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How to Navigate KAM Incentives: The Square Peg of Sales Compensation

Posted by Russell Schubert on June 28, 2017



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You can’t fit a square peg into a round hole. The popular saying has been around for millennia. Chinese literature from 221 B.C. speaks of “square tenon and round mortise”: square peg, round hole. 

The above adage can easily be applied to sales compensation plans. In our recent blog post, “Do Optimal Sales Compensation Plans Differ by Generation?,” we discuss why generational differences may mean that your tried-and-true compensation plan designs might not “fit” well with new and future sales reps. (Spoiler: Millennials are motivated by different things than their baby boomer and Gen X counterparts.)

So perhaps it should be no surprise that we observe companies trying, and failing, to fit the “square peg” of a key account manager (KAM) role into the “round hole” of traditional and standard sales comp plans. 

While KAMs are an instrumental part of helping their companies improve top and bottom lines, they aren’t “salespeople” in the traditional sense. The KAM sales cycle is much longer, and KAMs procure much bigger deals and navigate multiple stakeholders in a complex purchasing process.

Here’s how sales comp professionals have incorrectly tried to force-fit the “square peg” KAMs:

1. Creating ineffective compensation structures: KAM sales compensation planning isn’t easy. It also may be an area where many compensation professionals don’t have as much experience to draw on. Unfortunately, sometimes that results in KAM sales comp plans where pay at risk is slashed dramatically, creating a nearly 100% salary-based compensation structure. Or sales comp designers might put KAMs on alternative compensation structures with a very small incentive tied to overall company performance. While large amounts of pay at risk are generally at odds with the long-term strategic nature of a KAM’s selling responsibility, swinging the pendulum too far in the opposite direction destroys the sales comp plan’s ability to meaningfully drive behaviors and results.

Key takeaways: KAMs need to have meaningful sales comp plans that drive desired behaviors and reward performance. Otherwise, you’re leaving sales on the table. Benchmarks from ZS’s 2016 Incentive Practices Research study show that clients, on average, design their KAM plans to have 32% of their compensation paid through variable incentives. Consider reevaluating your KAMs’ pay mix if they earn significantly less than that through variable incentives.

2. Including everything and the kitchen sink: KAMs, almost by definition, are responsible for a very broad portfolio—if not the entire portfolio of the organization. As a result, KAM comp plans often resemble the menu at The Cheesecake Factory: They just keep going and going, including everything and anything. Without strong overarching leadership, each faction within the organization can end up getting its metrics included in the KAM comp plan under the guise that it’s fair for all stakeholders. The reality, unfortunately, is that complexity in compensation plans generally means that no plan component will receive sufficient attention by sellers, no matter what role they may be in.

Key takeaways: Less is more. KAM sales comp plans should focus on a few critical metrics that really define success for the individual and for the company. For example, combining the metrics that appear in all of the underlying sales rep plans doesn’t ensure sufficient KAM attention on all components of the business. In fact, it likely will result in exactly the opposite.

3. Being afraid of MBOs: Yes, these can be ugly. Simple, activity-based MBOs that require a lot of effort to administer but always get paid out can be nothing more than hidden salary. You end up with a high administrative burden for no real incentive value.

But MBOs can be valuable incentive tools if designed appropriately. They also can be adapted to align with the company’s objectives for each account: The objectives for your biggest long-time customer will be different than your newest account for which you’re trying to lay the groundwork for future success. Or the objectives that you’d want to achieve with a strategic IDN likely are different than the objectives for government accounts, GPOs or distributors.

Key takeaways: Frameworks like SMART (specific, measurable, attainable, relevant, time-bound) can help you create meaningful objectives for your KAM team. When well-designed, frameworks are powerful because they can keep you organized and on track, and can be customized to the specific customer situation and goals.

4. Losing the best talent because of insufficient target pay levels: Good KAMs are a breed apart from their field sales counterparts. You need to define target compensation levels for your KAM team in order to attract and retain the best talent. To make sure that you’re comparing similar roles, benchmark them against a true KAM role in the marketplace (not a senior sales rep role, for example). If the benchmark doesn’t exist, initiate a custom survey whereby you can benchmark the right roles and the right target accounts.

Key takeaways: If you have difficulty hiring and retaining strong KAM talent, your target pay levels may be below market. A rough benchmark to consider is that your KAMs’ total pay levels should align with those of your first-line field sales managers. Competitive target pay levels alone can’t ensure the success of your KAM program, but below-market pay will make it much harder to get top-caliber talent into your program. 

If one or more of the above situations apply to you, you’re not alone. Adopting the standard sales comp plan for your KAMs isn’t enough: To motivate them, your plan must be unique. Otherwise, you’re just trying to fit a square peg into a round hole.  


RELATED CONTENT

ARTICLE: Have We Reached the Medtech 'Tipping Point'?

BLOG POST: Transitioning Away From 100% Commission Is Easier Said Than Done


  

Topics: Russell Schubert, KAM, KAM compensation, sales comp, medtech, sales, marketing, Transition Plan, commercial operations, medtech tipping point, sales plan design, sales comp administration

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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