What NOT to do with sales compensation in 2020

Incentive, Year End Bonus

This post is authored by Ajay Joshi, ECS Partner. Find out more about Ajay here and the deep range of the ECS team’s sales expertise and experience here

Are you unsure of what to do with your sales compensation plans in 2020?

You’re not alone. Many businesses share your predicament during these times of uncertainty. During the first half of the year, many organizations decided to wait for the dust to settle before making any adjustments to incentive pay structures.

As we enter the fourth quarter of the year, we find that the dust has not yet settled. In fact, a recent WorldatWork/SalesGlobe survey showed that most sales teams will not meet quotas in 2020.  As companies decide how to respond this year, and look toward planning for 2021, here is a list of five mistakes to avoid:

  1. Continue to wait and see and assume you can address shortfalls through year-end adjustments. Pushing off decision making might have seemed reasonable in March and April, but given what is known now about the extended nature of the pandemic, you need to act now. Not doing so can be disastrous to your bottom line and to the morale of your sales team.  Use your re-forecasted demand to develop new targets for year-end, as you continue to manage costs and protect your bottom line.
  2. Only incentivize closing. With buyers delaying capital purchases, closing deals might be much harder this year than in 2019. Even with extended sales cycles, you need to keep your sales team energized and motivated. Consider adding payouts for meeting business-aligned KPIs, which can include adding new pipeline opportunities, R&D project signups, and account expansion. They will all contribute to the long term viability of your business, well past the pandemic.
  3. Plan in a vacuum. Your incentive plan needs to be reviewed by more than Finance and HR. Confirm that your sales quota targets and timing align with your supply chain’s ability to produce efficiently and deliver on time. Also, it is important for your Sales team to buy into your revenue and headcount plans to ensure they have the ability to deliver. Finally, communicate your business plans openly and frequently across all levels of your organization.
  4. Not consider all alternatives. Many sellers are worried about their compensation and their jobs this year. While making them whole might not be financially feasible, you can meet them in the middle by lowering first-dollar thresholds, changing the slope of the payout curve, temporarily adjusting the pay mix, and increasing non-recoverable draw amounts. Your actions during this time will dictate the loyalty you receive when the economy picks up again.
  5. Use a one size fits all approach. It is important to take into account the variation in territories, customers and markets when determining quotas for 2021. While the economy is experiencing a general recession, there are several market verticals that are growing today (e-retail, food manufacturing and home repair). There are also significant geographic differences, as shown by this BLS study. Adjust your payout curves, thresholds, and caps based on these realities.

Planning your incentive structure during these tumultuous times is no easy task. We are available to help and can discuss your options and answer any questions you have. Reach out to Ajay Joshi – email him at ajoshi@thinkempirical.com, and connect with him on LinkedIn here. He’s a wealth of information and ideas, and a tremendous resource!