Video/Presentation: http://www.proformative.com/events/planning-way-best-practices-effective-variable-compensation-budgeting-forecasting The concept behind variable compensation isn’t difficult — people are motivated by rewards, and organizations use monetary and other incentives (gift cards, trips, etc.) to shape behavior that improve business performance. Yet variable compensation can be an expensive proposition, in lost dollars, risk and performance potential, if managed incorrectly. Manual spreadsheet-based sales compensation management limit visibility into variable compensation expenses, sales and rep performance, as well as the ability to make necessary plan changes that could drive improved business results. In this session, Nina Ostrom, head of Americas field finance and operations with Progress Software will explore how a systemic and operational approach provides the necessary insight for effective budgeting and improved forecast predictability. Speaker: Nina Ostrom, Head of Americas Field Finance & Operations, Progress Software Presentation delivered at CFO Dimensions 2013 - http://www.cfodimensions.com Track: Operational Effectiveness | Session: 1

1. 1© 2013
The Planning Way - Best
Practices in Effective
Variable Compensation
Budgeting & Forecasting
“The Right Tool for the Job”

2. 2© 2013
TRUSTED Business Partner with
Global Commissions Experience
Nina Ostrom, Americas Field Finance & Operations, PROGRESS SOFTWARE

3. 3© 2013
Finance‟s Worst Nightmare…

4. 4© 2013
Sales Management‟s Sleepless Nights
Frustrated Sales Rep!!! Shadow Accounting

5. 5© 2013
SLEEP THERAPY 101
Implement the RIGHT tool, PLUS

6. 6© 2013
Holistic Approach
Improve Incentive Compensation Plan Design
Select the ‘right’ Incentive Compensation Tool
Design and System Integration are key to a
successful implementation
Reporting and Ad-Hoc Modeling are the „secret
sauce‟
Implement a Governance Framework

7. 7© 2013
Improve Incentive Plan Design
Align Plan Design with
Company Goals
Drive sales to meet and
exceed their quota
Make administration
simple and easy to
understand
Ensure plan components FOCUS
on Strategic Objectives
ALIGN quotas and target
incentives to meet COS% goals
Ensure top performers (top 10%)
EARN competitive market rates
Streamlined, transparent process
with Sales Mgmt involvement
Timely and accurate payments

8. 8© 2013
Select the
„Right‟ Incentive
Compensation
Tool
Why not Excel?
Flexible Design
Audit Trail for System Changes
Data Transformation Capability
Integration w/ Existing Applications
Robust Reporting
Easy to Administer
Cost Effective Solution

9. 9© 2013
Solving the Problem Yields ROI
Invest in the „right‟ tool
Resource appropriately
Improves sales
productivity
Improves predictability
Investment Returns
Implement Tool $50K
Annual Fee $75K
Staffing <$75K>
Sales/Profit $300K

10. 10© 2013
Implementation – Design Approach
REPORTING, REPORTING, REPORTING
Sales Performance – trends, quota attainment
Compensation Plan Effectiveness
Commission Cost Drivers – Rate Tiers (cost of accelerators)
Design for the lowest level of information needed –
consolidation is easy
Create custom fields to ensure all management
reporting requirements are met

11. 11© 2013
Implementation – System Integration
INTEGRATE, INTEGRATE, INTEGRATE with
existing applications
Data Integrity – „System of Record’
Bookings, Account Assignment, Finance/HR info

12. 12© 2013
The „Secret Sauce‟
Reporting
Year Region Revenue Quota Attain % Tier 1 Tier 2 Tier 3
Total
Commissions
Target
Incentive
% of TI
Comm
Rate
US 45,000,000 50,000,000 90% 875,000 1,082,500 217,500 2,175,000 2,500,000 87% 5%
EUROPE 32,000,000 40,000,000 80% 700,000 780,000 1,480,000 2,000,000 74% 5%
ASIA 38,000,000 40,000,000 95% 700,000 1,076,500 323,500 2,100,000 2,000,000 105% 6%
YEAR-2012 TOTAL 115,000,000 130,000,000 88% 2,275,000 2,939,000 541,000 5,755,000 6,500,000 89% 5%
YEAR-2012

