The emergence of Covid-19 means we are all living through unprecedented and uncertain times. While addressing health and other personal concerns are obviously paramount, the reality is work and life must go on. Every aspect of our lives has been impacted, and your sales compensation program is no exception. The team at BSC has been working with our clients on how to address their sales compensation plans in today’s reality, and we’ve identified a number of potential strategies. For better or worse, the economic crisis of 2008 provides some lessons that we can apply here as well, which offers comfort in finding the right solution. There are a number of important ways to help ensure your sales compensation program serves the needs of your company and its sales force.
1. Quota or goal relief.
Quotas or goals are set based on what a company can expect someone to produce – that’s what a quota is supposed to represent. It’s a productivity expectation based on the assigned territory, customer accounts, and available product offerings. In a perfect world, the individual productivity expectations from the sales force in total rolls up to the overall corporate objectives expected at the macrolevel.
Today’s economic environment is not business as usual. One general rule of quota relief is to only make them carefully, and only do so if you expect a 10% impact caused by external, market, or exceptional factors. For many industries, the sudden economic freeze being experienced today will almost assuredly impact performance by that 10% rule of thumb, so some quota adjustments could make sense.
But that’s easier said than done, particularly if the overall corporate goal doesn’t get commensurate relief or perhaps those expectations will not be adjusted downward until the end of the quarter or later in the year. Whatever the case, sensible and fair quota adjustments are one common tactic being considered by organizations as near-term remedy.
2. Create draw programs.
Businesses are having to make tough decisions right now whether to cut staff, furlough people, and/or perhaps reduce pay levels for a time, e.g., reduce salaries by 10-20%. Meanwhile, the sale force is likely one where companies may want to think about ways to help ensure some minimum level of pay. Why? Pay-at-risk. If a salesperson has an aggressive 50/50 pay mix, then challenging results may lead to a dramatic loss in the variable incentive payout. Under a straight-line pay curve, a performance drop by 50% would lead to a 75% overall payout of Target Total Compensation. In some ways, the variable nature of a sales comp pay plan somewhat manages itself in periods of economic turbulence. But what if even hitting half of one’s goal is ambitious? What if the base pay becomes the only earnings a salesperson can expect? Suddenly these highly important resources may get starved out. These may be folks who own your key client relationships, and they may walk out the door if not today than potentially tomorrow when the economy and labor market improve.
For particularly important sales populations and ones with aggressive pay mixes, companies are carefully considering how to guarantee some level of variable pay. Recoverable draws and even non-recoverable ones are a thoughtful approach to ensure sufficient near-term pay and goodwill for longer term employee (and customer) retention. The time may be right to invest in ways to protect these key resources.
3. Modify your pay lines.
The first two options discussed so far may be tough ones to implement, as company performance struggles and executives face challenging and never-ending decisions. Lowering quotas is great in concept, as is guaranteeing some level of variable pay. In the real world, expecting less and ensuring more pay may not be pills your executive team will swallow. But there is one potential change that may get less resistance but can help achieve similar results.
- Lower your pay line threshold. Or go crazy and perhaps remove your threshold for this unprecedented year. That 80% minimum performance standard that seemed so reasonable prior to the corona crisis may feel like stretch performance now particularly if goals aren’t reduced. Consider lowering the threshold to 50% or even removing it. A dollar one pay line would allow more immediate cash flow while not appearing to create some radical draw or guarantee. This is a simple adjustment that may not face much management resistance.
- Adjust your pay line accelerators. Companies are of two minds. One mind would suggest to increase accelerators, particularly again if goals are held constant. It will take heroic performance to beat one’s original goal so juicing up the accelerators in these tough times may indeed be far. The other mind though would be to hold accelerators constant or decrease slightly. The logic? Well if we lower or remove thresholds you may get pushback from finance on overall cost implications, and reducing accelerators may be a bit of a giveback. Plus no one really knows what may happen once we get through the worst of things. There may be some massive end-of-year sales results that put people back on track, so increasing accelerators may backfire if the economy comes roaring back.
Yes, such pay line adjustments may decrease our alignment to a pay-for-performance culture, but this coronavirus phase may be more of one to hold on to your hats and ride out the storm versus aspire for more and traditional pay-for-performance philosophies. Keeping more good people at or just below/above TTC may be the right solution versus losing swaths of talented salespeople through no fault of one’s own. Protection and relaunch may be the two-prong approach that best fits today’s situation.
4. Lean into non-volume measures or special incentive programs.
Volume is king in just about any sales comp program, but when volume results are drastically paused, there may be other ways to focus, motivate, and reward people. Perhaps you tie a portion of Target Incentive to service-level metrics or even activity-based ones. While rarely the best measures in normal business times, such non-volume-based metrics can provide a vision to achieve some level of high (or target) performance, help people feel a sense of accomplishment, and seem like a better management decision versus just reducing quotas, guaranteeing pay, or softening a volume pay line. Perhaps there are activities such as new product trainings or sales skill development that will pay dividends down the road. We all know this economic strife will end at some point. You’ll want to have highly skilled salespeople, ideally with superior product and sales knowledge, to help relaunch your organization’s recovery.
You may also want to consider a larger SPIFF budget or find other creative ways to charge up your sales team performance. Selling success often derives from a positive feedback loop. One successful sale can lead to greater confidence and sales energy, which begets additional sales success and even more energy. The converse is true as well. Sales struggles can manifest themselves into more struggles in a negative feedback loop. Identify some quick-win sales milestones to inspire confidence and greater performance. Celebrate uniquely landing a big new logo. Offer a bonus to someone who sell a new product offering for the first time. Provide a bump when someone manages to fend off a competitive threat to one of your company’s best accounts. The options are relatively endless and the required spend in combination with strong recognition doesn’t need to be that significant. Companies typically spend 1-5% of one’s variable incentive spend on SPIFF programs and now may be a perfect time to add a little more juice to these programs.
In conclusion, there are many approaches that can help your sales compensation program weather the coronavirus crisis and protect, motivate, and reward your salespeople. Many of these served companies very well back in 2008 and 2009 and can serve as reliable techniques again today. The right set of solutions for your organization will surely depend on a number of factors, and we encourage you to consider quick and thoughtful decisions if you feel you, your organization, or your sales teams are at risk. If we can help brainstorm solutions or offer additional input, please do not hesitate to reach out to the team at BSC. Stay safe and let’s all look forward to brighter days!