Tired of hearing about the troubled credit markets, inflation fears, and the rising price of crude oil? It seems increasingly difficult to avoid such headlines these days. Closer to home, many are wondering how to keep the sales force engaged during tough economic times. This leads us to an important question. In the face of a difficult economy, when is it appropriate to consider changing the sales compensation plan? Moreover, if you determine that change is needed, where does one start?

This month's article is the first in a two-part series on the topic, first discussing the warning signs to look for that will indicate whether change is needed. We'll follow-up next month with the types of changes that may be appropriate when your sales force is mired in a struggling economy.

As always, I'm interested to hear from you. Let me know if you find this month's article to be of value or if you have any suggestions for future newsletter topics.

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.

Before considering potential changes, it's important to validate that the underperformance is owing to market forces outside the sales force's control as opposed to simply reflecting an unproductive sales team. Once you establish that it truly is the broader economy at play, you're ready to consider whether changes to the sales compensation plan are needed. However, let's first consider the warning signs to watch for.

The Warning Signs

The following are five tests for whether sales compensation change should be considered.

• Aggregate revenue well off quota – If first quarter results for the sales force as a whole (or by division, channel, or region) are well off the planned run rate, this is the first clue that something’s amiss. Confirm that the first quarter underperformance is an aberration from prior years’ results.

• Too few reps performing at quota – A “normal” performance distribution will see 55 to 60 percent of the sales force perform at or above quota. Another way to look at this is to calculate the median quota attainment level for each key segment of the sales force. One would ideally see the median quota attainment at or slightly above 100 percent.

• Too many reps below threshold – The threshold (i.e., the minimum performance level required to earn any incentive) is typically modeled expecting 90 to 95 percent of the sales force to exceed that level. Be wary of 25 percent or more of the sales force performing below threshold.

• Too few reps at or close to excellence – The excellence performance level (i.e., where the full upside incentive potential is earned) is typically modeled expecting 10 percent of the sales force to achieve or exceed it. If no one is achieving excellence, let alone coming close to it, it may signal the need for change.

• Increase in quota adjustment requests – For sales organizations operating under a quota-based incentive plan, quota adjustment requests are to be expected. Watch for a significant spike in the volume of such requests, particularly from heretofore strong performers.

If your organization is experiencing any number of these symptoms, then it is worthwhile to consider making adjustments to the sales compensation plan. The point here is that sales compensation management requires actively monitoring results. In other words, don’t wait until performance levels are suffering to begin regularly evaluating the results of your sales compensation plan.

Watch for next month’s edition of Sales Effectiveness Insights to learn about the types of sales compensation plan changes to consider during times of economic uncertainty.

Register for Mark's upcoming webinar, "Trends and Challenges in Sales Compensation," on June 3. (Get details...)

Mark now teaches the new one-day WorldatWork course, "Competitive Market Pay: Pricing Sales Positions," to be held on October 29 in Phoenix.
(Get details...)

Mark's new book, Sales Compensation Math, is now available through WorldatWork's online bookstore.
Click here to order...

Mark also is a contributing author to The Sales Compensation Handbook - Second Edition. Order this seminal text on Amazon.com.

"You can observe a lot, just by watching."