to get your thought. You've sat just about everywhere in the company. Do you have a preference where you think sales comp should sit in an org or how do you think about that from a structure standpoint?
Guest: Josh Miller (00:12:18):
It's a good question. You're right. I have sat virtually everywhere. I've been part of IT, which sounds funny, but the administration is such a big part of sales compensation that there's a lot of technology behind that when it's a big enterprise. And so that can mean the company puts that whole function together with IT. Sometimes it gets spread out. You don't always have a full suite sales compensation department. Sometimes you have a team in finance, a team in HR, a team in total rewards, a team in IT. I only ask the best model. I do think it's a better model when you collect it. I've been in payroll, I've been in accounting, but if I had to pick two places that are probably the top two and it would be a toss up on where it best sits, one would be finance I think because of this really the ongoing nature of the close relationship there.
(00:13:07):
But the other place would be total rewards and part of the rest of the compensation function because it is really important to make sure that the philosophy of the sales compensation programs is in alignment with compensation in general because for the most part, especially in large enterprises, those same sales employees, they're drawing a salary. There might be sign-on bonuses when they join enterprise. So there are other elements of compensation beyond the pure bonus and commission plans that you need to make sure you're philosophically in sync with those things, whether you're sitting in finance or part of the compensation department. So I'd say those are the top two, but either way, it's a cross-functional discipline. And so you're going to be sitting somewhere and working closely with people in your department and outside anyways.
Host: Paul Barnhurst (00:13:55):
I think you hit on something that's really important is, like I said, it's a cross-functional discipline. At the end of the day, we may think finance or total rewards makes the most sense, but the key is that there's communications happening more than where it sits. If it sits in finance but there's poor communication, who cares? Or if it sits in total rewards, you need that combination of yes, there may be places that fits better, but I've always thought about it first and foremost, is the right communication happening? And then you figure out from an alignment, what does that mean for the company you're in? That's
Guest: Josh Miller (00:14:28):
Correct.
Co-Host: Glenn Snyder (00:14:29):
I was a little surprised by your answer because I would say about 50% of the companies I've worked at, it sits in the sales organization and it's under the sales leader. So I was kind of surprised that that didn't come up as one of your top places. Why is
Guest: Josh Miller (00:14:44):
That? Yeah, no, that is one of the places it can sit too. I think there are some downsides and risks that go with it, but yes, sometimes it sits within sales itself or part of sales operations or sales enablement, though very often that reports into the head of sales. Sometimes it reports into that.
Host: Paul Barnhurst (00:15:02):
What do you think are those biggest risks when, let's say it sits in sales and it reports to the head of sales? What's your maybe concerns with that?
Guest: Josh Miller (00:15:10):
In my experience, I think of it as checks and balances in our government. And I think that it helps when there's separation in how you compensate the salespeople from the actual sales leadership that is directly overseeing those salespeople. It helps there to be a separation in knowing individual salespeople and directly managing them, separating out as much as you can, the decisions on how you're going to pay them. Ultimately, you're still going to have a cross-functional group making sales compensation decisions. It's never me as a sales compensation leader making decisions in a vacuum as a dictator. It's all collaborative. Most of it is in various forms of committees, depending on what type of a decision it is that's being made. Sales leaders are inevitably part of those committees, so they have a voice. I just think it helps when there's at least that minimum level of separation by putting that function somewhere else.
(00:16:10):
But does that mean there aren't examples where it works well still reporting into a head of sales? No, it can work well. I'm not saying it's impossible, but I've just seen downsides from it.
Co-Host: Glenn Snyder (00:16:19):
Yeah. I mean, it's actually interesting. I mean, I've seen it work really well, and then I've also seen where we'll use the term conflicts of interest pop up, where you go over and you have the head of sales who says, "I really want this person. Let's figure out a way to make that person make a little more money." And that's not necessarily the appropriate thing. You usually don't hate that too much in the large organizations, but smaller companies, the rules are a little more lax. But let's talk for a second about putting together those strategic plans and putting together the strategic compensation plans because there are various items that go into these plans. And not only does finance and HR have a lot of the data there available to them, but sometimes they have to go out to the sales team. But talk about some of those key elements that when you think about putting together a sales plan, or I should say a sales compensation plan, what are some of those key elements that you look for as far as data?
Guest: Josh Miller (00:17:21):
Yeah, great question. To me, there is a single foundational item that is the most important thing and is simultaneously the thing that most often trips companies up. And that foundational thing is you have to have alignment and be crisp on what exactly is each sales job responsible for? What is it delivering? Virtually every sales organization has multiple roles, and if the organization doesn't clearly know and hasn't talked through exactly what are the outcomes, what are the results that we expect out of this sales role, role A versus role B, if you're not crisp about those decisions, then everything downstream is going to fail. Sales compensation, it's thought of as incentive compensation. You are trying to incentivize certain behaviors, obviously because you're trying to get certain results. But if you don't know at a job level what results you're trying to drive, then the incentives can't work because you're not getting the exact behaviors and results that you're intending on.
(00:18:30):
And that step in my head, the sales compensation planning process is arguably five or six steps. That step, step one, is so often underestimated in the importance of it. And it's so important to get alignment across all those functional areas that are in a committee, get alignment on that, get it in writing. There's no reason that it shouldn't be fully transparent to everybody involved, including the people in that job, exactly what's expected out of them and how that relates to jobs B, C, and D that may exist too. You can't just throw them all into the same program and not be crisp about who's responsible for what and expect it to work. Now, are there exceptions to things? Of course there are exceptions to things. If you're expecting something to work a certain way 80% of the time and there's 20% of wiggle room, that's okay.
