Two out of three sales reps are more concerned about their paycheck than catching the coronavirus, according to a recent survey that we conducted. Compensation is also a concern for close to 100% of sales organizations as they figure out how to handle grounded sales teams, who are relegated to holding video conferences with prospective customers that have their own worries, including shrinking budgets and diminished financial outlooks.
While the magnitude of this situation is unprecedented in our lifetime, we’ve been through similar crises before on a smaller scale, after natural disasters, military actions and political upheavals. We’ve learned a lot from leading sales organizations through crises, so we recently held a webinar highlighting the short-term actions we recommend sales organizations take regarding sales compensation during these uncertain times—with the long-term goal of recovery.
Our first piece of advice is not to overreact: don’t create a permanent solution to a temporary problem. Be careful if you’re considering furloughs or layoffs. Realize also that cutting base pay is usually not the answer for salespeople, as they may be the front lines of defense when your organization starts to recover.
Our second suggestion is to collect data, so you can be scientific in your approach to compensation decisions. Survey the sales landscape in your organization. What’s happening with various accounts and in your sales funnel? Are new deals being delayed?
Once you’re armed with the data, you’re ready to start the decision-making process, which consists of three steps.
1. Set Up an Incentive Compensation Relief Committee
The first step is to set up an incentive compensation committee to structure the terms and optics of the relief effort. The purpose of this committee is to make decisions about your short-term sales compensation strategies and quota relief programs and review sellers’ performance. The committee, which should consist of representatives from human resources, operations, sales leads and finance, must build a business case for expenditures and remediation efforts—and obtain buy-in from the leadership team. Its other task is to communicate, letting your sales team know that the company cares about them and is working to help them succeed.
2. Identify the Affected Roles or Channels
The committee needs to evaluate which teams, channels and roles, if any, would benefit from compensation adjustments. Then it needs to set a trigger to identify the employees in need of an adjustment. Some organizations have selected a 20% to 25% decline in sales over a measurement period as a trigger; others have chosen a 15% to 20% negative impact on a salesperson’s incentive pay.
Keep in mind that if the entire sales force has been affected, it may be necessary to make adjustments across the entire organization.
3. Review Policies and Methods
Finally, your committee needs to decide what approach to compensation relief is best for your organization. One objective in this phase is to ensure that relief efforts have a defined timeline and clear performance expectations.
Additionally, your organization should only offer temporary adjustments to employees in good standing—not for employees who don’t have a track record of meeting their quota or who are on a performance plan. If an incentive is offered to an employee who later leaves the organization, you’ll need to set terms and time commitments for paying back any incentives.
Our Incentive Compensation Process
Whatever your approach, your goal is to keep your sales reps motivated so they continue driving toward their goals. Following the eight steps in our incentive compensation process, here’s a brief summary of the items to consider as you determine how to revise your short-term incentives or quotas for the next quarter.
- Job roles: Determine whether it’s appropriate to shift your sellers’ roles temporarily. For example, you might shift sales reps’ focus to retention, usage or consumption efforts on previously sold products and services, turning them into the equivalent of a customer success manager to maintain and control existing business.
- Target pay levels: Consider adjusting pay targets by offering sales performance incentive funds (SPIFs) or spot awards for continued business development efforts, a retention bonus, a guaranteed incentive or long-term incentives.
- Mix and upside: Change how you allocate the mix, which is the split between pay and incentives, and the upside, which is the amount someone could earn when they exceed their quota. For example, you could shift the mix to reflect a lower target, from a ratio of 60% base to 40% incentive to a 70%/30% split.
- Measures and weights: Shift the key performance indicators of the plan, such as revenue and profit, and the weights assigned to each, such as switching from individual to team-based productivity metrics or measuring performance with customer service metrics.
- Mechanics and links: Change the foundations of the plan by lowering threshold performance levels on primary sales compensation measures, removing caps on pay or reducing target excellence levels.
- Quota setting and allocation: Review options for resetting a quota, such as by extending the measurement period to reflect a longer sales cycle or reducing the quota to match where the top performers are: for instance, if they usually hit 100% of their quota but now are on target for 80%, reduce their quota by 20%.
- Implementation and administration: Review your measurement, payout periods and payout terms to ensure they align with the current environment. If your measurement period is a quarter, consider extending it to 6 months.
- Evaluation and next cycle planning: Review your plans and measure progress quarterly by running your analytics. Keep in mind that these are short-term changes, so limit your adjustments to 90 days: if the crisis still exists at the end of the quarter, extend your measures.
Watch Our Webinar to Learn More About Sales Compensation Strategies
Sales compensation is part art and part science. The key to setting sound compensation policies in a crisis like the COVID-19 pandemic is to act on science—your numbers and analytics—and not the art—or the emotion.
To learn more about the ways that best-in-class organizations handle sales compensation and quota setting during crises, including examples using the strategies discussed here, watch our Adjusting Sales Compensation Design webinar here.