Are Tech Companies Changing Their Sales Comp Program?
The COVID-19 pandemic has disrupted how technology companies do business and for most their business outlook.
Dramatic demand changes coupled with potential sales behavior changes means that companies should revisit how they are measuring and rewarding their sales teams. The Alexander Group just completed our second sales compensation and quota survey (closed on April 20, 2020) to find out what technology companies are doing. Here are some high level findings.
How Much Impact will This Pandemic Have to Sellers Pay?
Most companies expect the COVID-19 crisis to have an impact on their sellers’ pay
43% expect to have significant negative impact (15%+)
28% expect to have moderate (5-15%)
29% expect to have no/minimal impact (<5%, none or positive)
What Planned and/or Anticipated Program Changes Are They Making?
Many companies have planned or anticipate one or more pay, quota, and/or plan design changes
80% of companies with high/medium seller pay impact have planned or anticipating changes
Only 25% of companies with no/minimal seller pay impact have planned or anticipating changes
Roughly half of these companies are still considering what they will do
The top solution is quota relief, however practices vary
Why Are So Many Companies Undecided?
Our research and client discussions highlight that many technology companies are still in a “wait and see” mode. Why? There are a myriad of reasons, but here are the two primary ones.
Annual plans/quotas. Annual plans provide additional time to react based on more informed information.
Delayed impact. Many companies were still able to close current quarter deals as those technology initiatives/budgets were set before COVID-19 happened. However, as the pandemic progresses, it is influencing technology budgets. In addition, work-from-home mandates are impacting face-to-face funnel activities like trade shows, in-person sales calls and in-person account review meetings.
Why Do the Practices Vary So Much?
There are many factors that influence which sales compensation and quota technique to use.
Level of Disruption. The level of disruption and its variability across the sales force will dictate change need and its application
Company Dynamics. Many company dynamics will impact what solution options make sense
Go-to-market and sales behavior changes. Go-to-market changes (due to changes in buyer needs and/or company solution offerings) drive sales strategy, job/desired behaviors, organization, and territory changes, which should result in sales compensation and/or quota changes
Furloughs / Layoffs. Companies reducing headcount (furlough and layoffs) should consider how best to address morale and motivate their sales teams
Companywide employment/pay practices. Companies desire to align pay impact across sales and non-sales jobs, however they usually use different techniques due to the large variance in non-sales versus sales pay programs
Fiscal year start. Companies whose fiscal years start in Q2 are currently rethinking plan design elements more than other companies
Sales Comp Philosophy. Sales compensation reward philosophy, culture and level of quota/business plan linkage will direct the final solution
Current Plan Design Constructs. Relevant solution options will depend on current sales compensation plan design constructs
This chart highlights many techniques that companies can select. However they all come with potential unintended consequences, if not carefully selected, designed and managed.
The Path Forward
The COVID-19 pandemic is impacting revenue expectations, expected sellers behaviors and sellers pay. Revenue growth leaders should deploy a two-step approach to address this situation:
Determine Near Term Adjustments. Review impact and consider near-term solutions to protect people’s pay from undue hardship and motivate new behaviors aligned with your situation, strategy and philosophy
Align Program to New Strategic Priorities. Update sales compensation plan to align with revised strategy, roles and performance expectations in second-half 2020 or FY21
As noted earlier, there are many choice options to select from. Companies should be thoughtful about selecting the right solution with minimal unintended risks. They should also develop a comprehensive, frequent and thoughtful communication strategy to provide clear direction and reduce any additional anxiety.
Alexander Group is currently working with many technology companies to develop their path forward. If you and your company are in the throes of managing through and eventually out of this crisis, please contact us to schedule a complementary video-conference appointment with one of the Alexander Group Technology Practice thought leaders. We are available to answer any questions as well as provide additional insight on how organizations are managing through and eventually, out of this crisis.
Rachel Parrinello is a principal in the San Francisco office. She is a leader in the firm’s Sales Compensation, Media Sales and Technology practices. In this role, Rachel delivers sales compensation expertise to many client engagements and directs the firm’s sales compensation IP and benchmarking methodology. Rachel’s fact-based, practical and aligned sales compensation solutions help her clients drive profitable revenue growth. She frequently speaks on sales compensation topics at various associations and partner events. Rachel has authored several articles and whitepapers including How Revenue Planning Drives Sales Compensation Success.