Chances are when companies large and small developed their salesforce incentive plans for 2020, in no way did they envision the unprecedented challenges to come with the global COVID-19 pandemic.

In the current climate, salespeople — many who rely on variable pay programs tied to once more attainable business goals — may be filled with anxiety about their ability to meet or exceed benchmarks. Their total annual income could suffer as prospects for a solid financial future become less certain.

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From the customers’ point of view, they may not need what your salespeople are selling right now. But they will when the economy rebounds. Nurturing and retaining the trust of loyal customers becomes job number one for salespeople in this scenario, but that approach may be counter to the design of a variable pay program.

The economic impact of the coronavirus has been swift and deep, so adapting your salesforce incentive plans for the remainder of the calendar year is advisable. In cases where the current performance level is less than 25% of the target performance level, it is imperative. Here are some reasonable approaches to consider so that your company is in the best position when the recovery comes:

Actionable Options

Since there is not a one-size-fits-all recommendation that will work for every organization, it is important to consider a variety of approaches, then weigh the pros and cons for each strategy.

1) Straight commission: based solely on sales achieved.

This pay-for-performance approach may look attractive on paper, but even in a robust economy only about 20% of businesses are using a straight commission plan. A draw against commissions is part of this option.

PROS

  • Easy for management to set the commission rate and execute.
  • Simple for salespeople to calculate if the plan is communicated well.
  • Acceptable to Finance Department as clear “pay for performance.”

CONS

  • Research shows that older salespeople want income stability versus a high-income opportunity. Younger salespeople tend to be more risk taking. Depending on the age profile of your sales team, it may be difficult to find the right balance.
  • May improperly promote the message SELL ANYTHING versus what the customer really needs. Not only does this potentially damage the customer relationship, it also hinders management’s desire to upsell premium products.
  • Can create increased anxiety among the salesforce while motivation decreases.

2) Adjusted straight salary.

This option replaces bonus/incentive payouts with a temporary base salary increase of 12-15%. Companies need to rethink the overall sales goal and recalibrate individual sales goals.

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PROS

  • Provides income stability in these uncertain times.
  • Adjustment percentage is a function of current bonus/inceptive plan specifics.
  • Once established, the plan is easy to administer.

CONS

  • Removes motivation among salespeople to meet or exceed sales goals.
  • Could have a ripple effect across other management groups or sales teams who may seek a similar arrangement.
  • May be hard to return to the old incentive plan once the sales period ends.

3) Guaranteed threshold income.

Each salesperson is guaranteed the threshold incentive dollars for the time period. The incentive or bonus plan stays in place as is so that any incentive earned above the threshold level would be paid out.

PROS

  • Maintains motivation of sales force while achieving income stability.
  • Easy to administer and communicate.
  • Can be extended into the next calendar year with ease, if warranted.

CONS

  • Not every culture will embrace the idea of guaranteed incentive income for all salespeople.
  • Guaranteed income may be unacceptable for companies facing insolvency or bankruptcy.

4) Guaranteed threshold income plus innovation bonus.

This option guarantees incentives at the threshold level and offers incentives for those creating new revenue streams.

PROS

  • Taps into the creativity of your employees to generate new ideas for growth and reasonable cost reduction.
  • Aligns everyone with the company vision, mission and values in a way that promotes “we’re all in this together.”
  • Gives salesforce a reason to seek input/feedback from customers on how they can better serve their needs.

CONS

  • Often difficult to judge the value of new ideas or to quickly implement.
  • Any bonus would need to be significant and reward employees for their entrepreneurial spirit.
  • Could be demoralizing for some companies or lead to confusion if no ideas are implemented or if the execution is botched.

5) Index performance: resets incentive performance target and payout.

In this scenario, the company shifts the incentive performance/incentive payout to reflect the median current performance level while maintaining the performance distribution. The current median performance result becomes the target/100% performance result.

Photo courtesy Pixabay

PROS

  • Provides a tailored approach for the entire salesforce or to each company division.
  • Easy to implement and execute with the proper communication and documentation.
  • Appealing to top performers, unless management limits the upside of incentive earnings payout or makes major downward earnings adjustment at year’s end.

CONS

  • May create uncertainty around benchmarks and indexes for next year if sales come back stronger than expected.
  • Incentive payout winners may feel they have nowhere to go but down in 2021, so they seek employment elsewhere.

Summary

Unlike other business downturns, this one has no precedent. This makes developing a plan for recovery that leverages the talents of your salesforce and keeps them motivated more important than ever. After all, the prospect of rebuilding your sales team from scratch after the worst is over may leave you further behind the eight ball.
Don’t wait. Act now. Your salesforce and your customers will thank you.