(00:19:25):
I'm not saying that you have to work out 100% of it, but you need to get the mainstream sales process understood as clearly as possible, and you'd be amazed at how often that part is forgotten. What I see often from a finance leadership standpoint is finance leaders will often understand what the overall outcomes are that's expected, but it's really got to be thought through at a job level because sales compensation is not done in aggregate. I mean, yes, you can pull it all together and aggregate it, sure, but you're really making job level decisions. And so whoever's part of that process, including the finance leaders, really got to get down to that level of detail and understand the job level differences so that we can make the job level sales compensation decisions accordingly.
Co-Host: Glenn Snyder (00:20:14):
Right. I mean, I think you hit on something which is you're incentivizing behavior. That's ultimately what you're doing. And every salesperson I've ever worked with, as soon as they get a new comp plan, they're spending half a day going through every detail of that comp plan, figuring out how do I make the most money here?
Guest: Josh Miller (00:20:32):
Sure.
Co-Host: Glenn Snyder (00:20:33):
So if you are incentivizing something that you don't really want that behavior, too bad, that salesperson is going to be going right there because that's where they're going to make the most money. So you really have to make sure that you're paying people the most in the behaviors you want to drive the most.
Guest: Josh Miller (00:20:50):
And communicating appropriately. It shouldn't be a mystery to the salesperson. They shouldn't have to spend too long digging in the comp plan to find out how they're going to make the most money. That could be part of the messaging. Here's where you can make the most money. Let's show it so you understand it and talk about the why behind it. There's no reason to hide it.
Host: Paul Barnhurst (00:21:10):
We've probably all seen, and I wish I had it here, I've seen it before, the meme where big huge formula on the chalkboard, finance explaining the sales comp plan, something along those lines, and it shows this whole page of formulas. And we've all seen those and the sales guy's like, they're just hoping they made what they think they might've made, but they have no idea. So that gets more into, I think, the actual plan, but there's a bigger picture I want to dig into a little further. You talked about job level. So where's the biggest misalignment? To me, I would guess it's kind of between hunters and gatherers. How much of this account role is really selling? How much of is retention? How much does a salesperson have a job to manage a customer after the sale? Are they dropping everything? Being really crisp on those in each job to me would seem like one of the most common areas that finance doesn't really understand and that if there's not clear alignment, just hoses everything downstream, for lack of a better word.
(00:22:07):
Is that probably the biggest thing or what are the other things?
Guest: Josh Miller (00:22:09):
I would agree that is a common one. Obviously when we usually use the terminology hunters and farmers, and yes, when somebody hunts the new business successfully, are they going to be involved at least for a while in establishing that customer relationship and handing things over to somebody else that's going to manage it on an ongoing basis? Yes. But they are different skill sets. And so generally speaking, it is best to separate those roles. Now, are there examples in some companies or of certain people that are able to do both jobs on A+ level? Yes, but it's rare and it's rare enough that it's generally not something that's advisable to rely on and build your org structure based on that expectation. It's better to separate those two roles out. So yes, finance very often doesn't necessarily realize that those are completely different jobs, completely different groups of people.
(00:23:03):
If we paid one role very well for bringing in the business and now we're paying a second person for managing it on an ongoing basis and getting renewals, getting growth out of it, cross-selling the products, they're not necessarily the same person that got the big reward of getting the customer in the door in the first place. And so it's important for everybody involved to understand those are very often different people, different jobs. The other thing that I see very commonly though is what I call the difference between generalists and specialists. Very often a company has multiple product lines and one or two products might be considered the primary ones, and then other ones might be secondary ones that could get up sold at the time of the initial sale or might be upsold at later points in time. And the more products a company has, the more common it is for there to be somebody that is the overall relationship owner and somebody else that might be a subject matter expert in one particular product or a group of products.
(00:24:02):
And so that's very often a collaborative sale where person A is bringing in person B, and that's another situation where it's helpful to really be crisp on is person A really running the show all the way through the closing of the deal and person B is a temporary help coming in and giving a product demo or talking deeply about a product, or is person A handing the sale over to person B? Neither one is wrong, but it's important to be crisp on what is the design of the process because those are very different sets of responsibilities. Or is it sometimes one and sometimes the other, in which case, okay, so you need to build flexibility into your processes and comp plans to pay differently based on those situations.
Host: Paul Barnhurst (00:24:46):
Sharing leads, collaborative selling, who owns what lead when it comes in, how does it get transferred? All that stuff needs to be clear or you're going to have infighting between your teams. It's just natural because it's their livelihood that you're now telling them that you weren't clear on, oh no, that sale goes to so-and-so, but I did 90% of the work. Who's heard that one before? We all have if we've done sales comp.
Co-Host: Glenn Snyder (00:25:12):
Actually, along those lines, I mean, I've seen a couple different programs, compensation programs where one would say no one salesperson can get more than 60% of the commission, which it forces that collaboration saying you got to have at least someone else there to pick up the other 40%. And when you have, I think, multiple products and you're trying to do more cross-selling, I think it's a great approach. But at the same time, if there's not a lot of cross-selling, you run into this issue of, well, I'm doing all the work, I can only get 60%, so now I got to go find someone to go pick up the other 40. And then it's kind of an awkward thing. When you think about what you have seen, what structure do you like? Do you like having a hard cap that forces collaboration or do you like having no cap and someone can actually just keep 100% to themselves?
