The perfect compensation plan doesn't exi-- | TDSU Ep. 47

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You guys got any good weekend plans? Going to a dinner party tomorrow. JP, you wanna come? I don't even know what that is. What's a dinner party? Some guy, he's- No, no, no.

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Oh, no dudes. No dudes. Take it away, Dillon.

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What's up, Lifers? And welcome to The Daily Standup with Lifetime Value, where we're giving you fresh new customer success ideas every single day, as well as some dance moves. All right, JP. All right, JP.

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We got my man, JP, with us. Would you like to say hi, JP? What's shaking? What's wiggling? Tell me what's going on. Wiggling.

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And we've got Rob with us. Rob, introduce yourself and dance at the same time, please. I'm gonna refrain from dancing, but what's up, moneymakers? Come on, Rob.

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Come on, Rob. What's up? All right, money, money, money. Give me a wiggle.

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Give us the wiggle. What's that pasta called? Come on, we're doing the wave. Give me some silly energy.

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Yeah, you know what I mean? Getting silly with the silly. Yeah, yeah. Side to side, back to front.

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All right. This is another disappointingly three-way episode. Who wants to raise their hand with the topic du jour today? You, since it's French.

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I guess I'll go. It's not Italian, Rob. You said du jour, that's French.

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All right. So the topic of the day is, as it gets darker, for some reason, the topic of the day is compensation. Should CSMs have variable compensation? And if so, how exactly should they be compensated? It's an interesting question.

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Back to our host. What's interesting about this is this was Rob's topic. So I was teeing him up to introduce this.

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I love JP. I love the way you butted in. But I'm going to hand it right back to Rob and let him talk about it.

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Yeah, so this one's coming up for me a lot. It's coming up a lot lately because I'm working with a lot of early stage companies that are just getting to the point where they have the metrics that they can compensate people against. And a lot of them are coming at this from the angle of, oh, well, yeah, we should definitely have variable compensation.

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Let's throw in some variable compensation. But they're not thinking through all of the steps, the implications, the second order effects, the third order effects of these questions that come up with compensation. So I'm going to elaborate on that in just a second.

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Go ahead, Dillon. No, and I'm interested to hear exact examples. I got a lot to say about variable compensation.

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It's something I find really interesting because I think if it's done right, it can really propel you forward. But I think that's a huge if. Let's protect the innocent of the folks you work with, Rob.

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But maybe explain to us what this looks like to you. So it's showing up in different ways. I think there's cases where a certain role will have no variable component.

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A lot of times people kind of come to that model because they're like, well, we don't really have the right metrics to hold people accountable to. We also feel like this person's just doing a flat, simple job that shouldn't really be so metrics driven. Those are the more administrative CS functions.

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But most companies evolve out of that. And then they get to a model of being discretionary with their variable comp. So it's like, yeah, 10% of your compensation is variable.

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But basically, I'm just going to make that judgment based on a good pat on the back for good work, which that's really hard to enforce. Or how we're performing at the end of the year. I'll decide whether I can afford to give you that bonus.

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Yeah, I've seen that a million times. And so you just brought up a good point, right? You said that bonus, right? So when these models come into place, they can show up in different ways. They can show up as bonuses.

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They can show up as OTE variable comp models, more resembling like a sales type comp model, but usually a lesser percentage. Or they can show up as SPFs too, which SPFs, those are usually fun. And if you don't know what a SPF is, it's just a reward for a certain behavior, a certain one-time thing that happens.

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So, for example, if you get five customer referrals, you win a trip to Cabo or something like that. That's a good SPF. That's easy, man.

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Interesting fun fact I learned recently, by the way, people in customer success, they tend to get more motivated. This is anecdotal. I don't have this studied yet, but they tend to get more motivated by hard and fast things that you can actually give them tangible things like a trip to Cabo, a flat screen TV, or whatever.

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They get more motivated by those things than the equivalent dollar value in cash, which is very interesting. And sales... I'll tell you why I think that is. Yeah.

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I think it's because, first of all, we're not used to that model. I think it's easier for them to understand because they're not typically from a sales background where they haven't historically been, though they should be, as you and I have discussed, Rob. I'll tell you, when I was a CSM early on, I just didn't frigging trust that my company was going to come through with what they said they were going to come through with.

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And that's where you heard the bitterness and the cynicalness of the bonus at the end of the year. You just get to decide whether I did a good enough job, but it probably also has a little bit to do with whether your job's on the line. Can you save the company some money by not awarding bonuses at the end of the year? I think that all plays into it.

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I don't know that it's purely the CSMs that were just dogs that understand how to chase a ball. Anyway, how do you like to be rewarded? I think SPIFs are interesting. I've always seen SPIFs in a competition, so I've always liked that because I want to be the best, right? I want to get more referrals or whatever from my customers than my competitors so I can say, oh yeah, I'm top of the heap.

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But JP, what speaks to you? First of all, let me be very clear. JP likes more money. I do like more money.

