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How to address highly variable compensation plans amid COVID-19

System og strategi for kompensasjon
COVID 19 Coronavirus

By Darren Tse and Ron Burke | March 31, 2020

The COVID-19 crisis is creating significant potential challenges with highly variable compensation plans.

We continue to field urgent questions each day about what other businesses are doing with their sales compensation plans given the disruption of COVID-19 (coronavirus). The most pressing calls we receive are from clients with sales representatives on highly variable compensation plans.

For the longest time, many of us viewed risk-reward as a simple sales incentive design trade-off. Ask sellers to assume more risk by taking less fixed compensation in exchange for the potential to earn more through variable compensation, in line with successful sales efforts. These historical pay mix decisions were predicated on the assumption that sellers would have the ability to influence and drive sales results (and that there would be sales for them to drive). But when a catastrophic event suddenly limits sales or crushes sales potential, this deal suddenly seems terrible.

Should companies intervene? We like to think that a crisis brings out the best in people and hence organizations. Judging from the calls we have been fielding, many organizations want to help sales reps shoulder the burden. Call it being paternalistic or perhaps just playing the long game, but we believe that a little goodwill will go a long way.

While we hear the desire to offer some sort of help with cash flow, we are finding it much less straight forward to execute with our clients who have dozens or hundreds of sales incentive plans around the globe spanning all levels of sales and sales management.

Determining the HOW requires some thoughtful deliberation. Say the desire is to offer a draw, or perhaps a guarantee of 80% of target incentive (two solutions we have seen put forth by clients this past week). That is a noble desire, but how do you provide a draw or guarantee to a seller on a commission plan with no target incentive? How do you do the math? Where do you draw the line? What should you do if your head of sales is also on a sales incentive plan?

We think that any cash flow “fix” can be determined by going through our typical comp plan design decisions:

  1. 01

    Eligibility:

    What sales roles should be eligible for cash flow help? What factors are used to determine where we draw the line on eligibility e.g. base salary cutoff, proportion of pay at risk minimum, total cash maximum?

  2. 02

    Amount:

    How much relief do we want to offer and how do we define it, e.g. flat monetary amount, percent of base salary, percent of target incentive?

  3. 03

    Mechanics:

    Be clear on the language and the mechanics, e.g. a fixed payment to be made completely outside of the incentive plan; a non-recoverable draw (which is a type of minimum that is netted against incentive earnings should they materialize); a recoverable draw (which is really just an advance against future incentive earnings); or an incentive minimum that serves as a type of guarantee.

  4. 04

    Governance:

    be clear on oversight to make award decisions and criteria for making similar adjustments in the future.

As we start unpacking other actions beyond providing cash relief to sales reps, we are finding that similar decisions need to be made amid the COVID-19 crisis. We’ll be back with more thoughts on managing sales in these interesting times. Stay well!

Authors

North America Practice Leader, Sales Effectiveness and Rewards

Global Practice Leader, Sales Effectiveness and Rewards

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