Jeff Wood: Welcome to our discussion. Today, we’ll be covering sales compensation market trends and practices. I’m Jeff Wood, the leader of our fintech practice. And I’m joined by Dashon, who leads our European office. Today, we’ll discuss key trends and market practices that we’re seeing specifically in Europe and in some of our fintech clients. Dashon, can you tell us a little bit about what you’re seeing on some of the key trends and practices with some of your clients these days?
Dashon Catlett: Yeah, absolutely. Jeff. There are a few key topics that have come up quite frequently in some of the conversations and discussions and engagements I’ve been having with my clients here based out of the UK and in Europe more broadly. As an example, one of the key topics that has risen to the surface has been contract length. And I think this has evolved over time, especially in the past few years, I would say several years ago there was a push for maximizing the longest contract length possible. And then I think as we had a few market disruptions and there was a bit of uncertainty a lot of organizations actually wanted a bit more flexibility in terms of, in terms of their contract length. So they started to opt for 2 or 3 year contract lengths as opposed to five year contract durations. And what I’m seeing is actually a bit of a shift back to that longer-term contract length in some instances. And it actually all stems from the fact that we’re back in a market environment of a lot of uncertainty. So I’m seeing a few of my clients push for longer five, six, seven-year ideal contract lengths. But there’s a bit of a caveat. There’s a bit of a difference relative to what we may have seen. You know, call it 8 or 10 years ago. And a lot of my leading clients here are starting to put in rules and guardrails around the structuring of those contracts. So as an example, making sure that we’re establishing annualized price increases that are built into those contracts so that we’re making sure that we’re not missing out on our typical inflation rates as an example. So that you’re seeing a bit more governance around how we’re thinking about structuring those contracts and making sure that our sales operations or our revenue operations are more proactively involved in the shaping of how those contracts are being negotiated.
Jeff Wood: And that’s a great call out, because one of the things we used to see years ago where companies, if they’re selling to large financial institutions or banks, and they would typically have these longer-term contracts, they’d want to make that as long as they could. And in some cases, they might even incent sellers to make sure they extend it. But what would the risk they had without the governance is the sellers would discount it. Okay. Well we’ll just we’ll get a longer-term contract, we’ll get paid more, but we’re going to end up cannibalizing some of our margin by cutting that. So these types of kind of price increases or governance structures that you’re putting in place, sounds like that helps alleviate that type of concern that maybe they saw in the past.
Dashon Catlett: Yeah, absolutely. And part of that I think was, was oftentimes due to historically total contract value, TCV was a common metric that you would see in the fintech space and the tech space more broadly as more organizations have shifted to RR or ACV. As a primary metric in their sales compensation plans, they’re typically using an annual modifier based on multi-year contract lengths. So that helps to partially account for some of the potential discounting that you might see for some of those longer-term contracts. But I think at the core of it is making sure that we have the proper governance and resources in place to ensure that if we are pushing for a longer contract length, that isn’t coming at the expense of the profitability of those deals.
Jeff Wood: Got it. Thanks, Dashon. What other trends are you seeing or common questions that are popping up in Europe?
Dashon Catlett: Yeah, absolutely. Another one that comes to mind is this concept of linearity. So, as we think about, you know, the seasonality of our business. How are we making sure that one, we’re forecasting for that seasonality, but also making sure that there’s still a bit of consistency in terms of and predictability in terms of our revenue as well. And this is a challenge that I’ve seen with several of my clients and oftentimes this is something that everyone assumes can be exclusively solved through the sales compensation plan, where, you know, we need to put in a fast start bonus as an example, or we need to use a spiff mechanism to reward our sellers and incent our sellers to close deals earlier in the fiscal year, earlier in the period. But oftentimes those solutions don’t work as well as you might expect. At its core, I think this is oftentimes a performance management issue more than it is a sales compensation issue. Now, what does that mean exactly? If you find yourself in a situation where you take a look at, let’s just say, your quarterly performance, and if you’re seeing a significant portion of your quarterly bookings or revenue come in, you know, in the final week or final two weeks of a quarter, right? There might be a broader performance management issue that needs to be accounted for.