Host: Paul Barnhurst (00:26:12):
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Guest: Josh Miller (00:27:23):
I'm not personally a huge fan of the cap because I think you always want to have the sales process be as simple and clean as possible. There's nothing cleaner than one person owning it from beginning to end. So I don't like building a process that prevents that from happening. If that is possible, then I'd rather allow it to happen and not over complicate things by requiring a second or third person involved. To me, it really comes down to the design of the sales process itself though, and you don't want to put the salesperson in the position of really having to design the sales process. That should be separate from them. The salesperson is executing the design, whether that's a one person beginning to end sale or one person and bringing in a subject matter expert. Those decisions should be made outside from them and they're focused on executing.
(00:28:15):
You don't want the salesperson to ever be in a position where they're making decisions about a process more for what they will personally get out of it versus what's going to get the deal closed at the best numbers possible for the enterprise. And if the answer is that the odds go up by having a second person involved, then that should be the process and it's not necessarily the salesperson's decision whether to do that, it's following the process and that's the expectation.
Co-Host: Glenn Snyder (00:28:45):
Yeah, no, I agree. In fact, there's that conflict of interesting again. If they have the incentive to go and they get paid more for it, they might try and do what's not necessarily best for the company, but what's best for them. But by removing that and having someone else make that decision, it's no longer... You remove that conflict, which I think is great. One of the other conflicts, if you will, I'll use that word again, that I've also seen is base salary versus variable. Where is the right balance? Because if you put too high of a base, you could get some people who could say, "Look, you know what? Yeah, even if I don't sell, I'm getting paid, I'm okay," that type of thing, which is not the incentive that you really want to have. At the same time, if you have no base there, you make it all incentive based or variable, that also kind of drives the wrong behaviors.
(00:29:35):
How do you find that right balance?
Guest: Josh Miller (00:29:37):
It's difficult. That's definitely a very contentious topic. One way we think about it is it goes back to the job level decisions again of the nature of the sales job does lend itself to what kind of a balance might be more appropriate for it. So for example, a new sales job, a hunter job, it's definitely more appropriate for that A job to have a more aggressive pay mix, meaning more of their take home pay coming from the sales comp plan versus the base salary than it would be appropriate for a pharma role, somebody managing existing customers. And the reason is because of the balance that a new salesperson has between upside and downside.You can give a new salesperson a $3 million quota and technically there's nothing stopping them from selling 10 million, 300% plus quota payment. Obviously they have all the downside risk as well.
(00:30:33):
There's a chance they could sell zero. So it's very, very volatile on the new sales side. For farmer roles, usually called account executive roles, you don't have quite that level of volatility. It's really not possible for a farmer role to triple the size of their book of business, at least in any consistent way. They might have a once in a blue moon growth situation fall into their laps, but that's a once in a blue moon situation. So they don't have that same upside potential as a new business person does. They still have a lot of downside risk, but it's a little harder for an existing business salesperson to lose all of their customers. That's a lot more infrequent than for a new salesperson to have a goose egg of a year and not make any sales. So one just high level best practice is existing business roles should have a less aggressive pay mix.
(00:31:28):
And by less aggressive, I would say something between the 70 / 30 and 80 / 20 range as far as the mix between base salary and variable pay versus new sales, you can get much more aggressive than that. I would say fifty fifty is very common in a lot of corporate hunter roles. Some companies philosophically choose to go more aggressive than that and go 30 / 70. It's not wrong, that's just a philosophical decision, but would you ever want to go 30 / 70 for an existing business person? No, that would be putting too much risk on their part. It would be an imbalance between downside and upside to that person. Separately from that, I would say as you go through sales management roles, the sales managers are obviously getting one or two steps removed from the actual selling. The more removed they get, the less leverage the sales compensation plan should be.
(00:32:24):
So if you have a team of hunters that are leveraged to fifty fifty, you don't want the managers above them to be fifty fifty. They should be a step back from that 60 / 40, maybe 70, 65, 35, and then go even incrementally farther than that if you go up another level. Just because the more up and levels you get, the more indirect their influences over the results. But also the more up in levels you get, you want them to have more of that long-term view. You want them thinking more as a business owner. So it's really trying to balance, I think the terms as mercenary versus business owner. The more aggressive you get in that pay mix, the more you're encouraging a mercenary mindset, which isn't necessarily bad, but you need to be intentional about what the balance point is on how much of a mercenary do you want them to be because it's mercenary versus business owner.
(00:33:17):
If you go zero, 100, you're not really giving them any reason to care about the company's long-term outlook other than their ability to stay employed. And so you want to step back a little bit from that and give them some reason to still think as a business owner.
Host: Paul Barnhurst (00:33:33):
I've seen some zero 100s before people say they're 100% variable and I always cringe. I'm just like, I would not want to be working for that company. I'll ask a follow-up question to that. What's your thought? When you hire new salespeople, you have to have a ramp. Nobody comes in and has a full book of business. They're up to speed on day one or very rarely. So how do you think about compensating them during that period? Because they have an on-target earning, which they're hoping to earn. Let's just say it's a one third, two third split and it's 300,000 for some field salesperson. So maybe 200 variable, 100. Your preference, you think about making them a whole? I think this is an area finance often misses is making sure they think about that if you're hiring a lot of new salespeople, how do you manage that?
(00:34:23):
Do you do a draw and they owe it back? Do you have a preference or thoughts on that?
Guest: Josh Miller (00:34:28):
There are a million ways of doing that. I'll talk about a few principles behind it. So the first principle I'd touch on is it very much depends on the sales cycle that that company has. The longer the sales cycle is, the more intentional you need to be about what kind of a ramp program you are going to use. Because that means if the person starts on day one and let's say it's very commonly an 18 month sales cycle, then the first possible sales they're going to be selling are 18 months from that hire date. And so how are you going to bridge them from day one to that day in 18 months? And that's assuming a best case scenario. So first thing is really thinking through that because that sort of sets the timeframe you're dealing with with the whole thing. So that's one principle I throw out there.
