Slide 1

Arck systems was a medium sized manufacturer of enterprise servers which are powerful network
computers used in corporations to manage data.

Arck’s customers used the servers purchased from arck to run proprietary enterprise software
applications. CEO of arck, rob Chatterjee made a strategic decision to enter into the enterprise
software market and acquired a leading middleware provider called lux software.

This would allow arck to better integrate their hardware to software applications that ran on it
enabling them to capture a greater slice of the enterprise information technology market.

Ark systems purchased lux software making an all-stock offer which valued the company at 50%
above its market capitalization. CEO rob Chatterjee and Brian mynore decided to keep the sales
force of the two companies separate for time being as sales force integration was difficult.

Brian mynore observed the huge difference between the compensation scheme of both the
companies for the sales force. lux software uses the concept of accelerators to pay the top
performers of sales which was not used by ark systems. this made Brian mynor wonder how to best
manage lux software’s salespeople.

Slide 2

Characters in the case

Rob Chatterjee- chairman and CEO of arck

Brian mynor- evp for worldwide sales of arch systems

Evan Hong: CEO of lux software inc

Chris Snyder: evp of lux software who left the organisation along with his team after the merger.

Sharon Esteves- head of us sales of lux software inc.

Slide 3

About the organisations:

• Arck systems was a medium-sized manufacturer of enterprise servers which are powerful
network computers used in the corporations to manage data. These servers are used to run
proprietary enterprise software applications.

• The software helped customers to track their finances, HR, and accounts.

• arck developed and sold Unix-based operating system with its servers. the software
applications run on the servers were developed by 3rd party software houses.

• so, CEO of Arc systems rob Chatterjee made strategic decision to enter into software market
by purchasing a software business as this would help them better integrate their hardware
to the software applications that ran on it and also would allow them to capture a greater
slice of enterprise information technology Area. ark systems bought lux software making an
all-stock offer which valued the company at 50% above its market capitalization. Brian
mynor arck’s executive vice president for sales was given the responsibility to manage the
 sales force of both lux and arc as lux’s EVP left the organization due to the merger. Ark
systems had a club for top sales performers known as Hawking club where top 10% of sales
people were usually taken to Hawaii or give them a star on their business card.

Lux software

Lux software was a leading provider of middleware.

middleware is a software that acts as an intermediary between software applications so that they
can exchange data.

middleware was increasingly important to corporations to ensure applications run efficiently.

When arck systems made an offer, which valued at 50% above its market capitalization, lux accepted
it,

the deal included delayed bonus provision that made it likely that Evan Hong, the CEO to stay with
the merger for at least three years as executive VP of software solutions and board member,

core members of lux software engineering staff were given large stock option grants that vested if
they stay at the company for three years.

the deal contains no provisions for keeping lux software sales executive or key salespeople hence
Chris Snyder left EVP after the merger taking along his team.

Lux had a club of top salespeople known as top guns. lux had reward system to reward top
performance call accelerators.

Slide 4

Sales process

 Lux software’s approach to sales management was like arks’s in key aspects.

 The sales structure of Arck systems and Lux Software's was a geography-based structure.
Both companies assigned salespeople to dedicated customer territory based on geography
and customer industry

 Sales organization of both the companies was broadly same. Individual salespeople reported
to district managers who reported to regional managers who reported a country head of
sales they in turn reported to evp of sales. The reporting structure of both the companies
was also almost same

 Both the companies had relatively wide discretion to set net sales prices for customers. A
large part of a salesperson’s job at both companies was to negotiate an appropriate discount
off of list price when making a sale.

 Both the companies had similar discount approval system. Lux’s software discounts
averaged about 30-40 percentage points off of the list price which was similar to arck’s.

 The key sales dynamics at Lux Software were similar to Arck systems. Typical sales cycle for
lux software was about a year, so sales cycle and average sales of lux was similar with arck’s.

Slide 5

Case issues
  Brian Mynor had to manage salespeople working under a compensation scheme that was so
different then what he was used to. Brian being the executive vice president of arck systems
was used to the compensation scheme in arck, the compensation system of lux was new to
him. So, it was challenge to Brian to align the compensation for salespeople.
 Chris Snyder who was EVP of sales in lux software left immediately along with his team
immediately after the merger. Chris Snyder who felt that hardware company may not
manage software sales effectively left along with his sales management team leaving entire
sales team of lux under Brian mynor.
 There was a fear of losing more sales talent after the departure of Snyder and his team. Both
mynor and Chatterjee did not want to lose anymore sales talent after Snyder by doing
something the salesforce of lux would not be happy of, so they had to carefully handle the
situation.
 Sales force of two companies had to be separately managed. Mynor and Chatterjee both
agreed that it made sense to keep the two companies sales force separate for time being.
Sales force integration was notoriously difficult and would lead to unnecessary
complications which should not be the concern at the point.
 Huge gap in compensation of top performers and average performers. Mynor observe
seemingly large differences between sales compensation plans at lux software and arc which
can be a huge challenge. Mynor talked with Esteves who gave him important facts of top
guns and accelerators which arck systems did not follow and Brian felt top performers were
paid a lot more than average performers even without the accelerators.
 The system of “accelerators” overcompensated the first percentile where productivity did
not match the commission. Salespeople in the first percentile in terms of pay made more
than the average salesperson at lux software but were only about 14 times as productive in
terms of sales.

Slide 6

Recommendations

 Motivating average salesperson rather than giving more focus on top performers. Both Lux
Software and Arck Systems appreciated salespeople in the top 10% and conducted special
events for them. Instead, they could formulate a strategy where they could set the top 10%
of employee as benchmark and thereby motivating the 90% of the salespeople.
 Trial target could be set to the performers whose pay did not match their performance.
Salespeople in the first percentile in terms of pay made 30 times more than the average
salesperson at lux software but were only about 14 times as productive in terms of sales. So,
their target could be increased so that their productivity is increased matching their high
compensation. If they really met the target being productive in the stipulated time, they
could be retained with the same compensation. But paying some many times more than
their performance is not advisable.
 Retain the people who actually showed performance worth their compensation. Arck should
retain all those key salespeople whose performance actually matches the compensation
he/she is receiving despite being a top performer or an average performance. Company
should not incur more cost in order to retain a person who is actually not showing results
matching his pay.
 Gradual eradication of accelerators system and increase in base pay and commission. As
accelerators are more cost consuming, they should be slowly removed once the merger is
slowly being acquainted in the business environment and merger acquires stability. It is
observed that the base pay and base commission is lesser in lux software, eradicating the
accelerator system they can increase the base pay and base commission.