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Sales Compensation Plan Renewal

Sales Compensation Plan Renewal

What else can we blame on COVID-19 this year?

Every year David Cichelli and The Alexander Group do a survey on sales trends and practices.  I’ve just looked back on the pre-Covid 19 2020 version. Lots of percentiles, averages, and all sorts of numbers that would satisfy even the most hardened statistician. But the most relevant data is on what likely didn’t happen as companies prepared plans for their newest Plan year.

This isn’t necessarily headline-making data, but it’s “attention-grabbing” if you are in a company that ignores this most basic principle of sales compensation planning and design, that being:

Sales Compensation Plans Are Annual Plans

That is a headline that should and must apply every year.  But as we all know, 2020 was not your average year.  Here is the context.

Practices for sales compensation plans begin with consideration of business conditions, individual markets, and growth projections.  So, when thinking about incentives for sales employees, it’s smart to first start with company opportunities and objectives, then begin the process of creating the desired alignment to sellers’ objectives through the use of monetary incentives.

Back to the forecasts.  Going into 2020, the companies that participated in Dave’s survey projected a median increase in revenue of 6%.  I’m going to go out on a limb here and say many won’t achieve that forecast.  Interestingly though, some did that and more.  For example:

Cleaning services

Grocery stores

Home exercise equipment

Mask makers (obviously)

And of course, Zoom

Chances are good that the salesforce for companies like these did very well in 2020.

On the other hand, the downside list (Hotels, Restaurants, Scenic Transportation/Vacations, Clothing) is a who’s-who of familiar brands as we’ve modified our plans and behaviors due to forced lockdowns.  If the salesforce is still employed in some of these industries, they might consider themselves fortunate.

Typically, over 90% of participating companies report that they plan to make changes to their sales plans in a new year.  That’s an excellent result in my opinion.  It doesn’t imply that 10% of companies have totally ignored the need to at least evaluate their plans, it could mean that they evaluated them and decided no change was needed.  And in 2020, some companies could’ve made multiple changes.

If you were in the original 90%, what sort of things might you consider for change?

  • Getting a better alignment to business strategy (#1 priority when I work with companies on their sales compensation plan designs is to make sure we have solid connection to the business strategy).
  • Changing the pay mix (base/incentive ratio), earnings caps, ramps/accelerators and performance measures are also frequently changed on an annual basis.

What about changes during the plan year?  Not something many sales people can get behind in my experience, but that doesn’t mean it wouldn’t be the right thing to do if need be (see lists of industries above, and any other company in 2020).  As a matter of fact, in a “normal year,” around 50% of companies make some sort of change, from minor tweak to total do-over!  What might be a good reason to make a change?  Here are a few that come to mind, in most cases clear as to why you wouldn’t “tough it out” until the end of the year:

  • Change in the business (new product/service, selling partner or channel, etc.) – i.e., new strategy
  • Significant upturn or downturn outside the rep’s control (again, 2020)
  • Inaccurate sales data so commission calculations are wrong or not trusted
  • Significant miscalculation of quotas
  • Lack of pay differentiation between low and high performers (is the plan attractive enough for your top performers?)
  • You can’t manage the plan – too administratively difficult
  • Your salespeople can’t understand the plan – too complex
  • Excessive costs, cost of sales well outside budget

And in some cases (a recent client comes to mind), there may be several items on the above list.  Again, with COVID as the reason, suddenly e-commerce became a more important channel and profitability projections changed, requiring different territory and customer classifications.  Product mixes changed.  Their customers went out of business… so many reasons to maintain awareness.

This year especially, we can see that selling has changed.  How companies can engage their customers and what influences the customer to buy must be considered when designing the sales incentive plan.  More data available to influence decisions to buy, less personal engagement, new roles providing specialized guidance and support – among many reasons to ask deeper questions about sales incentive plan designs and not just settle for a tweak.

Sales compensation plan change is a little more critical to most businesses, given the stakes involved.  I find it is also one of the most interesting parts of any compensation role I’ve ever had as the best way to keep a pulse on the organization’s driving business success factors.

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com), a team of seasoned experts and a trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR. 

What else can we blame on COVID-19 this year? Every year David Cichelli and The Alexander Group do a survey on sales trends and practices.  I’ve just looked back on the pre-Covid 19 2020 version. Lots of percentiles, averages, and all sorts of numbers that would satisfy even the most hardened statistician. But the most […]

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