在疫情和经济不确定性期间改变销售薪酬计划的三个关键因素

GartnerforSales

3KeystoChangingSales

CompensationPlansDuring

CoronavirusDisruptionand

EconomicUncertainty

SteveHerz,SeniorDirectorAnalyst

4June2020

Gartner

3KeystoChangingSalesCompensationPlansDuringCoronavirusDisruptionandEconomicUncertainty

Published4June2020-IDG00723868-11minread

ByAnalysts

SteveHerz

Initiatives:

SalesStrategyandOperations

and1more

Salescompensationplansbreakdownquicklyunderextremedisruptionsuchasthe

coronaviruspandemic.Salesoperationsleadersmustrefreshtheirguidingprinciples,plandistinctphasesforshort-andlong-termincentiveplanchange,andconsiderquotareliefandotheroptionstocontainrisk.

Overview

Impacts

■Salesoperationsleaderswillfacedifficulttrade-offsbetweenprotectingsellers’incentivesearningsandmeetingcompanycash-flowneeds.

■Promptlyupdatinganincentiveplanimprovessellermorale,butmovingtooquicklyinchangingconditionsmaynecessitatemorechangeslateron.

■Afterthemostacutephaseofsellingdisruptionends,availablerevenueforecastswillstillbehighlyuncertain.

Recommendations

Tobalancetheirsalescompensationplans’motivationalimpact,stabilityandfiscalresponsibilityduringtimesofdisruptionanduncertainty,salesoperationsleadersshould:

■Reaffirmthecoreprinciplesthatgoverncompensationplandesignbyconveningthecompany’sexecutiveleadershiptoupdatesalescompensationguidelinesinresponsetocurrentchallenges.

■Changeincentiveplansintwophasesbyseparatingoptionswithimmediateimpactandfeasibilityfromthosethatrequireawait-and-seeapproachbeforefinalizing.

■Identifythemosteffectiveshort-andlong-termincentiveplanadjustmentsbythoroughlyconsideringbothfamiliarandlessconventionalredesignoptions.

Analysis

Oneofthemostpressing—andvexing—challengesthatsalesoperationsleadersfaceduringtimesofseveresalesdisruptionandextendedglobaleconomicdownturnisdeterminingwhat

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changes,ifany,theyshouldmaketosalescompensationplans.

Evenseasonedsalesoperationsleadersmayfindthatlittleintheirprofessionalexperience

preparesthemadequatelyforaglobalpandemic.Leadersservinginseniorsalesrolestodayhaveneverhadtodesignsalesincentivesinconditionsliketoday’scompletesellingdisruptionandlong-termeconomicuncertainty.

Compensationdesignchallengescausedbyextremeuncertaintyarecompoundedbythedifficulttrade-offssalesoperationsleadersface.Someofthesetrade-offsareamplifiedversionsofthe

tensionsinherentinanysalescompensationdesignprocess,butothersconfrontsalesoperationsleaderswithunfamiliar,emotionallycomplexdecisionssuchas:

■Howtobalancethedesireto“keepsellerswhole”(i.e.,paytheaveragesellerattargetregardlessofcompanyperformance)withtheresponsibilitytooptimizecompanycashflow

■Howtoprovidesellerswithdependableinformationabouttheirincentiveswhenpredictionsaboutcustomeraccessanddemandareunstable

■Howtopreservesellingcapacitytorespondquicklytoeconomicupturnjustascustomerorderdelaysandcancellationsareputtingshort-termpressuresoncompanycashflow

Inthisnote,weprovidethreerecommendationstohelpsalesoperationsleadersnavigate

disruptionanduncertaintyintheirsalescompensationplans(seeFigure1).Mostsales

operationsleadersshouldbeginwiththefirsttworecommendationstorealizeamoreeffectivedecision-makingprocessandimprovedsellermorale.Salesoperationsleaderswhoarereadytobeginimplementingchangesnowcanbeginwiththethirdrecommendation,whichincludesacomprehensivelistofincentiveplanelementstoconsideradjusting,alongwithcorrespondingdecision-makingguidance.