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First of all, I think personally, as long as I was happy with the base salary of wherever I worked, as long as I was happy with that, that is essentially what I planned around and variable compensation to me, as opposed to where I think with sales, variable compensation is a large part of the function of how they get paid and motivates them as opposed to where I see it as a bonus, even though to speak to generalities, because I don't know legal stuff, I'm not getting in trouble, but generally speaking, the variable compensation could be rather high, right? And I think things can get murky when you do have, especially not as well defined CS and sales, right? Because it's pretty easy to say like renewals and expansion, maybe that belongs to CS and maybe like upsells and maybe some of those like non-recurring revenue things like services or different things that they'll show they're going to fall within sales. But things can get murky. I've seen it firsthand.

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So when it comes to variable comp, what I'm more concerned with is if I'm satisfied with the base, that's good. And if it's variable, it's like, okay, how much is this variable? I heard OTE mentioned, what's sort of like an expectation? Because I think sometimes I can also view compensation, not so much as being motivated by the finance, but also like, this is how you're supposed to be performing. Sure, you make this base salary, but it's an implicit expectation in an explicit way of how you're supposed to be performing.

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Or where they'd like to get to. I've seen a lot of comp plans that are like, they are untested. Oh, we'll bonus you if you can do this.

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But historically, nobody has ever been able to do this before. That's another thing I like to pay attention to. Are they trying to employ incentives, but with no proof that it can actually be done? The other good point you're bringing up there is a lot of folks aren't asking themselves, what behaviors am I trying to incentivize? And will this work when someone's on a call, someone talking to their face, a million thoughts running through their mind? And that's why I always advocate that a comp plan should not just be proven like what you're saying, but it should be really simple.

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It should be memorable. It should be easy to apply in any given situation. But a lot of comp plans, if someone has to pull up a spreadsheet on a call to figure out how much they'd get compensated for the deal, you're probably on the wrong foot.

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I think there's another thing that I wanted to mention before I forget is that how CS, I think, gets treated like whatever headed stepchild. I want to be politically correct, so I don't know. The three-headed stepchild may be of an organization, depending on what they're bringing in.

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Something I think to also be mindful of is how much noise is CS making in terms of their variable compensation? If the sales is already getting variable compensation, and we know, for example, finance is working on a quarterly basis, if you introduce a variable comp plan that's monthly for CS, you're creating some noise. You're creating some attention. How does that affect your bottom line versus if you have things on a quarterly, or maybe if you have things on a half type of plan? I think that it's also important to consider when it comes to compensation plans, somebody's got to be doing that, figuring all this stuff out.

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Like you mentioned the spreadsheet, but the finance team is going to probably largely be the ones figuring it out, and that's another layer to this. I've seen it happen where there's a bonus and it is laid out in your JD. I've gone two or three quarters without being bonused and had to ask, like, hey, what's going on there? Do you guys... I hit all my numbers, but I didn't see the extra money in my paycheck.

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And they'd be like, oh yeah, you have to submit that. And now it's too late. No.

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Our budget has been closed. No, no, no, no, no. Really? That's why when you said you wanted to talk about comp plans, I was like, let's go.

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I'll talk about comp plans. You want to hear some war stories? You want to hear some militant wording around plans? I actually, I think the other thing to pay attention to is like, look, first of all, there's got to be an opportunity on the table for CS to actually do these things. I have in the past had to ask in interviews, like, yeah, but how are other groups being incentivized? Because if they're not also being incentivized this way, and you simply think that this variable comp plan for CS means that all trains will run on time, I don't want to be a part of that because I just don't think that's possible.

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Products got to be getting incentivized in certain ways, and sales, obviously, marketing, obviously. If marketing isn't being incentivized to create a certain amount of white papers or to bring in a certain amount of leads, then why do you think customer success would be good at it? Because we're just one organ in the body. The second thing is to the idea of simplicity, Rob.

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I think you can oversimplify it, though, too, in that you can say, hey, if you sell this thing, you get 3% of the annual value or something like that. But what I have seen work, where I have designed plans, is add a piece in there. That only gets unlocked if your customer satisfaction is at a certain level.

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I actually hate sentiment, but I think that's valuable in this regard, and your retention level is at a certain level. The idea being, you are not allowed to ignore those key fundamentals of your job in customer success just to go after the money. You are a salesperson, but you are a salesperson second to being a CSM.

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That's good. It adds an additional layer, but it makes sure that they understand you got to take care of your house before you go out and try to add furniture to it. Is that a good analogy? I don't know.

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JP, you tell me. I mean, there's another layer to this as well, which is that we're out of time. So if you want to catch more conversation like this, hit that subscribe button.

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You know where to find us. Come find us on LinkedIn, baby. We're always ready to talk sometimes, all right? So y'all take care.

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I'm tired of talking. Yeah. About one hour out of each day.

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Just get a look. You just get a look. Now I know what to do if I ever owe you money, Dillon.

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Like, oh, you didn't submit the form. You missed the deadline. Can you imagine with my personality how that went over? Oh, man.

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Yeah. I was thinking about that, too. I was like, oh, shit.

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Anyway, love you guys. See you soon. You've been listening to The Daily Standup by Lifetime Value.

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Please note that the views expressed in these conversations are attributed only to those individuals on this recording and do not necessarily reflect the views and opinions of their respective employers. For all inquiries, please reach out via email to Dillon at LifetimeValueMedia.com. Find us on YouTube at Lifetime Value and find us on the socials at Lifetime Value Media. Until next time.