(00:35:14):
Second principle is you want to give them skin in the game on being able to close the deals that they can. If you over guarantee too much, which there are a lot of, whether it's through, sometimes it's called a draw, sometimes it's called a guarantee. But if you over guarantee far beyond what they're going to actually be able to realistically close in whatever that time period is, six months, 12 months, then you're not leaving enough skin in the game and you're basically sending an unintended signal to the salesperson that they can coast a little bit because they're not going to be earning based on their actual performance for a longer period of time. You want them to have reason to still deliver their performance from day one, whatever that day is. Now how you achieve that, I don't think there's any one size fits all solution to it.
(00:36:06):
Guarantees are a very common mechanism for it. You have to be really thoughtful about what is the length of the guarantee and what is the amount of the guarantee because you've got to balance. You need to be able to guarantee enough to incentivize the right candidates to come in because you want to have high performing salespeople and that often means bringing in experienced rainmakers that have been elsewhere and they're not going to come if there's not some kind of a program to help them in that bridge transition. And so you've got to be really intentional about that amount being enough to bring them in, but not so much to encourage them in any way to put their feet up. Another way that is sometimes supplemental is using what are called MBOs. MBO stands for management by objectives. And what that's really referring to is if there's a really long sales cycle, in normal circumstances you want your sales incentive plans to be based on actual financial results and not based on activities.
(00:37:01):
But in bridge or ramp up situations, that may be one of the few times when you don't have results to pay on yet. And so you go and you find what are the actual intermediate steps that the seller could be doing that you want to incentivize that ultimately lead to a sale that might be 18 months away. So it might be them starting to build those relationships with customers or even internal stakeholders and you find those objectives and you build compensation around those that it's not meant to be the long-term program, but it's something to incentivize them taking those intermediate steps that will set them up for success in the long sales cycle situations. So those are a few things, but it's definitely an area where there's definitely not a one size fits all solution to it and it very much depends on the company.
Co-Host: Glenn Snyder (00:37:50):
So Josh, as you're talking, I'm thinking back throughout my career and not only things that I've done, but things that the company's done, I think, God, you know what? There's so many times that we did not do things in the right way. So I want to get you to kick off, but then Paul, you should probably chime in too because I'm sure you've seen some things where just finance has taken a bad approach or give some examples of where you've seen some of the most common mistakes from finance around sales comp, sales comp planning. This way that the audience who's primarily FP&A people, they can keep some of those things in mind and try not to repeat some of the mistakes that maybe we've seen.
Guest: Josh Miller (00:38:35):
Yeah, I would say two big ones come to my mind of, one is the finance folks not getting involved early enough to understand the sales process and who's doing what, because if you don't know who's doing what, then you're not able to make good decisions on how do you appropriately compensate person A versus person B. The second goes back to the forecasting, how you set performance targets, sales targets, quotas, a million different terms used for that same concept. Finance has an instinct, rightfully so, to hopefully want budgets and forecasts to be as accurate as possible. And so if more current information comes in and the budget isn't finalized yet, then a finance person's instinct is to take that new information into account and put that information into the budget in one form or another. When you take that instinct though and apply it to setting sales targets for salespeople or quotas, it can have some downstream unintended side effects.
(00:39:40):
And so here's an example. Companies that have very long sales cycles often find out well in advance of the actual financial result hitting may know that we have successfully won a big deal or lost a big customer. If you know that far enough in advance, is it appropriate to build that known information into the sales targets, whether it's for the new salespeople or the existing business people? I would argue no, it is not. If a person's normal selling expectation would be 300 units a year and we have advanced knowledge that a certain person is probably going to land a deal for a thousand units, is it appropriate to suddenly give that person a quota of a thousand units instead of 300? No, from a budget standpoint, it makes sense to account for that in the budget, but in the quota, you've just taken off the top side for that person delivering once in a blue moon result.
(00:40:42):
They should experience and be paid the upside that comes from delivering that rare sale. The reverse can be true as well though. If you have people that are paid based on retention results and you know far in advance of a large customer that's been lost and you then bake that in to your retention expectations, you might be giving an unintended advantage to a group of people or a single person that had this large negative result. And in reality, you may want to still hold them to the expectation of no, in normal circumstances we want to get a 90% retention rate or 95% retention rate and we're not going to arbitrarily lower it to 60% because we know that we lost this one big customer. It goes in both directions, the upside and the downside should be experienced. But even with that, there's a balance to it.
(00:41:32):
You don't necessarily want to bake in specific known results, but looking at it in aggregate, let's say a company is intentionally investing in a new product line and is investing so much that they're willing to lower cost for a certain year. And so there's expected to be higher volume because of lower cost. Well, that's not specific to one person. That means that probably in general for that selling cycle, the whole group of sellers should be held to the higher selling expectation because that's what aligns with the business strategy for that year. So that's different than the scenario that I was talking about, but that's a pretty common thing that I've seen.
Host: Paul Barnhurst (00:42:10):
Thank you for your answer there, Josh. I think you make a great point where obviously the finance person wants budget and sales plan to match, but there are times what you put in the budget versus how you incentivize somebody because of extenuating circumstances need to be different to incentivize and get the right behavior from the salespeople or to treat them fairly. In some cases, if something that's happening in the business may not be fair, and if you don't adjust for it, you're going to lose a bunch of people. So you just got to remember sales plans are out incentive and behavior, and so you may need to make exceptions regardless of how you build it into the budget for those individuals. And that's a give and take and there's not a simple formula for that. That's where judgment and experience and having those open communication is really important because there's not a one size fits all.
(00:43:01):
It's why it's an exception.
