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With fall on the horizon, it is time to think about your company’s sales compensation plans for 2021. This will likely prove to be a more challenging prospect than past years due to the historical events of 2020.

Indeed, the Conference Board has estimated that Gross Domestic Product will contract by 7% for the full year 2020. And according to the WorldatWork’s 2020 Sales Compensation Programs & Practices Report, only 30% of participating businesses say that half of their organization’s sales teams will hit quota in 2020.

Photo courtesy of Pixabay

Most of us recognize that the nation’s economic woes will not go away easily or quickly and that we are living with a much higher degree of uncertainty and risk. In this environment, your sales compensation planning requires thoughtful consideration to motivate and retain your top salespeople. Here are several important steps you can take:

1) Establish a Sales Incentive Design Team

Include representatives from sales management, marketing, finance, and human resources. All members have significant interests in a successful sales organization. Sales management is, of course, responsible for implementing the program and reporting back on what they learn in the field. Marketing brings the linkage between corporate strategy and sales strategy.

Finance is concerned about the cost of sales compensation and return on investment, calculating as a percentage of revenue over time. The finance department also will evaluate the numbers of sales personnel related to quota attainment. Human resources will contribute to the design of the plans reward system so that the sales positions are motivated. They will also want to match hiring with role requirements.

2) Align Sales Incentives with the Company’s Business Strategy

Your sales compensation plan does not exist in a vacuum. It needs to be closely aligned with an organization’s business and marketing strategies and goals. Also, the plan must address both internal and external forces impacting the sales job and selling practices.

3) Calibrate the Plans to the Various Sales Roles

A common practice for many companies is to set the same percentage of base salary as the target performance for all jobs involved in the sales process. This is a mistake.

Instead, carefully analyze the role each sales position has in the overall sales process. Both impact and influence on the final customer decision must be considered. This analysis then becomes the input to determining the right pay mix for each job.

Photo courtesy of Pixabay

4) De-Risk Plan Design

In a high-risk business climate, it makes sense to reduce the risk and leverage in incentives. This means less upside and downside and less incremental payout per unit of incremental performance. You can achieve this by implementing:

  • Flatter payout curves, and
  • Lower maximum and minimum payouts. For example, adjust target payout ranges of between 50% and 200% to between 25% and 150%.

5) Set Fewer Goals

The WorldatWork’s Compensation survey finds that organizations are simplifying their incentive plans. On average, organizations are using up to three performance measures. Those using just one performance measure increased by 71%. Other strategic performance metrics are also more in play, such as penetration of existing accounts, acquisition of new accounts, and building account relationships. Since the pandemic has made customer relationships more complex, the need for more frequent communication and feedback with customers is more important than ever before.

6) Automate Sales Compensation Processes

A surprising number of organizations still manually conduct Sales Performance Management (SPM), 32% according to the WorldatWork survey. Of course, the use of third-party SPM greatly enhances accuracy and is time saving. In addition, using third-party Customer Relationship Management (CRM) helps you to organize sales activities and communicate more easily with your sales team, a practice employed by 45% of survey respondents.

Sales Management in Tough Times

In today’s challenging economic environment, sales managers who help their teams develop alternative ways to approach and build relationships with their customers and prospects will be more successful. Invest in training and mentoring programs to develop leadership skills, behavioral competencies, and organizational awareness.

About Lappley & Associates

Lappley & Associates is a management consulting firm advising manufacturers, service companies, utilities and non-profits about how to get the maximum return from their compensation programs and deliver on their organizations’ strategic vision.

Services include: Reward Strategy Development; Executive Compensation; Incentive Compensation; Salesforce Compensation; Base Salary Structures; and Market Pricing.

Contact Us

To discuss your sales compensation concerns, contact Tim Weizer at tjweizer@gmail.com or (312) 479-6411 or Neil Lappley at nlappley@lappley.com or (847) 921-2812.

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.

Photo courtesy of Pixabay

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.

Photo courtesy Pixabay

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.