Manufacturers: Post-Natural Disaster Bust-Boom Strategies

After a natural disaster, like the recent hurricanes that devastated the southern U.S., manufacturers often experience a period of bust and boom. Fluctuation in sales activity emerges as each impacted region begins to recover and eventually rebuild. This is the time for manufacturing sales leaders to review their sales incentive compensation programs and adjust to align with new market conditions. After monitoring and gaining insights into the market environment, sales leadership can utilize the following strategies as they reassess the sales impact following a natural disaster.

Organizations with limited insight into the extent of future sales fluctuations will benefit from the following four strategies:

1. Leave the Current Plan in Place – Sales management may elect to make no changes to the current sales incentive compensation structure, especially when it is difficult to forecast sales. They may elect to leave the plan in place for the remainder of the year and revisit quotas and sales compensation for the following year.
   Pro: Keeping the plan ‘as-is’ is a simple solution which does not require any additional communication or change management.
   Con: There is uncertainty of what the financial impact of the sales compensation plan will be. Incentive payments could be either significantly higher or lower than anticipated.
2. Adjust Quotas – Management may elect to modify current sellers’ quotas mid-year.
   Pro: Adjusting quotas up or down while keeping the plan structure will attempt to fit an existing pay curve to the new situation and keep the same performance distribution under the new reality.
   Con: If the changes in quota are not accurate, there is the potential for significant overpayment for results. On the other hand, if the quotas are unattainable, sellers may feel alienated due to loss of hope.
3. Adjust Thresholds – Decreased thresholds will lead to sellers earning incentive sooner.
   Pro: Sellers will get ‘into the money’ sooner than they would have under the old plan.
   Con: Decreasing the threshold might make the plan more expensive to administer.
4. Implement a ‘Make Whole Provision’ – Consider suspending the current plan, pay each seller their target incentive for the year and cap the plan.
   Pro: Under this provision, sellers will benefit from payment of their full incentive amount at target. An added bonus: Sellers will move towards a team mentality.
   Con: This provision will cap the incentive payments at target which will provide no upside payments for sellers who outperformed targets for the period.

Companies whose management has a complete lack of insight into quotas, will likely benefit from the following additional alternative:

5. Devise an alternate sales compensation program – Management may elect to pay sellers sales incentive compensation on an alternate program which does not rely on sales results. Measures for this plan would include Key Performance Indicators (KPIs). Sellers would still have the ability to earn sales incentive compensation without relying on sales results.
Pro: Eliminates reliance on sound quota setting in an uncertain market environment.
Con: Changes to the plan mid-year can potentially confuse sellers. The organization will have to clearly lay out a communication strategy.

Regardless of which route an organization decides to choose, it is important they don’t react without a clear understanding of what is happening in the marketplace. Evidence from previous natural disasters shows a dip in sales and then a significant uptick due to the boom in construction. Manufacturing sales organizations need to ensure that they do a full plan evaluation six months following these changes to confirm the plan is still in line with market factors.

Is your company struggling to re-evaluate sales expectations following disastrous market changes? Contact a Manufacturing Practice leader at Alexander Group.

Read more Alexander Group insights examining the manufacturing industry.