Sales Compensation: Turning Challenges into Strategic Advantages

Top Five Sales Compensation Challenges for Manufacturers and Distributors

Manufacturers and distributors are under pressure like never before. Organizations are expanding their portfolio offerings through M&A, digital channels are reshaping customer expectations and recurring revenue models are gaining traction.

In this environment, sales compensation has the opportunity to shift from a back-office process to a front-line lever for strategic advantages. The way companies pay their sellers can have a significant impact on how quickly a company can realize value from integrations and new product launches. Additionally, a company’s sales compensation model affects their ability to protect profitability and capture growth. Yet, the very forces creating opportunities are also making compensation design more complex, and in many cases, riskier.

Alexander Group’s latest research highlights the five challenges manufacturers and distributors are grappling with today, why they matter and how leading firms are evolving their sales compensation programs to become a strategic advantage.

1. Integrating Sales Compensation Post-M&A

As firms pursue growth through consolidation and expanded offerings, mergers and acquisitions (M&A) are reshaping the industry. However, M&A activity introduces a complex question: how do you integrate two (or more) different sales compensation philosophies?

More than half of companies (56%) ultimately move sellers onto one organization’s plan.  Other integration options include staying on current plans, cross-business unit referral bonuses or migrating to a specialist sales plan. Leading firms build M&A playbooks to guide integration, align roles and assess plan variations. These M&A also enable firms to conduct impact analyses for anticipating turnover risks and apply structured change management.

A well-aligned plan ensures that integration synergies are unlocked, seller adoption is maximized and revenue realization accelerates.

2. Driving Growth in New and Recurring Revenue Streams

Manufacturers are no longer defined solely by physical products. Instead, many are rolling out software-enabled solutions and service packages with contracts that utilize recurring revenue models. The challenge is balancing legacy product sales and new offerings.

To encourage focus, companies often use product-specific measures, credit uplifts, hurdles or short-term SPIFs. Two discrete measures, such as 60% on core products and 40% on new products, can signal priority while keeping overall accountability.

Three questions should be answered when determining the right product focus lever:

1. Do we have the ability to estimate opportunity and set a realistic quota?
2. Is the new product sales crediting/sales price enough to drive the required focus relative to the core offering crediting/price?
3. Do all sellers with this standalone measure have a similar opportunity to sell the new offering?

Without purposeful incentives, sellers default to familiar products and leave strategic revenue streams underdeveloped. To prevent this, compensation must guide the shift to new engines of growth while still protecting the core business.

3. Migrating from Volume-Based Commissions to Growth-Oriented Quotas

Although many manufacturers and distributors still rely on volume-based commission models, these plans are often at odds with today’s margin and growth objectives. Transitioning to quota-based mechanics is essential but can be disruptive.

Some of the most common transition strategies used by top performers include (not mutually exclusive):

• 80% of companies offer permanent incentives such as steeper pay curves, higher target compensation or equity
• 42% use one-time transition bonuses or discretionary pools
• 24% provide phased transitions or remain on legacy plans
• 19% set easier quotas to support the transition

Quota-based designs give companies more control over cost of sales and allow them to reward true growth instead of solely sheer volume. By carefully planning, this transition can be achieved while ensuring top talent is retained and motivated.

4. Minimizing Quota-Setting Risk in Times of Uncertainty

Economic volatility, shifting demand and global trade pressures make quota-setting incredibly challenging in today’s unpredictable market. Poorly set quotas can result in overpayment or demotivation.

Leading companies can employ a range of methodologies depending on job type and available data. For instance, statistical modeling may work in stable markets while qualitative judgment is often needed in emerging ones. Adjusting pay curve inflection points can also help, offering sellers confidence while limiting company exposure.

Regardless of the method, quota accuracy is the non-negotiable key to maintaining seller motivation, ensuring fairness and delivering predictable results.

5. Managing Global Programs with Consistency and Flexibility

As manufacturers and distributors expand globally, many are wrestling with how to create sales compensation plans that balance global consistency with regional autonomy.

The three main types of approaches applied based on plan element are:

1. Locally defined plans with full autonomy
2. Globally led frameworks with regional tailoring
3. Fully global designs applied across all markets

Pay mix, leverage, quota methodologies and special incentives must be carefully aligned across geographies while reflecting local realities. Too much fragmentation raises costs and inequities whereas too much rigidity risks local misalignment. The best-performing firms find the right middle ground.

Why Should You Care?

These challenges go beyond compensation and should be approached as strategic issues. Sales compensation shapes seller behavior, customer outcomes, cost of sales and, ultimately, profitability. In a market defined by rapid change, managing compensation as strategic driver can be the difference between hitting growth targets or falling short.

There is no one-size-fits-all approach to sales compensation design. The most effective programs are anchored in clear go-to-market priorities and supported by mechanics that reinforce desired behaviors while controlling cost of sales. With careful design and benchmarking, sales compensation can shift from an administrative challenge to a powerful tool for growth.

For many leaders, the time to act is now. Failure to enact the right changes may lead to a disengaged sales force and an inability to meet growth expectations.