Making Changes to Your Sales Compensation Plan During COVID-19: When? How?
Earlier this month, OpenSymmetry hosted Donya Rose from The Cygnal Group, an OpenSymmetry partner firm focused on consulting for sales compensation plan design, for a webinar covering best practices for sales compensation plan design changes in light of the COVID-19 epidemic. This webinar was tailored for OpenSymmetry-hosted user groups, leading up to May 2020 round table discussions on the same topic. This blog will cover some key takeaways.
The changing economic landscape for sales performance
In the face of the COVID-19 epidemic, things are changing differently for each business. Some businesses are seeing reduced sales from distracted customers, decreased demand, or supply chain issues, which results in making it difficult or even impossible to hit quota for sales reps. Some businesses are changing sales roles for the same reasons as well as social distancing. Fewer companies, though a significant number of them, are actually seeing increased sales because of changing consumption and spending patterns, as well as health care needs – and they are faced with the challenge of sales reps hitting 300% or more of their quota without changing any of their selling behavior.
Coordinating a sales compensation plan response
To coordinate a response well, sales operations and compensation leaders will need to do the following three things:
1. Set clear business goals for the response: In such a time, clear direction from leadership will ensure that any adjustments recommended are aligned with the best interests of the business and its key stakeholders. Here is a checklist of potential goals:
Checklist of potential business goals:
- Incentivize continued aggressive focus on selling
- Manage the cost of the sales team down
- Focus sales efforts on the most important sales
- Retain key talent
- Cement the employee value proposition
- Elevate the focus on existing customers and their challenges
- Use sales resources well while they spend less time selling
- Maintain a reasonable income level for salespeople
- Manage run-away compensation costs due to market-based demand surge
The priorities for a response will be different for every business – an in-webinar poll showed that 68% of attendees considered elevating the focus on existing customers and their challenges as a top priority during this time.
2. Involve the right cross-functional team: This will look like leveraging your existing sales comp leadership group or establish a new group for the current challenge. The key is to announce the group and its goals, along with timing for details, to the larger audience (including the sales team). The team would be chartered to:
- Establish and oversee an orderly and fair process for managing exceptions, including:
- Criteria for considering exceptions
- Process to submit requests for exceptions
- Frequency for decisions
- Recommend needed changes regarding:
- Sales comp plan adjustments
- Sales goal adjustments
- Sales responsibilities in the near term
- SPIFFs and other incentives
Recommended changes should include modeling that shows expected effect on compensation cost and payouts to individuals. An in-webinar poll showed that 55% of attendees already had a cross-functional team in place to respond to the COVID-19 epidemic.
3. Communicate frequently and clearly: The sales compensation governance team should communicate several key messages:
- Sales focus, as always, is on supporting our customers’ success; in today’s world that means…
- The exception process is…
- We will consider changes to (sales measures, linkages, quotas) only if…
- We will update you on a ____ basis (frequency)
- Please raise questions or concerns by emailing (email address)
Most Common Challenges for Sales Compensation During COVID-19
The second half of this webinar was a deep dive into the most common challenges for companies during the COVID-19 epidemic, which include:
- Quotas are now too high
- Sales income is in jeopardy
- Excess sales capacity
- Quotas are now too low
1. What should you do if quotas are now too high?
Many companies are facing this scenario, and as compensation teams rush to fix the problem, some questionable actions are popping up, such as adding quota attainment bonuses, SPIFs, and added acceleration over quota. This is not suggested, says Donya Rose, because, “a golden carrot that is impossible in this situation is not motivating but irritating.”
“A golden carrot that is impossible in this situation is not motivating but irritating.” – Donya Rose, The Cygnal Group
Some better courses of action may include:
- Softening criteria for President’s Club
- Lowering or eliminating thresholds (level of quota attainment below which no comp is paid)
- Reducing quotas
- Adding acceleration at a more in-reach attainment level
- Offering added quota credit and compensation for sales in a preferred category
- Shortening measurement period (e.g. annual to quarterly)
- Offering guaranteed comp for a short period, possibly contingent on activity-based results
Some notes on these courses of action include that there should be no recoverable draws. Do not pay your salespeople anything you might take back later, or there will be fear and loss of morale in the organization. Additionally, there should be consistency across the organization on these changes to compensation and additional offerings.
