Infosys plans to put in place a new incentive structure to reward its sales superstars in a bid to retain key personnel amid a scramble to win large outsourcing deals and regain industry-level growth rates, two people directly familiar with the matter said. For years, India’s second largest software services firm has used operating margins and overall growth of the company as key benchmarks to reward ace salesmen.
Now, it is considering changes to its incentive structure to link compensation directly to incremental revenue generated as it looks to shed its risk-averse image and win more large deals, said the two people who requested anonymity.
“Infosys wants to reward and incentivize its sales people disproportionately, especially the ones that bring in large deals and help the company get more out of existing large customers,” one of them said. “Infy want to link incentives directly to incremental revenue generated.”
Incremental revenue, or additional revenue generated in a given period, has become one of the most important benchmarks to track in India’s $146-billion IT industry as it reflects the competitive strength of a company and its ability to win new contracts. For now, Infosys is still in the process of finalising the way the new compensation metrics will be structured, but is keen to roll out the new pay structure “sometime during this financial year”, said the second person.
So long, Infosys has been rewarding its sales force as a unit. The better the company performed, the higher is the variable payout for everyone, irrespective of the performance of individual accounts. As much 60% of the variable payout is linked to profitability and revenue growth, while the rest of the variable component was linked to other parameters such as number of new logos, account receivables and number of new $100-million accounts.
The drawback with such a structure was that incentives were heavily linked to company performance. For example, if an individual salesman performed exceptionally well and exceeded all his targets, but the company’s performance was below par, he would not get 100% of his variable pay.
Now, the new incentive structure seeks to address that anomaly — top performers will be rewarded handsomely on basis of incremental revenue they generate from their individual accounts and new logos won, irrespective of the company’s overall performance.
For instance, in its Finacle unit, top sales executives will get 1.2 times their variable payouts, if they exceed individual targets for number of licenses sold to customers, irrespective of the overall performance of unit. Finacle is Infosys’s core banking software.
Infosys also wants to put the onus on account managers and delivery executives to generate more incremental revenue from existing accounts. These executives and employees, too, will be rewarded more if they meet or exceed incremental revenue targets. Infosys has never won a billiondollar deal and that is an area the company wants to address, the people mentioned above said.
Even cross-town rival Wipro, which has lagged top-tier firms consistently over the last five years, recently bagged a $1.2-billion deal from Canadian energy firm ATCO. For Infosys, the focus is now squarely on winning large deals and creating a new breed of sales superstars who can architect those deals.
Its proposed incentive scheme is very similar to the one implemented recently by Wipro, which also plans to link incentives to amount of incremental revenue generated by sales and delivery employees.
Changing landscape
Experts and former top executives tracking the IT services sector, however, are divided over the strategy to link incentives to incremental revenue. “At the end of day, the 5,000-odd sales guys of a top-5 company have the capability of making or breaking the company. And most top companies make a lot of common mistakes when handing out incentives to these guys — the most common is a ‘onesize-fits-all’ approach where everyone gets the same incentives,” said Vineet Nayar, former CEO of HCL Technologies and founder of Sampark Foundation.
“Most incentives are meant to compensate people rather than to drive a certain type of behaviour — and that is wrong. It should be the other way round, where incentives drive a certain type of behaviour and makes people pull up their socks,” said Nayar, an ace salesman himself in his heydays who was widely credited for turning around the fortunes of HCL Technologies in the mid-2000s.
“Linking incentives to incremental revenue growth is also wrong — ideally it should be linked to gross margins, as that would force sales guys to structure deals more efficiently,” he said.
The way incentive structures are being restructured across companies is also a reflection of the vastly-changed landscape of India’s IT industry, which no longer enjoys explosive growth rates it enjoyed in the 2000s. Executives and employees during that period rode the outsourcing wave and became overnight millionaires, thanks to generous pay-cheques and stock options. Now the sector is going through a mid-life crisis and companies are taking a closer look at compensation structures and putting employees under more scrutiny than before to ensure that only the best get rewarded handsomely.