13. 13© 2013
The „Secret Sauce‟
Ad-Hoc Modeling
0
10
20
30
40
50
70% 80% 90% 100% 110% 120% 150%
Scenario 1 Scenario 2 Scenario 3
% of Payees Quota Attainment

14. 14© 2013
Governance Framework
Closed Loop Process
Data Integrity – „System of Record‟ checks &
balances
Audit trail for all systemic changes
Detail reports supporting performance, associated
commissions expense, and payroll
Line Management & Finance partnership –
complete transparency, review and exception
approvals

15. 15© 2013
Budget & Forecasting
XACTLY Incent is the „System of Record‟

16. 16© 2013
Planning Assumptions
As the „System of Record‟ it provides real-time
sales management visibility – vital info, plan and
quota assignment
Name: Region Mgr Currency: USD Annual Base: 75,000
Manager: GEO Director Title: Sales Director Annual Variable: 75,000
in 000s QTR-1-2013 QTR-2-2013 QTR-3-2013 QTR-4-2013 YEAR-2013
Component Split - MBO 10% 10% 10% 10% 10%
Component Split - GEO Revenue 50% 50% 50% 50% 50%
Component Split - GEO Margin 40% 40% 40% 40% 40%
GEO Revenue 18,750 15,750 16,500 24,000 75,000
GEO Margin 1,875 1,575 1,650 2,400 7,500
Plan Summary: YEAR-2013
Plan Quotas

17. 17© 2013
Planning Assumptions
Prior year‟s performance becomes instrumental in
budget/forecast modeling

18. 18© 2013
Budget Fundamentals
ALIGN quotas and target incentives to meet
Bookings/Revenue and COS% goals
Model compensation plan payout schedule
Confirm sales roster
Quota assignment – Sum of reps‟ quotas > manager‟s quota
> Region Bookings/Revenue Target
YOY growth and Sales Productivity targets
Review reps‟ quotas as % of fixed and variable
compensation to ensure COS% goals are met
Ensure quarterly trend based on commissions payout model

19. 19© 2013
Forecasting
Forecast variability due to quota attainment
distribution curve and individual rep achievement
17%
20% 20%
23%
10%
5% 5%
0%
5%
10%
15%
20%
25%
70% 80% 90% 95% 100% 110% 120% 130% 150% 200%
Quota Attainment Distribution
QuotaAttainment
%Payees
Rep 1 Rep 2
Var Comp $ 60 $ 60
YTD Sales $ 400 $ 1,000
Quota $ 1,000 $ 1,000
Attain % 40.0% 100.0%
Commission $ 16.8 $ 60.0
New Deal $ 100 $ 100
Attain % 50% 110%
Commission $ 4.2 $ 12.0

20. 20© 2013
Improve Actual/Forecast Variance %
Predict QTR/FY Quota Attainment by rep
Estimate bookings based on a weighted factor of rep‟s
opportunity pipeline in salesforce.com to meet overall
regions‟ booking forecast
Quota Coverage re: Rep Attrition/New Hires
Input estimated future quarter bookings by rep into Xactly
Sandbox environment
System calculates YTD quota attainment by rep/manager
and associated commissions expense
Review estimated quota attainment with Sales Management

21. 21© 2013
To Sleep Well…
Be INVOLVED during Compensation Plan Design
INVEST in an Incentive Compensation Tool
Define REPORTING requirements during System
Implementation
ALIGN Quotas and Target Incentives to meet
Sales/Revenue and COS% goals
LEVERAGE „System of Record‟ to provide modeling
capabilities for Budgeting and Forecasting

22. 22© 2013
This is what SUCCESS looks like
For Sales Management, Sales Reps, and yes EVEN for Finance Executives!

23. 23© 2013
Thank You!

24. 24© 2013
Thank You Sponsors!
PLATINUM
GOLD
SILVER
DIAMOND