What should be done in the following scenarios?
Sales credit for cancelled orders due to the virus
- Adjust quotas rather than crediting sales that would normally not be credited. The hope is that these orders will have a good chance of closing again once the pandemic subsides, and it would be good to offer credit at that time.
- If cancellations are rampant, a modest guarantee to offer downside protection may be in order.
Adjustments to pay mix? What about for commission only businesses?
- Short answer: No.
- This is a short-term problem, unless you believe the selling role has changed permanently so that there’s going to be less individual direct influence over sales outcomes.
- Shifting some of the target incentive to activities for a quarter or two could have much of the same effect, but it’s temporary, like this situation.
Different territories affected differently due to differences in timing of reopening (by state, country…)
- The best approach here is probably to adjust quotas rather than plan mechanics as this can be customized for each territory type.
- This could be well-supported via shortened measurement periods (even months) so that the adjustments can be granular enough to reflect the realities of decisions in different geographic areas and/or market segments.
Account management roles (or just new business)
- This depends on the measures in the plans and the state of your customers’ markets. Clearly new business is most affected, but account managers with renewal and/or upsell responsibility may be unable to meet goals for a few months as well
What to do when business picks back up?
- Great rationale for moving to quarterly plans if you’ve been annual. Then each quarter can take the business situation expected in that quarter into account
- Note that the post-pandemic world may be meaningfully different for some businesses
- Market strategy → sales roles & org → plan measures → goals/quota → comp plans
- In general (not just pandemics), change plans when there’s a change in:
- Productivity expectations (quotas)
- Sales focus (measures)
What about trimming the sales force?
- It’s always a good time to let those who will not provide long-term value for the business leave, but watch out for morale issues.
- Ask yourself – is any hand better than no hand right now?
2. What should you do if sales income is in jeopardy?
If your salespeople are likely to lose significant income due to external events, it does not make sense to pay at target for a quarter or two, or to add acceleration or other incentives over quota. Instead, some options may be to:
- Remove gates and linkages
- Lower thresholds
- Create SPIFs and contests to focus on the most important sale
- Shift some incentive pay to non-financial measures such as value-creating activities and customer retention
3. What should you do if you have excess sales capacity for a quarter or two?
For companies finding that their salespeople have time on their hands for the upcoming weeks and months, do not consider this a loss. Rather, regain sellers’ time to make them stronger when they come out of the other side of this epidemic. Ideas may include:
- Building pipeline
- Leveraging virtual tools
- Training salespeople
- Encouraging mentoring
- Deploying salespeople for product development as the voice of the customer
- Creating virtual working teams
- Cleaning up customer lists, sales activity records, etc.
4. What should you do if quotas are now too low?
Unexpected high attainment from the COVID-19 epidemic is a situation that a meaningful minority of companies are finding themselves in. This may result in runaway compensation costs. A valuable question to ask is, “Is this dire?” The effects may be unpleasant, but there may be much higher costs to losing your salespeople – it is better to live with it than to raise quotas selectively or cap plans. If compensation costs are dire or business priorities have changed significantly, some ideas for change may include:
- Bringing windfall and management discretion clauses in the plan into effect
- Limiting quota credit in any one month or quarter, and paying the balance based on a regressive rate table
- Limiting total variable pay in any one year and paying the balance in future years
- Reducing or eliminating accelerators over “excellence” performance levels
- Moving to a simple flat commission plan for a quarter or two
As you can see, there are a wide variety of actions and next steps that can be taken by companies in these scenarios. From the final in-webinar poll, it was found that the main focus of most attendees would be on communication and refocusing salespeople’s goals on supporting customer success.
To watch the full webinar, please visit: SPM and COVID-19 Webinar On-Demand.