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Sales Compensation for Tough Times

Buddy…can you spare a dime? (Originally published by Incentivemag.com on Feb 19, 2009)

This phrase had iconic status during the depression of the 1930's. It represented personal hopelessness and the need to rely on others in a period where people had to scrimp and save to survive the economic chaos. Today, the global economic fabric is again undergoing a test of its vulnerability and organizations are experiencing employee layoffs in record numbers not seen in the last 75 years. What then is the strategy to address the challenges of motivation and performance as we move forward into these uncharted waters?

In more stable economic times, companies had sales compensation plans with lower base salaries and higher incentives. However, in recent years they have changed their sales compensation plans to address the needs of generations X and Y, who are attracted to a higher base salary with an optimal incentive mix that provides security but also upside potential. As a result, there is a broader range of plans in many sales organizations, a fact that has been compounded by specialization in the sales roles and multiple sales channels.

Cuts and Changes to Compensation

With the economy in recession, the first reaction of most organizations is to cut costs, as well as heads. Most sales organizations have been pruning their average performers (both inside and outside sales) for some time in an effort to support the drive to improve corporate profitability. We now find ourselves looking at further cuts and changes to the cost structure. In these cases of change, it is important to distinguish evolution from revolution.

If the enterprise is failing and the future of the company is in doubt, then you are looking at revolution. It behooves management to assess the size and prospects for the future for the business and then restructure the sales force to support the new reality. In these cases, the determination of what sales compensation plan is "right" takes a back seat until the proper structure and sales roles are confirmed. Once the structure is agreed upon, the sales compensation plan that the company can afford with the scope and financials of the restructured operation should drive the design and compensation cost.

The creation and implementation should be done as quickly as possible, with positions and plans offered to current staff based upon their competency, coverage requirements and a new set of forward-looking expectations. Some staff (often some good ones) may opt to refuse the new package and accept a severance. Those that refuse probably were not committed to the company in any case and their departure should be expected. It also helps support the reduction in costs and they were not onboard anyway. While this is a broad statement, it is probably not too far off of the mark. Discretion should be used, however, since there are accounts and relationships that you cannot afford to lose. In these cases, take the individuals aside prior to the announcements and discuss their future with the organization and how you will reward them for staying (both proposed plan and longer term).

Most often, the situation is not that dire. The financial crisis does require a response, but one that is more evolutionary focused, taking into account the need for cost reduction but also positioning the sales organization to take advantage of the recovery when it comes. In these cases, it is prudent to undertake the following:

Identify those salespeople that must be kept and review their compensation relative to the average salesperson to ensure that there is sufficient difference.

1. Audit your sales compensation plan to address such things as:

• Alignment with strategy (especially if it has changed)
• Effectiveness of the design and measures
• Delivery of desired sales behavior
• Support for tactical sales execution (activities)
• Linkage between performance and pay
• Motivational impact
• Effectiveness of communication and comprehension

2. Engage people in planning to ensure their buy-in and commitment to the direction.

3. Address any base salary issues to ensure that the people that are kept as you move forward can meet their obligations, but not to the extent that they are too comfortable or lose their hunger and initiative.

4. Assess your managers to ensure that they are able to manage toward your required goal—do they need training or should they be replaced?

5. Address target setting issues to ensure that the targets that are set are achievable relative to the changes that you are implementing as you evolve forward. Conduct focus groups with your staff to discuss their compensation to identify if there are things that you can do to improve the plan—but be honest. If you try to candy coat the situation or give them misinformation, it always comes back to bite you.

Positioning for Success

The tough times we are facing over the next several months will challenge all of us to make the most of our sales opportunities. As senior managers however, we need to ensure that during this period that we position our sales organization so that when the recovery happens, our sales compensation plans communicate to salespeople what we value and where we want them to focus their efforts. Experience tells us that a focused effort with accounts that we know have a need will generate much better results that a "shotgun" approach that tries to cover all the bases with a lot of wasted resources. Create the situation through your sales compensation plan where your salespeople can achieve modest success in 2009 and be positioned to drive exponential growth by 2010.

Editor's Note: Read all of the strategies and best practices from Incentive's Survival Guide at www.incentivemag.com/survivalguide. New articles daily!


David H. Johnston is president of Sales Resource Group Inc. He can be contacted at djohnston@salesresourcegroup.ca.