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Figure1.ImpactsandTopRecommendationsforSalesOperationsLeaders

ImpactsandRecommendations

LeadersWillFaceTrade-OffsBetweenSellers’EarningsandCompanyCashFlowBecausecommercialleadersaregenerallyoptimisticaboutrevenueandprotectiveofsellers’

earnings,theymaynotbeadequatelypreparedtomakedifficulttrade-offdecisionsundertime

pressure.Salesoperationsleaders,therefore,shouldpreparecompanyleaderstotakeinformed,decisiveactionbyinitiatingareview(orcreation)ofthecoreguidingprinciplesforsales

compensationdesign.

Becausetheseguidingprinciplesreflectbroadcompanyvalues,theheadofsalesoperationsshouldconvenetherightsetofsenior,cross-functionalcompanyleaderslongbeforedifficultdecisionsareneeded.Asidefromsales,thisprocesstypicallyincludesfinance,HR,legalandcompliance,andIT.Theheadofsalesoperationsmayincludeotherfunctionalleadersas

appropriateforcompanyculturebutshouldbearinmindtheneedtoreachconsensusquickly.

Alistofdiscussionquestions,customizedtocompanycircumstances,canfacilitatethis

leadershipmeeting(seeTable1).Themeetingoutput—astatementoftheexecutiveleadership’scompensationdesignprinciplesupdatedforcurrentchallenges—willserveasareferencepointforallsubsequentdecisionsaboutcompensationplanchanges.

Table1:DiscussionQuestionsforDevelopingandUpdatingSalesCompensationGuidingPrinciples

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PrioritizingValues

SpreadingtheImpact

Category

Questions

■Whatcorevaluesandculturaltraditionsalreadyinplacemustweconsiderwhenmakingsalescompensationdecisions?

■Howimportantisthecontinuityandstabilityofsellers’incentiveplanscomparedtoagilityinsalescompensationandresponsivenesstochangingmarketconditions?

■Whatstepsmustwetaketoavoidunintentionallyincentivizingsellerstorisktheirownhealthorthecommunity’swell-being?

■Doweprefertospreadtheimpactofdisruptionandreduceddemandequallyamongallsellersorallocateitunevenlybasedonothercriteria(e.g.,arole’sabilityto

generateshort-termcash,arole’slong-termstrategicimportance,aseller’sactualperformancerelativetopeers)

■Dowewantsalescompensationchangestofavorhigher-performingsellersoverothers?

■Shouldourapproachtochangingsellerincentivecompensationbeconsistentwithourapproachtononsalespositionsinthecompany?

■Shouldhigh-risk/high-rewardrolesbearmoreoftheimpactfromcoronavirusdisruption?

Defining

■

Isthereapointatwhichweprefertoreducesalesforcesizeratherthanchangesales

Decision

compensationplans?Ifso,howshouldwedefinethatpoint?

ThresholdsorTriggerPoints

■

Howmuchmarginreductionorpressureoncashflowcanwetoleratebeforewemustdirectlyreducespendingonvariablesalesincentives?

Source:Gartner

Recommendations:

■Identifynonsalesleaderswhoseinputsalesoperationsleadersneedtoupdateguidingprinciples,suchasfinance,HR,legalandcompliance,andIT.

■Reachconsensusamongtopsalesandnonsalesleadersontheguidingprinciplesthatwillshapesalescompensationchanges.

■Includeasummaryoftherelevantguidingprincipleswhencommunicatingchangestosellers.

PromptIncentivePlanUpdatesImproveMorale,ButMovingTooQuicklyMayNecessitateMoreChangesLater

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Salesoperationsleadersmustbalancetheboostsellermoralereceivesfromquickdecisionsaboutincentiveplanswiththeriskoflaunchingchangessosoonthattheywon’tstandthetestoftime.

Thesoonersellersgetdetailsaboutplanchanges,thefastertheycanadjusttheiractivitiesto

maximizetheirearnings.Butifcompaniesrushcompensationplanchangesintoproduction,theyaremorelikelytoneedadditionaladjustmentsasthesellingoutlookcomesintosharperfocus.

Multipleroundsofcompensationplanadjustmentscreatelegal,technologicalandoperationalrisk.

