BY DAVID EDDLEMAN AND IGOR UROIC
The COVID-19 crisis is compelling sales leadership “to act” and to defend the variable pay of their sellers. The extent of this protective action depends on the expected length and duration of the crisis, and the downward forecast (mostly unknown) to sales performance.
However, the how “to act” is clear. The levers of action include sales strategy, management and performance management. Under the performance category, which primarily includes sales quotas and variable compensation, lies the most pressing issue of how to keep sellers motivated and paid in a crisis.
Adjust sales compensation or quotas?
Adjust quotas. According to the Alexander Group’s COVID-19 Sales Comp and Quota Survey conducted during the week of March 23, 2020, more than 70% of the 200+ participating companies will or may provide some type of quota relief. Of course this is not the only answer, but it’s the easier and less disruptive option assuming that the current sales plans’ measures, weightings and payout curves are aligned correctly to the current (or evolving) sales strategy.
The second most common adjustment is providing minimum pay guarantees. It’s an easy sales compensation solution, however focusing sellers on understanding what remains of their market potential and related quotas is a more growth-focused strategy.
Timing: At what point should leadership adjust quotas?
This is tough question, and will depend on the pay mix of the jobs and the amount of variable pay that is expected to be lost. When more than 20% of the annual Target Total Cash (TTC) is expected to be lost due to market disruption, and deemed not recoverable, it may be the time to start adjustment actions.
If jobs have a more aggressive base to variable mix (e.g. 50/50), this 20% loss will happen more quickly. If however the pay mix is 85/15, the annual loss can’t be more than 20%, therefore there may be no protective action necessary. The 20% is a broad benchmark driven by each organization’s financial ability and culture.
Communication to the sales team
During this crisis, much has been written about expected “over communication” from sales leadership and the same holds true in terms of adjustment of quotas. Be transparent and sober about the potential hit to performance and pay. Front-line sales managers (FLSMs) should be the most used channel of communication with empathetic tones, yet balanced with clear actions for sellers at an individual level. FSLMs should from a “bottom-up” perspective have the best knowledge of future performance deficits at the seller level.
Some prevalent quota adjustment options
- Proportionately decrease incumbent level quotas based on the overall business plan. This option is the simplest and is easily explained. It can be done quickly and sends an appropriate and encouraging message. Note: Sellers with more aggressive pay mixes (e.g. 50/50 base-to-variable) may be disproportionately affected.
- Index sellers’ performance and adjust payout to relative ranking. This allows balanced distribution of attainment regardless of the overall underachievement of current goals―“Grading on a curve” so to speak. This option strives for fairness and keeps sellers motivated to perform but could be costly relative to the original plan and budget.
- Award “sales credit” to current quotas. This can be applied based on the individuals past performance record―typically not a great option. However, you can establish MBO-type tasks to earn this sales credit. Examples of MBOs could be: completion of sales or product training, updating or creating new account plans, CRM clean-up, driving virtual communications, and other forms of digital outreach by sellers.
Sales leaders should be open and honest about the crisis conditions. FLSMs should communicate to sellers often and also communicate to leadership about performance conditions. Leadership should be ready and formulate the options on how to act.
If you’re interested in a more thorough discussion about the implications, options and implementation of quota adjustments within your organization, please contact us https://www.alexandergroup.com/about-us/contact/.
David Eddleman is a principal at the Alexander Group
Igor Uroic is a principal at the Alexander Group