(00:43:04):
So I'll share a few things. The one I was sharing that I've seen finance people try to do, we had a leader that tried to normalize sales throughout the year so we wouldn't have any quarter end sales. And I was like, that's really more the company. They know there's quarter targets and you're public and you can't really force your salespeople to fix that through a math problem. So that's one I've seen where I was like, no. Others I've seen is it makes great sense on paper. Did anyone stop and think it can actually be calculated that way with any reasonable amount of accuracy or in a reasonable time? We had one where we wanted to pay everybody on actuals, which needed to happen, but the process to do the plan was an absolutely nightmare to administer because of the way our data was. And of course I got to inherit it all and someone else built it and it was, I mean, I don't know, a hundred hours just building the back end to get a month's calculation that got better.
(00:44:04):
So I think that's another one. You got to think about the data. And the third is being real careful how you're paying people. I had one situation where we paid people on estimates and they ended up bringing less sales than we paid out in commissions in the first 18 months of all the companies because of the way this program was set up. And I'm the one that caught it and kind of raised the flag. We got the plans fixed. It's like we can't pay people on an estimate when there's no requirement for that person to buy anything. They could have done zero and we're paying them off an estimate. So I've seen just things like that where there's just kind of misaligned either data, how you're paying people, trying to force, solve problems with complexity. Rarely does that ever work with a salesperson. All it does is usually aggravate them because they can't figure out what they're getting paid.
Guest: Josh Miller (00:45:00):
Yeah. It's a behavioral science. I've given talks at conferences on the psychology behind it because it's a form of behavioral economics, which has always fascinated me. And an example that comes to my mind that I've seen also along the lines of what you said is sort of like a rewarding... You want to reward a kid or any person for some positive behavior result, you want the reward to be as quick as possible after they've delivered that result. Where companies sometimes have a lag between when the sale is delivered and when the finance or the revenue is actually recognized where there's a lag there, companies got to be thoughtful about do they want the salesperson to experience that lag? Is it if the salesperson delivered it on day one and the revenue isn't going to come in or be recognized for nine months later, I mean there's a really intentional thing that needs to be thought through there on if you want the salesperson to keep selling, you may want to front the money as quickly as possible after the sale was closed, but come up with other internal controls to make sure that the revenue is actually going to come in.
Host: Paul Barnhurst (00:46:15):
Sure, you could have clawbacks or
Guest: Josh Miller (00:46:16):
Whatever. Do it through a true up, do it through clawback if necessary. There are other mechanisms to think through, but you don't necessarily want to default to just waiting all the time for the full revenue to be recognized and make the salesperson wait that long or you create a situation where they're not being as motivated as they could be through that sale.
Host: Paul Barnhurst (00:46:36):
Glenn, I know you have a few. You've done plenty of plans.
Co-Host: Glenn Snyder (00:46:40):
I do. In fact, actually one of them is the exact opposite of what Josh just said, so I'm going to have to start with that. And that was where all the incentive was paid up front. It was a real estate company and so the people were getting paid when they sold real estate and it was 50% when the transaction was signed, the contract was signed, 50% on move-in. But the thing is that some of the leases were six, seven years. And what ended up happening was is salespeople had really big clients, those really big clients would make all these purchases at one time and then they're like, "Well, you know what? We're not going to do anything for the next five years." And the sales guy gets paid everything upfront and then quits the company, walks out with the cash because he is like, "Well, I'm not going to make any more money for the next five years, so I'm going to go to a competitor and continue to get paid." So that was one where it was, I would say, I think what I would like to see more of is alignment of compensation with revenue.
(00:47:41):
I think I agree with what Josh said, 50%, maybe something like that upfront. Great. The other 50% should be as the company earns the revenue over those seven years and let that build up so that four or five years down the road, they're making so much money from past sales, they can't lead. If you have a good salesperson, that's kind of how you would want them to be locked in. So that was one thing I've seen. Two others that I've had real quick is where you go in and you make a change to the comp plan and basically you are now paying people more money to do the same or less sales than they did the year before. So that's one of the things you always got to do that comparison, I think. And finance has missed that a few times where they make the changes and now it's like, oh, we're going to incentivize the sales team more to do less.
(00:48:29):
Not really what you're going after. So that's one. And then the last one is just making things overly complex. And I think Paul, you hit that as well, that you go over and you want to pay on every tiny little different thing and you have all these different rates and different rate tables that it takes three months just to go over and calculate one month of sales commission because it's just too complicated. No one can figure out what's going on. And I think in that case, you lose the incentive because the salesperson is not only sitting there spending so much time trying to figure out how they're going to make more money, they're not sure exactly when things come in, then they're questioning their paycheck about what they thought and it just is a mess. So I agree. I think Paul, you mentioned too, simplicity is usually the better way to go, but that's just, as I said, some of the issues that I have seen.
Host: Paul Barnhurst (00:49:19):
Today's episode is brought to you by our sponsor, Lineos. Lineos brings live ERP data directly into Excel, allowing your team to build reports with fresh data, no stale files in sight. More on that in a few minutes.
Guest: Josh Miller (00:49:38):
And simplicity is hard. I completely agree. You want it to be as clear and simple as possible, and that does not happen by default. It takes a lot of work to prioritize things and make things as simple as possible and understand that when you're prioritizing and making things simple, that means that not everything is going to be in there. So all these things align, that goes back to the pay mix conversation of does everything need to be in the sales compensation plan? No, not everything. The salary should pay for things. Part of that is around trying to help the salespeople think like a business owner, and part of it is around you don't want to over complicate the comp plan and have 20,000 things in there. You want it to be simple. And going back to your real estate example too, it makes me think about the job alignment question of was the salesperson in that situation, were they purely responsible for bringing in new customers or were they responsible for the ongoing relationship with that customer?
