In Alexander Group’s recent virtual roundtables on sales compensation, over 100 manufacturing and distribution revenue executives came together to discuss the latest trends on how to develop sales comp plans to drive more consistency between seller pay and performance while being both cost effective and competitive in today’s chaotic environment. With insights provided by Alexander Group manufacturing and distribution surveys, along with live audience polling, the following three themes were abundantly clear.
90% of attendees noted that they will be making some changes to their sales compensation plans for 2021, with nearly 30% planning a complete re-evaluation. This wasn’t surprising as it aligns with the realities of changes to business and roles since COVID-19 hit; pay guarantees, formula changes and quota adjustments have been the top three changes we’ve perceived. The impact on seller pay has been more exaggerated than the impact on revenue, which further indicates the need to make mid-year changes to sales comp plans. It’s also important to recognize the risk of making snap changes. With guarantees, for example, there can be unintended consequences if the sales team outperforms the new goals and expectations, as many organizations already have.
A higher degree of uncertainty compared to prior years coupled with the degree of change to job roles has made the sales compensation planning process more critical this year than most. The anticipated order of magnitude of change, as well as expected challenges, puts responsibility on executives to proactively monitor the new plan’s cost and effectiveness. Only 6% of roundtable attendees noted that they do not have a formalized sales comp planning process in place. The chart below highlights Alexander Group’s suggested planning process and what you should be asking during each step.
Another consideration in the planning process is the addition of new roles, with the potential permanence of an inside sales team. Across the industry, inside sales teams are expanding and many field sales reps are converting into more virtual selling. With the virtual selling role becoming increasingly impactful, it begs the question of how adaptable the different sales motions are.
Furthermore, as the extent of value-added selling increases for each sales motion, the adaptability to be virtual decreases. For example, sales fulfillment has a high virtual adaptability – products/services are commonly used by the buyer with low competitive differentiation. Sales advocacy includes value-adds such as decision guidance, offering assurance and purchase justification which help create a mid-range of virtual adaptability. Sales innovation tends to be low in virtual adaptability given the product/service is new to the buyer and there is a high competitive differentiation. To ensure your sales team is successful, it is imperative to run through the eligibility process and criteria when creating these new roles.
To effectively assess and design sales comp plans, you must leverage principles and best-in-class guidelines. If there are multiple plan components, ensure that there are places where the seller is able to win; consider reducing risk in pay curves or adjusting quotas. Remember, quotas don’t have to be analyzed on an annual basis. Consider changing to monthly or quarterly performance periods where you ideally have a better line of sight.
While there isn’t one correct way to manage your sales compensation plan, it’s evident the changes we’re experiencing will be present for the foreseeable future which will impact seller pay and measuring performance. It’s time to consider all options to determine what will work best for your firm to align plans with new go-to-market strategies.
Register for any or all of our manufacturing and distribution virtual roundtables by visiting our website and completing the online form.
For more information and insights on how to manage in times of disruption, please contact an Alexander Group Manufacturing or Distribution practice lead.