IT Services Sales Compensation: Is Your Model In Tune With the Market?
Gartner Dataquest recently conducted comprehensive research to determine the current industry status of services sales compensation at IT operational services companies. The research found that solution providers' strategic objectives for services sales compensation programs vary, but the attainment of company revenue and gross-profit goals dominates. Others receiving significant focus are the growth of a particular service line and the refocus of the sales organization.
Many solution providers are incorporating business growth and increased satisfaction levels with current clients into the sales compensation programs. Solution providers are also seeking to gain parity with both the industry and with other parts of their organizations, e.g., hardware sales. Another key objective is a focus on profitable business,by client and by sales engagement. Solution provider executives know that signing the right business is more important than ever for success.
Interestingly, all of the solution providers that participated in the research project rated their services sales compensation programs as "effective," but none rated them as "very effective" or "extremely effective."
Compensation Models
All solution providers in the study use a sales compensation model that includes a base salary plus variable components. The variable components make up a larger percentage of total compensation than they did a few years ago, but none are predominantly leveraged. Direct-sales forces are more leveraged than either indirect sales or telesales forces. Base salaries still make up the majority of sales compensation, the average plan being 57 percent salary and 43 percent variable. The leading variable components are based on revenue production, the sale of specific services and bonuses for new business production.
Today's IT services sales environment is one of a complex sale, as client requirements become more strategic. Solution provider sales compensation programs have yet to react to this dynamic. There is very little compensation focus on issues such as strategic selling skills, relationship management, pipeline management and customer satisfaction.
Salary levels and targeted annual earnings haven't changed much over the past few years. Direct and indirect services sales-force compensation levels far exceed telesales compensation.
Many noncash compensation programs can have a motivating effect on salespeople. Traditional programs, such as peer visibility, annual rewards clubs, and gifts and trips continue to be popular. However, one big change has occurred. For direct-sales forces, stock options is now the most frequently used noncash compensation element. Direct-sales professionals are often seen as nearer to the management or executive level of the company than the other two sales forces, and thus are frequently incented using company stock programs.
Recommendations
All solution provider executives should regularly examine and refresh their sales compensation programs. At the least, they should:
- Incorporate elements of consistency, measurability, simplicity and accountability into the sales compensation program.
- Focus sales compensation metrics less on revenue and more on profit and activity-based elements.
- Align targeted earnings more with profit production than with revenue production.
- Significantly raise quota levels and change focus elements.
- Leverage sales compensation programs to the greatest extent possible for each salesperson and each sales force.
- Include salespeople in the sales compensation change process.
- Michael Haines is a principal analyst for Gartner Dataquest's IT Services Business Strategies Group, Omaha, Neb. He can be reached at michael.haines@gartner.com.