(00:50:40):
Theoretically, if they're only responsible for getting new customers in the door, then you might be doing a disservice to the company to pay them too much of a long tail where they're being paid on past sales because that means they're being subsidised and they have less skin in the game to be constantly hunting new customers. And if they don't have new customers to hunt, then that's a different problem to solve. That's usually not a sales compensation problem.
Co-Host: Glenn Snyder (00:51:05):
No, and that's right. And in that case, the guy was paid for bringing in business, that was his main thing, but he was also the account manager for a couple of the key clients. And when one of those key clients just made a bunch of the purchases, he's like, "I'm not getting anything from these guys anymore for the next five years."
Guest: Josh Miller (00:51:27):
If that's the job, then I would completely agree. Then it wouldn't be appropriate to completely front load it because part of their job is ongoing part. But if their job was at 100% just getting them in the door, then it might be more appropriate to front load it so that they're constantly having incentive to go hunt more, hunt more, hunt more.
Co-Host: Glenn Snyder (00:51:45):
And I would agree. Right. Yeah, exactly. Because if your job is to not only bring in the business, but to take care of the clients that you bring in, then you run into that -
Guest: Josh Miller (00:51:58):
You don't want to completely front load them. Yep.
Host: Paul Barnhurst (00:52:01):
And I think this gets back to what you said, the foundational first thing is understanding people's roles because you have a clear understanding of the role, you should design the plan accordingly. Let me get your thoughts on sort of things. We talked about sometimes where you make a new plan or everybody's getting paid more for the same amount of work. I've seen the opposite where you keep cramming down and keep expecting the sales to hit higher and higher targets, or you have quota caps where, hey, you can earn over a certain amount. Any thoughts on all that? To me, I'll share my thought. I'd love yours, Josh. It feels like quota caps, the continuing cram down, usually is going to incentivize the wrong behavior. You're going to get people wanting to lead. You have to be extremely careful with that. I'm generally not a fan, but how do you think about that?
(00:52:51):
We've all seen it year after year.
Guest: Josh Miller (00:52:53):
I'll start with the cap part. I'm definitely not a fan of overall payout caps. Now, are there instances where it's necessary to maybe put a cap on how much a salesperson could make on an individual sale? Yes, that can be appropriate because a person could make too much on one sale and have no reason to push harder on the rest of their opportunities in that year or future years. But it's really a big disincentive to a salesperson. If they get an overall payout cap, even if they might not reach it, just the fact that the company is telling them there could be a point where you couldn't keep making sales and we will stop paying you for those sales, that's just a clunky bad message for a salesperson here, even if the odds of them reaching that cap are low. And so right now you're just sort of introducing a little bit of a disincentive to the salesperson.
(00:53:48):
On the topic of just cramming more on the salesperson, that is a real thing. And obviously we all live in an environment where we're all expected to deliver growth targets every year. We want revenue to grow at a faster rate than expenses in general. And so if that's an expectation, then there is going to be some form of that that applies to the salespeople. And that's why you just have to look at both sides of the equation. Are we expecting more from the salesperson, but at the same time, are we looking at the total earnings opportunity that we're giving them and growing that at least at a commensurate rate or something where it feels like it's in alignment? It's got to be looked at. It's really difficult if the expectations go up, but everything else stays fixed. It's a hard message for any salesperson to understand.
Co-Host: Glenn Snyder (00:54:40):
By the way, I want to go back to the cap thing, Paul. I worked at a company where they did have a cap per quarter, and what would happen is the sales guys would get towards, if they hit their cap, there's two weeks left in the quarter -
Guest: Josh Miller (00:54:55):
Oh, they delay their sales.
Co-Host: Glenn Snyder (00:54:57):
Yeah, they delay the sales. They hold onto
(00:54:58):
It. 100%. And then all of a sudden it's like it's coming the next quarter, which again, it comes back to, that's not the behaviors that you're trying to go over and incentivize. And I think that's where really what it comes down to when you think about just having the right behaviors and having the plan incentivize the behaviors that you want, if you could do those two things, you are probably going to land in a good spot. And that's where it's like some of the other game playing, I think that goes on about trying to manipulate the system either from the sales team or from the company side. It just usually makes the sales comp plan much more inefficient. Right.
Host: Paul Barnhurst (00:55:38):
So I'm going to share what a professor, and it relates here, said to us in our entrepreneurship class. He goes, "All of you are complaining about, you're going to complain about your taxes when you start your own business." He goes, "The fact that you're paying more taxes means you made more. Stop whining," was basically his message. He's like, "Now that doesn't mean don't plan and do certain things in Q4 to save your taxes or whatever that are legitimate, but don't spend all these times playing games. If you incentivize sales to play games or you cap their ability to earn, you're hurting yourself. If your salesperson is making more than the CEO, great. That probably means he's selling a ton. You're growing. Everybody should be happy if you design the plan well. So don't worry about, well, that just doesn't seem right to pay this person that amount." If they're able to sell that well, God bless them, as I like to say.
Guest: Josh Miller (00:56:29):
I have seen that of a CFO react negatively to even the sheer possibility of a salesperson making more than a C-suite level person a year. And when that happens, it's not a bad thing. It's something to really celebrate. If it's happening consistently by the same person, then that raises some questions on are they that much of a superstar or are there some advantages that they have that are building that up? But no, I mean, it should not be something that is looked upon badly. That's really something to celebrate when it happens. But there's such a balance between all this of being thoughtful about not giving disincentives to people, which a cap might be an example of that, or that other program that I could think of where not willing to pay a salesperson more than 60% of the total value of a sale. Well, then you're disincentivizing those simple single person sale situations.