So instead of complicating the plan or putting in additional crediting policies or rules or throwing spiffs at the problem, what I often advise my clients to do is to start with our managers, our first-line sales managers. We want these individuals to be accountable for ensuring their teams are evenly balanced and planning and building out their pipeline accordingly so that we have a bit more predictability in terms of our revenue and our bookings performance. So what might that mean more tactically, if we do want to use sales compensation as a driver to solve this challenge? What I would recommend typically is let’s put a comp, a sales compensation mechanism in the plans for our first line managers so that they can be the ones to constantly reinforce the expectations of how we want, how we want to, to solve those linearity issues at a broader scale amongst their full team, and hopefully not just have it be a short term incentive that we try to solve through a spiff.
Jeff Wood: Great. Great insights. Dashon. In fact, it’s not always necessary to try to put everything in that individual comp plan, right? You’ve got to be thoughtful about what you put there and what you put in other roles. To your point, one of the other things that we’re seeing, both in North America and across global plans, is around payment gates or thresholds. This question frequently comes up. Can you talk a little bit about what you’re seeing in Europe and some of the thoughts there?
Dashon Catlett: Yeah, the use of thresholds is a common question that I get from many of my clients, especially as we start to factor in the perspective of finance. And as costs become a larger issue and as we start to factor in the perspectives of our sales or revenue leaders that really want to drive pay for performance, right? They we tend to think about thresholds as a mechanism to solve for some of those challenges. And they are. However, it’s important to contextualize when is the appropriate time to use those thresholds and what types of roles and environments it makes most sense to leverage them in. So as an example, if we have an account manager type of role that has responsibility for for managing an existing set of, of customers and accounts and they have renewal responsibility, it’s pretty common to see a threshold be used in those instances where we’re assuming a large portion of your book of business is going to be renewed renewals or recurring. However, in instances where we have more new business oriented roles, more hunter oriented roles, it can also be it can be a pretty a pretty large demotivator for those individuals that are that are going out doing the prospecting, landing new logos and landing new accounts and having a, you know, sometimes a significant portion of their of their incentives held back even though they’re bringing in net new value to to the business. So it’s very important to make sure that we’re thinking about the use of thresholds in the context of our business strategy and the roles we’re deploying. Another interesting challenge that I’ve seen around this concept of gates more broadly is when should we actually pay our salespeople? Right.
And especially as we move to toward environments where bookings and RR and ACV re critical metrics and KPIs for how we value for how we value these fintech companies. The timing in the crediting policies of those payouts could be very interesting. As an example, some of my clients will ask me, you know, should we wait until revenue is collected before we begin to, to pay our sales people. And my general advice to my clients is we want to pay as close to the point of persuasion as possible. So what does that mean? That means if I close a deal with a client in January, I’m probably not going to pay that salesperson exactly in the month of January. But we want to make sure that there’s a pretty tight linkage between the closing event, which is essentially what we’ve hired them to do, and when they actually receive that payout, if there’s too long of a gap between those two, between those two milestones. Right. I closed the deal in January, but I don’t get paid until December. We start to lose the value and the effectiveness of the sales compensation program, which is essentially there as a tool and a motivator to drive growth. So in instances where we say, hey, we actually don’t want to pay you the salesperson until the revenue is recognized or collected. From an accounting perspective, we actually lose a lot of the strategic intent of the program, which should be to reinforce these key behaviors that we want to drive our salespeople towards.
Jeff Wood: Great. Thanks, Dashon. So there’s certainly a lot of moving parts to this of understanding the job role, the strategic needs, as well as even the pay philosophy if you’re thinking about how aggressive do you want to be on thresholds. So a lot of factors to consider for that final solution. Dashon, thank you so much for your time today and sharing some of your insights. For our community out there, if you’d like to speak more with someone at Alexander Group, please visit our website and reach out. We’re more than happy to have a discussion with you about any of these topics, or any other sales compensation topics, as well as the benchmarks that we’re seeing in the market today. Thank you so much and have a great day.
