The IBM Global Story

IBM's global account manager compensation story starts with IBM's largest customers, who began requiring more consistent global sourcing from its suppliers. In the early 1990s, this was particularly difficult for IBM because of its geographical organization. At that time, if the account was located in your area, it was your responsibility and you got paid for it. For example, Ford Motor Company was very well supported in Dearborn, Michigan, but people in other territories had no incentive to contribute to Ford—either in Dearborn or in Europe. A large number of IBM executives realized that this geographic structure was not really helping the strategic account, which didn't really care how IBM was organized. One executive said, "Customers don't care how IBM does it. They cut a check and they tell IBM to go forth and conquer. It shouldn't matter how it's done, just that it is done."

Lou Gerstner, IBM's president, heard the customers' clamoring and realized IBM was going to have to provide a more coordinated global response to their needs. In May 1994, Gerstner reorganized IBM into 13 industry groups. For example, a manufacturing group serving Ford is independent of any geographic boundaries. IBM also changed the way it managed global accounts, naming employees in direct customer contact positions "worldwide client executives (WCE's)" and assigning them dedicated support staff. For example, IBM's Ford WCE has salespeople, project managers, and technical people who work directly for him on the Ford account. He also has responsibility for others who are matrixed onto the Ford team. These people have someone else as their official boss, but they work on Ford 100 percent of the time.

Soon after the reorganization, though, problems arose when the WCE's would request assistance for their customer from remote IBM locations. Because there was little consistency in how the country managers handled their compensation programs, there was usually little incentive for either the country managers or the remote IBM employees to assist the global account manager—even if the account were huge. This inconsistency created a disconnect between the WCEs' goals and those of the remote field people, leaving customers trapped among warring compensation systems. Gerstner and IBM realized that they would need to change the IBM global compensation structure so everyone would be headed in roughly the same direction.

IBM and consultants started working with a select group of IBM employees to consider possible compensation plans to rectify this problem. IBM's Ford WCE and several of his Ford team members participated in the compensation redesign sessions. At first, the North American and European teams went through simulations on paper. This provided an opportunity to work out the problems before IBM rolled out the new compensation plan.

IBM's new compensation plan recognized that people on teams such as those serving Ford have some incentive compensation tied to team goals. IBM therefore gave the WCE partial control over team members' variable compensation incentives. They could, for example, set up specific incentives for services teams or product specialists that contribute to the strategic account relationship. Client executives can specify the measures and the dollar amount of the incentive. For example, a product specialist who was previously paid to push IBM technology was then rewarded for encouraging the best solution for the customer, regardless of whose technology the solution requires. Any product specialist who doesn't sell the best solution doesn't maximize her personal earnings. They left money on the table if they were not working with the whole team. It was a subjective measure, but it worked.

That was creative but the truly innovative component of IBM's global compensation plan was the personal business contribution (PBC) bonuses. The worldwide client executive could offer a bonus to any IBM employee in the world who contributed to developing the worldwide client relationship. For example, IBM's Ford WCE can ask German employees to do something for Ford and can offer those employees 500 Euros for their contributions. He can create discrete activities and support them with direct pay. On top of this, remote IBM executives received variable pay based on the corporate and geographic performance of the company. This compensation provided incentives for the remote executives and employees to work for relationships on whose financial future IBM depended.

IBM's global compensation system moved from a regional to a customer focus, regardless of that customer's location. The sales compensation plans for IBM's large accounts are now consistent across the world, with only slight variations based on regional legalities. IBM executives described the compensation system as a form of "global plumbing that ties us all together to get work done for our customers."

IBM's global compensation program allows IBM to service its strategic accounts from a truly global perspective. This benefit, in turn, has contributed to increased business for IBM.

The European Ford team's pay depends on global revenue created from Ford. An English IBM employee will now choose to come on board to help with some local Ford issue because they easily understand their incentive to do so. IBM's Ford account posted its best year ever in 1995. This was attributed, in large part, to the new compensation program. IBM had $30 million to $40 million in additional business from Ford alone during 1995. Ford was so impressed with IBM's service quality that it asked IBM to treat Mazda as a Ford entity.

IBM believed strongly that the underlying structure of its new compensation program was very sound, and it wanted to keep the program as simple as possible. Consequently, IBM did not impose many changes on the program in the late 1990s. IBM then worked out a way to let the various organizations within IBM know how it pays people throughout the whole company. It built templates that illustrate how it rewards particular positions. By January 1, 1997, the compensation plan, including these templates, was on IBM's intranet for everyone at IBM across the globe to examine. And in 1996 IBM paid out $1 billion to employees in variable pay.

Team-based compensation is one of the most problematical areas in strategic account management, worthy of several books. For team-based compensation to work, you need very specific individual objectives that, together, add up to total account success. The variables in this scenario are geometric. Firms can fail if the individual goals are hazy or if the individual objectives are not based on performance. You need to think through any team-based compensation very carefully because it can potentially increase your cost of sales without driving additional revenues and profits.

IBM's revolutionary program recognized the importance of a boundary-less organization for its global accounts and was willing to pay for it with cash and political capital. IBM moved toward a model in which the world-wide client executive is basically the CEO of a strategic account business unit who can pay employees for their efforts on a given account.

IBM's story makes a strong case for creating a compensation program that drives strategic account managers to treat their assigned relationships as their own strategic business units.

IBM's story makes a strong case for creating a compensation program that drives strategic account managers to treat their assigned relationships as their own strategic business units.

The SAM thus becomes a general manager of her assigned customers, accountable for balancing the relationships' short-term cash flow with their long-term profitability (as was the case with Honeywell Industrial Automation and Control Solutions).