Contact Us

If you have questions about this or another salesforce compensation topic, please contact Tim Weizer at (614) 500-0509 or timweizer@msn.com. You can reach Neil Lappley at (847) 921-2812 or nlappley@lappley.com. In addition, please share or pass this article along to anyone you think may find it of interest.

The year 2018 has been one of major volatility in many markets creating widespread uncertainty. In this environment, it is understandable that companies are evaluating the impact market volatility may have on their salesforce incentive plans for 2019.

Fortunately, mindful planning and clear communication about your salesforce incentive plan can accelerate growth even in an uncertain economy. But first, two important next steps are to sell this new plan to the C-Suite and effectively communicate the new plan to the salesforce. Getting these steps right creates a double win. Salespeople win because appropriate rewards are available to them, while the company wins with a more motivated sales team aligned with the company’s goals.

Here are four recommendations supporting a win-win outcome by gaining approval of your salesforce incentive plan with the C-Suite:

1) Provide a Clear and Crisp Upfront Summary. Make the first page of your summary a topline summary. Start with the reason for change, a brief description of the approach used in analyzing the current plan, the primary plan changes being suggested, and the results of the new plan’s simulations. Then end with the benefits of the new plan (for example, better alignment with the company’s business strategy or more focused emphasis on margin enhancement).

2) Present the Rationale for the Recommended Plan and Tailor It to Your Audience. Visual perception research suggests that presenting a picture can often be more persuasive, engaging and powerful than text and speech alone. You can think of using a visual, for example, to demonstrate the extensive analysis done on the current plan.

Also, consider using a well-constructed table with numbers to let the C-Suite see for themselves the point you are making.

3) Strive for Clarity and Transparency. Sufficient time should be spent to ensure each page of the presentation is crisply worded and each chart can be clearly understood. Without this, the credibility of the speaker and the recommendations will both suffer.

4) Tell Them Again What You Told Them. At the end of the presentation, share an executive summary to refresh everyone on the main takeaway points. Then ask for agreement. Be prepared and open to engaging your audience in discussing your recommendations, alternatives you reviewed, or objections that may arise.

After securing approval for changes to next year’s salesforce incentive program, it’s time to move to the task of communicating the plan to your salesforce.

Here are three recommendations to get your salesforce on board with the incentive plan:

1) Provide a Clear Summary Incentive Plan Description. Including these elements in the description will promote understanding.

  • State briefly the business reasons why the incentive plan has changed.
  • State the incentive plan components along with a clear description of each. 
  • Show an example of how the new incentive plan payout at target compares to the old plan by using an example of “Salesperson X average performer”.
  • State the process that will be used, and by whom, to address any issues.

You may want to consider adding a frequently asked questions (FAQ) section at the end of the written plan description.

2) Create a Short Video to Support the Plan’s Introduction. With the increasing popularity of online videos and the shrinking of attention spans, an engaging two or three minute video can deliver the elements of your incentive plan in a compelling way.

For example, in the video the company’s president could briefly state why the plan has changed, while the vice president of sales could highlight the new plan’s components and how they align with the company’s strategy. A sales administration manager could then state the target earnings opportunity and payout frequency and refer the viewer to the summary plan description for further details.

3) Anticipate Resistance and be Prepared to Counter Challenges. Our experience shows that it is very likely that an individual or a group will resist the proposed changes to your sales incentive plan. For example, a star salesperson may see the need for plan adjustments, yet still feel anxiety about the changes. Anticipate resistance and be proactive. In this case, meeting in advance with your star salesperson may offset objections during your official presentation.

Contact Us
To learn more or discuss your sales compensation concerns, please contact Tim Weizer at tjweizer@gmail.com (phone 312-479-6411) or Neil Lappley at nlappley@lappley.com.

A lot has been written about the interests, attitudes, and behaviors of Millennials (those born between 1981 and 1996). Among the facts that have been reported, primarily by the Gallup organization, these stand out:

  • Millennials will account for 50 percent of the US workforce by the year 2020.
  • Only 50 percent plan to be with their current company one year from now.
  • Only 29 percent are engaged at work.
  • At the 2016 Sales Compensation Conference, research done by Michael Ahearne, a professor at the University of Houston, suggests that Millennial salespeople are more interested in a leveraged compensation plan than their traditional peers

Based on our research and experience, we believe the following should guide the treatment of Millennials:

  • Millennials want to grow in a job that fits them.
  • They enjoy more periodic feedback than other generations.
  • They have a firm desire to be considered for a “fast track” promotion if their performance warrants.
  • Millennial salespeople want to be rewarded for their results.

All of this signals the importance of rethinking how to recognize and reward superior performance of an increasing population of Millennials in the sales organization.

So, what are some of the ways to consider?

