2021 Sales Compensation Planning—Ready for Major Changes?

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Most companies make minor annual changes to their sales compensation plans. Will companies be making major pay program changes for 2021?

At the start of each fiscal year, the revenue team confirms and realigns sellers’ efforts to focus on the new year’s revenue goals and important strategic objectives. Each year, 90% of all companies make changes to their sales compensation programs. About 12% of the companies make major changes affecting most incentive plans. Additionally, many of these companies make major job changes, too. Meanwhile, the remaining companies make tactical changes to the incentive plans for select jobs. And, many plans remain unchanged. Plans slated for change for the new fiscal year often feature changes to performance measures. The objective of these changes is to ensure the incentive program aligns with company goals.

Pandemic Revealing Realities

The 2020 COVID-19 pandemic impacted companies in a variety of ways, including delayed orders, lost customers and pricing pressures. Some industries saw severe declines such as travel, hospitality, retail, restaurant and live entertainment. Other companies experienced only a minor downturn, sector challenges or specific account conditions. Not surprisingly, some companies saw an uptick: healthcare solutions, technology, work from home tools and quarantine/social distancing aids.

However, the pandemic also revealed fundamental questions about seller/buyer interactions. For years, the buyer/seller equation has been changing, but in a piecemeal fashion. Most companies can list their evolving, customer engagement practices: more internet engagement, more pre-sales lead generation and more post-sales support. However, the pandemic created a “wait, what?” event accelerating sales leaders’ commitment to reevaluate their legacy sales deployment models: Now is the time to fully recognize, embrace and accelerate the changing nature of selling.

Consider these realities:

  • Buyer Self-Education. Commercial buyers are like consumers. When considering a purchase, they head to the internet. Even before visiting your website, they seek out other buyers, their considerations, applications and vendor experiences. Social media posts, articles, videos and evaluations have a remarkable impact on potential buyer perceptions.
  • Buyer Self-Purchase. Yes, your customers are ready to buy on their own. Product choices, click here demonstrations, simulated applications, self-configured solutions, and even automated proposals and purchase agreements are becoming the norm. Repeat customers have little need for a salesperson. Telephone customer service personnel and live video chat can answer most purchase questions.
  • Data-Driven Prospecting. Today’s databases have almost eliminated the need for inefficient lobby-arrival cold calling. Identifying target buyers, providing outreach collateral and offering suggested purchases have become programmatic.
  • Virtual Sales Calls and Meetings. The forced reality of the pandemic may have finally opened the promise of virtual selling. Both sellers and buyers have quickly adapted to video meetings, online demos and substantive conversations regarding important purchases. Personal meetings will return, but at a curtailed level.
  • Customer Success Managers. Leading practices from the software-as-a-service industry has other industries deploying customer success managers to ensure customer usage and ongoing contract renewals.

These are only a small sampling of the unstoppable changes sales teams are adopting. These changes will have an impact on jobs and thus on sales compensation practices.

Job and Sales Compensation Implications

What happens to sales roles affects the design of sales compensation plans. With elements of the classic sales job’s role now being absorbed by other parties, sales management must determine why and how to use sales compensation.

Sales compensation’s underlying intent is to reward successful persuasion. New account selling, complex application configuration, reducing buyer risk and uncertainty and securing non-guaranteed orders is the role of a seller. Jobs with these accountabilities belong on robust sales compensation plans. However, as sales models change, consider some of the following job and sales compensation implications:

  • Reduced Persuasion. Clearly, if the customer is making his/her own purchase decisions, sales persuasion declines too. Sales compensation plan pay mix pivots on the degree of seller persuasion in a job. High persuasion jobs have a high pay mix plan—more of the target compensation assigned to target incentive, less to base pay. The opposite is true for low persuasion jobs—lower pay mix: less pay at risk and a higher base pay.
  • New Jobs—New Measures. New jobs are coming online constantly. Pre-sales marketing, social media management, lead qualification, “try and buy” sellers, and after-the-sale customer success managers all contribute to the revenue success. Incentive participation plans provide add-on bonuses to help reward these contributors.
  • Specialists Arrive. Product, market and application specialists guide customer-buying decisions. Are these specialists sellers? Or, are they pre-sales helpers? Maybe it’s time to fully recognize their sales contributions with commensurate incentive pay.
  • Reallocation of Headcount. Sales force sizing and deployment have been upended by the rapid adoption of virtual selling. New segmentation models based on newly acquired buying preferences will reallocate headcount, affect sales time and require new quota assignment algorithms. These changes will have a downstream influence on the sales compensation plan design.

Sales compensation pays for successful influence. Customer contact accountabilities and expected outcomes are changing. So are sales jobs. Will 2021 be the year that you undertake a top-to-bottom review of your sales compensation practices? Many companies are being nudged that way.

David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn.

Authored by The Alexander Group, Inc.®

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