(00:57:28):
But at the same time, a company's got to be really thoughtful about internal controls and thinking through what are the controls in place to make sure that people aren't able to take advantage in bad ways. You want to be thoughtful about how you're building the plan and you want people to take advantage of certain things in the comp plan, but at the same time, there's a balance to all these things and just requires a lot of thoughts.
Co-Host: Glenn Snyder (00:57:52):
There's one other thing that we haven't really touched on, but you guys really made me think about it, is cash flow. Because if you're a small business and you sell a lot and your sales are just going through the roof, if you don't know how to properly manage that cycle, and especially if it's you're selling upfront and then you got to manufacture the goods on demand and then you have to collect 30, 60 days or something like that afterwards, you could actually run out of cash and you could throw the company out of business. So for all you people out there who are working at small startup companies, you got to keep in mind how you can't just put a great sales comp plan in place, pay a bunch of people upfront. They sell everything and they sell so much that all your cash is going out the door to the sales guys and now you don't have enough cash to maintain the company.
(00:58:48):
So just another, I mean, obviously for large companies, Josh, you mentioned you work at CVS, that's not really going to be an issue for you, but if you're a startup, I have seen lots of companies grow too fast and end up going under because they didn't manage their cash properly because of that too.
Host: Paul Barnhurst (00:59:07):
I'm waiting for me to have that problem, Glenn.
Co-Host: Glenn Snyder (00:59:09):
Yeah. Well, Paul, it sounds like you need to change your sales plan.
Host: Paul Barnhurst (00:59:14):
I'm considering incentivizing myself more. Josh, can I hire you to build my sales
Guest: Josh Miller (00:59:18):
Plan? Sure. We can figure that out.
Host: Paul Barnhurst (00:59:20):
So I think as we head toward the end here, I want to ask you one more question, Josh, and I think we'll give everybody their last thoughts here. So if there's a finance person who's been tasked with building sales plans, that happened to me where I'd never built a sales plan in my life. I'd calculate them for a while and I was all of a sudden asked to figure out all the sales plans. And I made plenty of mistakes. If I did it again, I wouldn't have been as aggressive. I think the salespeople weren't earning as much. I created some bad behavior, some disincentive more than I thought I would. So learned a lot from that experience. Are there books, frameworks? What would you recommend to finance people? So listen to the call if it gets put in that situation because it can be really tough.
Guest: Josh Miller (01:00:06):
There are a couple of books out there that folks have written. There's a book by a guy named David Cichelli that's written on incentivizing the sales force. That's probably the biggest book that's been around a while, but there are a couple of other books on it. But like with anything, there's plenty of literature out there on the internet that if a person just wanted to educate themselves on sales compensation, there's plenty out there to give themselves the foundational things. There is an organization called WorldatWork that is the main organization that runs certifications for various types of total awards jobs. So benefits professionals, compensation professionals, executive compensation and sales compensation. So they have certifications in these things that they run classes all the time in these topics and they put out a lot of publications. So that's another avenue. Some of that content is free, some of it is paywalled or expects a membership.
(01:01:01):
So that's another avenue. But there are enough sales comp folks out there like myself that are usually willing to do a quick call and just help point somebody in the right direction, even if it's not going to be any formal project or advising anybody on something. I'm always happy to just point people in the right direction on the foundational things because we just want to build up the knowledge base and the better we can all do on it, the better we can collectively be.
Host: Paul Barnhurst (01:01:29):
Love it. Thanks. Why don't we go ahead and do last words and maybe Glenn, I'll let you go, I'll go. And then Josh will give you last thoughts. And as you give your last thought, just let people know how they can find you, reach out to you a little bit about your business at the end of that as well. So if someone wants to contact you, they know how. Go ahead, Glenn.
Co-Host: Glenn Snyder (01:01:48):
So I'm going to throw out two things. One, just best practice that I have found when I built out a lot of sales comp plans is when you go over and you model it out, make sure that you take your forecast that you're modeling and you plug in the prior year's sales results as well. And you want to make sure you're comparing year over year. This way then you could go over and say, wait a second, if you sell the exact same way, how does the compensation change? You generally want it to be the same. Maybe if you're trying to change behaviors, you'll see that, but you'll make sure that you'll at least not be way off one side or the other, but because you're looking at actual results that you could compare how people actually got comped in the prior year and how they would get comped in the prior year if they were on this new plan that you designed.
(01:02:36):
And I just think it's a great way to level set. But I think the other thing is that the number one key is make sure you're incentivizing the behavior that you want. I think that's a big theme. And it's so easy to go out and sell, say, "Hey, we want to go over and pay people for sales, but are they selling the products that you want them to be selling? Are they selling it in the way that you want them to be selling?" Those types of behaviors is really where the incentive comes to play because you don't want to just say, "Hey, we're going to pay everybody for the same for every sale." When one product, you might be making a 5% margin, another one you make a 50% margin. Do you really care? Are you indifferent really between selling those two? I doubt it.
(01:03:19):
So you want to make sure you're incentivizing what the behaviors are that you really want and the sales team will typically follow it.
Host: Paul Barnhurst (01:03:25):
So two thoughts. One gets back to something Josh said earlier. One of my favorite quotes, and I think of this in financial models, but it applies to almost everything in sales comp especially. Complex is easy. Simple is hard. Simple takes more work. Focus on making it simple with the right incentives and that will win every time over complex with maybe even slightly better incentives because people don't understand it. And you got to look at the entire psychology. It's not just the incentives on paper. So I think that's the first thing I would say. The other ones are one, make sure you involve everybody in the business. And as a finance person, remember you have a responsibility ultimately for the dollars. And this gets more than just sales comp, but I also had to approve sales. And there are many times I had to say, look, I can't do that.