Possible Approaches

Following are four possible approaches. Understandably, careful analysis will need to be undertaken to ensure any new approach or program can be aligned with a company’s overall culture and reward strategies.

  1. Career Pathing. To better retain Millennials offer individual career growth paths that spell out how a salesperson of any age can advance in the organization. According to reports, Credit Suisse, the international financial services company, did just that and believes that its 1% increase in retention can save $75 to $100 million a year.
  2. Outstanding Achievement Award. For all salespeople who clearly demonstrate stellar achievement, for example candidates for “The President’s Club”, offer them a new, end-of-year special bonus that can be used to support their outside-work deep interest. Examples could be a local community group (Boys & Girls Club) or the local alumni chapter of the college they attended.
  3. Enhanced Engagement Opportunities. To better engage Millennial salespeople, offer all employees some new or enhanced opportunities to participate with company executives. One example is providing structured networking with senior company executives (Sales VP, CFO, CMO, VP Operations, VP HR). Video chats, such as an “Ask the CEO” forum, might also be considered.
  4. More leverage in the Compensation Plan. Move, for example, from an 80/20 compensation plan for sales people to a 70/30 plan.

Survey Your Salesforce

Not sure your Sales Compensation Plan or talent management programs need a major change to accommodate Millennial salespeople?

Consider evaluating where you stand today by conducting a Salesforce Survey with the entire salesforce asking for the recipient’s age category and opinions on a number of topics, e.g., career pathing, training, current compensation pros and cons, and incentive leverage. The survey results can offer a baseline snapshot of today’s situation. From there, discussions can be started to lay a forward path.

If you would like to discuss this topic or your other salesforce compensation needs further, please contact Tim Weizer at tim@salescne.com or 312-479-6411 or Neil at nlappley@lappley.com. Also feel free to share this article with anyone who might be interested.

In his 2015 book Misbehaving, Nobel Prize-winning economist Richard Thaler addresses the concept of loss aversion and its impact on decision making. “Roughly speaking,” he asserts, “losing something makes you twice as miserable as gaining the same thing makes you happy.” For this reason, given the choice, people tend to put more energy into reducing losses than actively pursuing gains. In a sense, he says, “Loss aversion operates as a kind of cognitive nudge,” the inversion of no pain, no gain.

Humans Aren’t Rational

A professor at the University of Chicago Booth School of Business, Thaler won the Nobel Prize in Economic Sciences for his groundbreaking work in behavioral economics. Among his greatest contributions: challenging the notion that we are always rational beings and pioneering the idea that often we act in ways inconsistent with economic theory. In the spirit of transparency, I am also an alumnus of the Booth School.

So, why does loss aversion matter to salesforce compensation?

Consider a recent story in The Wall Street Journal reporting on a new compensation plan for Bank of America’s Merrill Lynch unit. Critics of the plan argue instead of rewarding brokerages for growth, the plan punishes them if sales targets aren’t meant.

The plan emphasizes cross-selling of Bank of America’s retail-bank products, rewarding brokers with more new clients and referrals to other parts of the bank. So, while revenue growth still matters, asset and liability growth matters more for broker compensation.

If minimum sales targets are not met, the average broker generating $1 million in revenue could lose up to $10,000 from their monthly paycheck, a 2% drop in pay. Conversely, brokers meeting the new targets will receive an increase in pay.

Bank of America executives say the new compensation plan is designed to boost shareholder value and retain Merrill Lynch’s top performers for the long term.

Carrot or stick: What works best?

The Merrill Lynch example illustrates an important issue every VP of Sales confronts: what works better to motivate more sales people to equal or exceed their assigned sales quota? Do penalties or rewards spur the most asset growth? How do companies move the performance distribution of salespeople to the right of the status quo?

The loss aversion principle offers food for thought. Let’s say, for example, that the salesforce incentive plan has four components. One of them is product mix with a weighting of 25% and an on-target payout of $X. The salesperson is paid the $X upfront when the year’s plan is communicated. At the end of the year, if the product mix quota was not achieved at 100%, then the $X would be clawed back.

Under this scenario, there will certainly be individual winners and losers after a major change in compensation structure like the one Merrill Lynch has made. That’s why a good deal of time and attention should be paid to developing and communicating any new sales compensation plan.

Sum and substance

Are you considering changes or new incentives for your salesforce compensation plan? Often change is advisable when a new corporate strategy is being implemented or to attract and retain the right kinds of sales people. Experimentation and adjustments that align with changing market forces is beneficial.

If you would like to discuss this topic or your other salesforce compensation needs further, please contact Tim Weizer at tim@salescne.com or 312-479-6411 or Neil at nlappley@lappley.com. Also, feel free to share this article with anyone who might be interested.