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COVID-19 crisis: What should we do about sales compensation?

Compensation Strategy & Design|Executive Compensation
COVID 19 Coronavirus

By Darren Tse and Ron Burke | March 24, 2020

Given the fast moving and unpredictable environment we find ourselves in, companies are re-evaluating their sales compensation plans.

We are fielding an increasing volume of questions each day asking what other businesses are doing with their sales compensation plans given the disruption of COVID-19 (coronavirus). In our last COVID-19 survey that closed on February 28, 2020 about 75% of respondents had not yet made changes or adjustments to sales incentives. About 15% of respondents were planning to use discretionary adjustments, and a minority were already pulling the trigger on offering incentive guarantees and goal adjustments.

Given the fast moving and unpredictable environment we find ourselves in, it seems the circumstance have prompted companies to act now, but it is important that those actions are based on sound judgement and reasoning. Although we are in fire-fighting mode, we should also remember that this may be a unique opportunity to really solidify or re-work the sales workforce value proposition.

It is important to recognize that not everyone is in the same situation. Admittedly, the most common panic calls right now are from companies where face-to-face “reach and frequency” sales jobs have become obsolete in the blink of an eye, and where sales are either already dropping off the charts, or are expected to do so imminently. But there are some companies in the opposite situation — sitting on an unexpected surge in business due to products that are in high demand. Both situations can wreak havoc with a sales incentive plan.

To help think about the options that are available, we start by returning to the last major crisis we faced — namely, the 2008 financial crisis and resulting recession. Many of the tools from that playbook remain applicable in the current context.

To motivate and engage, consider:

  • Modifying payout curves — lower threshold performance requirements, or possibly eliminate thresholds altogether. While it won’t maintain incentive payouts at historical levels, it will at least get more people “in the game.”
  • Modifying quotas — reset the bar to maintain engagement. But this needs to be used with caution because if a return to normalcy happens sooner than expected then demand for your goods may surge.
  • Rewarding based on relative performance — use stack ranking or indexing to “grade” on a curve.
  • Adding sales contests — think about motivating performance using temporary, short-burst programs. This won’t fit for all, but for some it can be a useful supplement.

To manage cost and rebalance the deal, consider:

  • Lowering variable pay — this may be a one-time opportunity where high performers would welcome a rebalance towards more fixed compensation or at least more certainty in compensation.
  • Tying more pay to corporate results — have we ever needed the community to come together more than now?
  • Capping incentive pay — potentially relevant for those with a sudden surge in demand. While we normally advocate against caps, we also feel that sales incentives should reward for contribution, not windfalls created by external events. If not an outright cap, a lower rate of payout acceleration at very high-performance levels may be warranted.

As always, there is no one-size-fits-all solution. We plan to continue this series by drilling into additional situations from COVID-19-related disruption in the coming days and weeks. Please feel free to contact us directly if you’d like to nominate a specific question or topic to add to the list.


North America Practice Leader, Sales Effectiveness and Rewards

Global Practice Leader, Sales Effectiveness and Rewards

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