(01:04:16):
I still remember I had a boss say to me, I asked him for feedback. He goes, "You need to be mean more often." At first I'm like, "I don't want to be like you," because this guy had a reputation for being beyond mean. We'll put it that way. But later on, I realized what he's saying is you have to push back. You have a fiduciary responsibility here and you can't just agree to everything. And there's always going to be exceptions with sales plans. All of them have holes. So you need to find that right balance. And there's times you're going to disappoint somebody. You have to be willing to do that in finance, but keep in mind the broader picture when you do that. Also, what it means to the person, what it means to the company, and be willing to have those open conversations versus just being the no police as finance is known for.
(01:05:01):
Josh, your last thoughts over to you.
Guest: Josh Miller (01:05:03):
Agree. You guys made great points there that two things that I would give, number one, repeating myself a little bit, but just the key depth of understanding of the actual sales job that each job needs to be delivering and understanding what I would call the sales motions. If the job is 100% responsible for bringing new customers, that's a very different sales plan than somebody whose job is 50% bringing them in and then 50% keeping them for the next five years. Neither one is wrong, but getting clarity upfront and designing the plan around that is really key. Second thing goes to the cross-functional aspect of it, of none of these plans work well when they're designed and maintained by any single person. It takes all of those different perspectives. Finance needs to have a seat at the table. HR needs to have a seat at the table.
(01:05:54):
Sales leadership and business leadership needs to have a seat at the table. And everybody's got to come together as clunky as that can be and get alignment on what is the right path forward. You have to have that willingness to, as you just said, Paul, push back if you disagree. Everybody has their fiduciary responsibilities and it's only when you bring that collective whole together that you really can land at the best decisions possible.
Host: Paul Barnhurst (01:06:19):
All right. Let our audience know where they can learn more about you, a little bit about your business, and then we'll wrap this thing up.
Guest: Josh Miller (01:06:24):
I really just consult on the side here and there, so it gives me the ability to be very picky about when I take projects and which ones I take on, but it's all through my consultant practice onTarget incentives. So there's ontargetincentives.com. The website explains a little bit of the consulting practice, but it does have a lot of the articles that I've written over the years, a lot of them through WorldatWork I mentioned earlier. So if somebody that's just learning sales compensation, those articles would be one of the ways that somebody could start educating themselves. Can be reached through that website or directly by email at josh@ontargetincentives.com.
Host: Paul Barnhurst (01:07:02):
Perfect. Well, thank you for that, Josh. Thanks for joining us. Thanks as always for joining Glenn, and we hope everybody enjoyed this. Next time you're doing a sales plan, give it a listen and remind yourself to find that right balance because it's not easy. So thank you everyone.
Co-Host: Glenn Snyder (01:07:18):
Thank you. Thank you. Thanks, Josh.
Host: Paul Barnhurst (01:07:24):
Hard coded opinions, where Glenn and I tell you what we're really thinking. All right. Welcome to another hard coded opinion. I'm going to give mine. This whole clickbait, hype, Excel is dead. All that stuff is just BS. I'm so tired of the exaggeration that people put out there to build up their name, to sell something. I've seen ones build the model in five minutes, finish your budget in 30 minutes. Excel is dead. All these tools replaced it. It's all just marketing hype. And the sad part, it works, but it shouldn't. So let's take Excel. Anyone who thinks Excel is dead is just plain wrong. Will some people use Excel less with AI? Yes. And should they? In some cases, yes. Will some people use it more? Yes. I did a poll. So I asked people. I've done it twice over the last year, and both times about 80% said they're using Excel the same or more.
(01:08:29):
Okay, so let's look at what Excel's done. Well, let's just look at what the industry's done. Claude, that Excel killer, what do they use as a spreadsheet? Excel. What have they built? An app inside Excel. What did ChatGPT do? Build an app inside Excel. What did 20 other plus companies do? Build an app inside Excel. What has Copilot done? Built an app inside Excel, basically, right? The add-in, not technically an app, but they call it an add-in. All allowing you to do more with Excel. Is the way you work in Excel changing? For sure. No question. Copilot continues to get better, all the other apps. In addition to that, Excel just made one of its biggest changes in years. You can now add multiple values in a single cell, which allows a lot more functionality. You'll see more about that as it gets released in general, but they continue to invest.
(01:09:23):
Being a Microsoft MVP, I see it. And I'm not saying Excel's for everybody, but what I am saying is you guys have to stop and think when you see these arguments that things are dead. Excel is still very much alive, it's transparent, it's audible, it has plenty of great use cases. Financial modeling is alive. It hasn't died. Power BI hasn't died. Nobody's building their budget in 30 minutes. If you see hype around FP&A that you know can't be true, then just step away because the person's trying to sell you something or they just want to be famous. It's clickbait. So stop and think and remember the tools, the spreadsheet, whether Excel goes away, the spreadsheet definitely is never going anywhere and AI is not the answer for everything. So all right, that's my hard coded opinion. That's my rant. I'm off my soapbox. Thank you for listening.
(01:10:18):
That's it for today's episode of FP&A Unlocked. If you enjoy FP&A Unlocked, please take a moment to leave a five-star rating and review. It's the best way to support the FP&A guy and help more FP&A professionals discover the show. Remember, you can earn CPE credit for this episode by visiting earmarkcpe.com, downloading the app and completing the quiz. If you need continuing education credits for the FPAC certification, complete the quiz and reach out to me directly. Thanks for listening. I'm Paul Barnhurst, the FP&A guy, and I'll see you next time.