Summary: Should salespeople’s pay take an incentive pay “hit” because of economic dislocation by COVID-19?
Short Answer. Sales leaders should determine how to “protect” the earnings of sales personnel resulting from any short fall in sales revenue due to COVID-19. In other words, yes, sales leadership should protect sales compensation target earnings.
The immediate logic is to assume that sales compensation costs are variable. With this assumption, sales leaders would not adjust quotas or provide earnings’ guarantees. However, sales compensation costs are not variable to the company. Yes, they are variable to the person, but not to the company. For producers (real estate, traders, brokers, manufacturer reps, independent financial advisors), payouts are fully variable. However, sales compensation costs for sales representatives, who have target pay and a sales quota, are not variable to the company. Why?
Sales representatives are “purchased labor.” Sales leaders assign a target pay amount split into two components: base pay and target incentive. Sales representatives perform against a goal to achieve target earnings. Some will exceed the goal and earn above-target earnings, some will not. In balance, the average payouts should equal the summation of target earnings. The summation of target earnings is the “budget” for the sales representative population. Meanwhile, producers get a percent of the business—some/all will earn plenty; some/all might earn very little. The cost to the company is fully variable.
The objective is to keep sales personnel “whole” or “partially whole” so they do not suffer from a financial short fall caused by factors outside of their control. How?
Sales management has many tools available to protect target earnings. However, select a method carefully. Unintended consequences can arise if management selects the wrong method.
Avoid techniques that encourage sellers to take a “sellers’ holiday.” Immediately offering a guarantee or quota adjustment to assuage sellers’ fears might cause some sellers to throttle sales efforts…even delay pending deals.
It’s best to acknowledge the market conditions. “We understand the sales challenges you are facing. We want to ensure earnings opportunities during this uncertain economic period. Keep up your selling efforts; find ways to meet customer needs. Secure orders. Over the next several selling periods, we will review our selling results to determine if it warrants any pay or quota modifications.”
Consider one or two of these suggestions to protect sellers’ earnings:
Hoping COVID-19 has only a temporary impact on your company’s fortunes. You will need a robust and positive sales team when economic opportunities flourish again. Protect your sellers’ target incentive.
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©2020 The Alexander Group – All Rights Reserved – Issue No. 200320-2
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