It looks more and more like the global economy could come to a screeching halt due to the impact of COVID-19. The global pandemic has infused significant uncertainty into the markets. More and more manufacturers are beginning to slow down or even temporarily halt production with no clear timeline for a return to normalcy. This is the time for manufacturing sales leaders to review their sales compensation programs and to consider potential adjustments as we enter what could be (even if temporary) a “new normal.”
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 that does not require any additional communication or change management.
Con: There is the 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 in a few months when things begin to stabilize.
Pro: Adjusting quotas up or down while keeping the plan structure will attempt to align an existing pay curve with the new situation and keep the same distribution of performance 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 can feel alienated due to loss of hope.
3. Adjust Thresholds – Decreased thresholds will lead to sellers earning incentives sooner.
Pro: Sellers will get ‘into the money’ sooner than they would have under the old plan.
Con: Decreasing the threshold has the possibility to 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 the 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 compensation on an alternate program that 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 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 weighing the benefits and drawbacks of changing the sales compensation plan. Manufacturing sales organizations need to ensure that they do a full plan evaluation after six months following these changes to confirm the plan is still in line with market factors.
Is your company struggling to reevaluate sales expectations in light of COVID-19 market changes?
Contact a Manufacturing Practice leader at Alexander Group.