Best regards,

J. Mark Davis
Managing Principal
Valitus Group, Inc.

During uncertain economic times, the pressure on a sales force to continue to produce is never greater. Trouble is, during periods of economic uncertainty, that kind of continued productivity is not always easy to sustain. When the economy softens and the air waves are dominated by doom and gloom economic forecasts, I am frequently asked whether changes should be made to the sales compensation plan to reflect the realities of the softening market.

In last month's edition of Sales Effectiveness Insights, we discussed the warning signs to look for which indicate sales compensation plan change is needed. If your organization is experiencing any number of the symptoms described in Part 1 of this article, you're ready to consider which changes to the sales compensation plan are most appropriate.

Potential Sales Compensation Changes

While it is generally not advisable to make changes to a sales compensation plan within a plan year, changes may be necessary in order to keep a sales force engaged and motivated during difficult economic times. As opposed to wholesale change, the following represent potential plan adjustments that are likely to keep the overall framework of the sales compensation plan in tact.

• Reduce threshold – If significantly more than 10 percent of the sales force is falling below threshold, consider lowering the threshold performance level. Threshold is the minimum acceptable performance level, below which no incentive compensation is earned. Calculate the 5th percentile quota attainment level on a year-to-date basis as a starting point to see what a more reasonable threshold may be.
• Reduce excellence – Likewise, if no one is achieving excellence, you may need to reduce the excellence performance level. Excellence is the outstanding level of performance for which one earns the defined upside incentive potential. Again, calculate the year-to-date 90th percentile performance level as an indication of a more realistic excellence performance level.
• Adjust the incentive rates at key points on the performance continuum – If you need to adjust the performance range, a corresponding change to the associated incentive rates also may be necessary. For example, if the former threshold of 80 percent of quota paid 50 percent of the target incentive, a new threshold of 70 percent of quota may pay only 40 percent of the target incentive. Likewise, if the excellence performance level is reduced, you may need to reduce the amount of incentive paid for the new, lower excellence performance level.
• Reset the performance measurement clock – If performance is measured on a cumulative year-to-date basis, severe underperformance early in the year can leave salespeople feeling like they’re swimming with a boat anchor tied to their ankle. Consider resetting the performance measurement clock with the start of a subsequent quarter or month, thereby wiping the slate clean from the tough start to the year.
• Introduce a SPIFF – A SPIFF is a special, temporary incentive that sits outside the core sales compensation plan. It should reward for results that are complimentary to that which is rewarded in the core sales plan. Examples might include achieving a fast start to a subsequent quarter or generating revenue from a defined list of new accounts.
• Adjust the annual revenue quota – I mention this option last for a reason, recognizing that a downward adjustment to a top-line commitment may not be possible. However, at a minimum, one should validate the assumptions that led to the top-line revenue number at the beginning of the year. Also, validate that the allocation of the aggregate number down to the individual salespeople makes sense. Where an over-assignment of quota is the norm, ensure that there wasn’t too much over-assignment as the top-line number cascades down into the organization.

The Call for Leadership

Regardless of the course of action, it is important to actively communicate management’s expectations and support. Whether or not sales compensation plan changes are made, visible and vocal sales leadership is crucial in tough economic times. Be clear with performance expectations. Regularly communicate management’s commitment to leading the team through the abyss. If the plan is changed, over communicate the rationale for the change and the objectives for the sales team, as well as for the sales compensation plan itself, for the balance of the plan year.

Mark now teaches the new one-day WorldatWork course, "Competitive Market Pay: Pricing Sales Positions," to be held on October 29 in Phoenix.
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Mark also is a contributing author to The Sales Compensation Handbook - Second Edition. Order this seminal text on Amazon.com.