Evenworse,theymaycausechangesintendedtoincreasetransparencyandreducesellerdistractiontoultimatelyunderminemoraleandsellers’trustinleadership.

Salesoperationsleadersshouldmanagethisinherenttensionbetweendecision-makingspeedandplanstabilitybydividingcompensationactionplanchangesintotwophases:

■Phase1—Short-termsalescompensationadjustmentsbasedonwhatlittleisknownnow(ifanything)

■Phase2—Long-termadjustmentsthatwillbedevelopedonlywhenenoughinformationisavailabletocreatereasonablystableplans

Communicationaboutshort-termcompensationplanchanges(Phase1)shouldemphasizethecompany’scommitmenttohelpingsellersstayfinanciallysolventduringtheinitial,highly

uncertaindisruption.Whencommunicatingshort-termchanges,salesoperationsleadersshouldexplaintherisksofcommittingtoapermanentchangewhenmarketuncertaintyremainshigh.Atthetimeshort-termplansareannounced,salesoperationsleadersshouldalsoannouncethe

expectedtimingforrollingoutlong-termcompensationplanchanges.

Recommendations:

■Assessshort-andlong-termoutlooksseparately.Distinguishbetweentheimmediatedisruptiontosellingduetotravelandmeetingrestrictionsandtheadjustmentsneededinresponseto

reduceddemandoveralongertimehorizon.

■Assoonaspossible,communicatetosellersthatshort-andlong-termchangestosales

compensationplanswillbebasedonorganizationalvalues,guidingdesignprinciplesandmarketconditions.

■Communicatethedateswhenshort-termchangeswillbeannouncedandlong-termchangesareexpected.

AftertheMostAcutePhaseofSellingDisruptionEnds,AvailableRevenueForecastsWillRemainHighlyUncertain

Oncelocallimitationsonsellingactivitiesareliftedandmarketoutlookscomeintobetterfocus,revenueprojections’accuracywillbegintoimprove.However,theseforecastswillstillbefarlessreliablethantheprojectionsnormallyusedinsalescompensationplanning.Insteadof

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incorporatingthelessreliableprojectionsdirectlyintosalesincentiveadjustments,salesoperationsleadersshouldunderstandandaccountforelevateduncertaintyinredesigningcompensationplans.

Somesalesstakeholdersmaynotappreciatetherisksoftakingnewforecastsatfacevalueandusingthemforcompensationplanredesign,andtheymaythereforefavorquotaadjustments

linkedtonewprojections.However,whilequotarelieforrestatementsmaybeappropriate

(especiallywithmechanismsaddedtocontainuncertainty),companiesmayachievethedesiredresultsmoreeffectivelyandwithlessriskbychangingotherplanelementsbesidesquotas

themselves.

Guidedbytheirreconfirmedcompensationdesignprinciples,salesoperationsleadersshould

understandandconsiderthefullrangeofoptionsattheirdisposal(seeTable2).Notethatquotaadjustmentscomeindifferentvariations,eachwithprosandconsdependingoncircumstances.Equallyimportantistoconsideradjustmentstoplanelementsbesidesquotas—eitherasstand-alonechangesorincombinationwithotheradjustments.

Table2:OptionsandDecisionGuidanceforAdjustingSalesCompensationPlan

CommentsandConsiderations

Optionsfor

AdjustingSales

Compensation

■Evenwhenconductedwithhighanalyticalrigor,retroactivequotachangescanseemunfairtosellers.

■Proactivequotachangesdonotbringthestabilitythatsalesoperationsleadersdesirebecauseupdatedforecastsarelikelytobeinaccurate.

Additionalroundsofquotareliefmayberequired.

■Quotaindexinghastheadvantageoffiscalcertaintyforbothcompanyandsellerbecause,bydefinition,teamperformancewillcenteraround100%

attainment.However,thiscancreatesignificantpressureonmargins(andcashflow)whenrevenuecomesinfarlowerthanwhatisjustifiable.Ifevery55%attainerispaidat100%oftheirtargetbecausethat’stheteam

average,thecoststructureoftheplanwillbreak.

Quotaadjustments

■Reducequotasforaffectedterritoriesonlyduring

disruption.

■Proactivelyreducequotasforall

sellersbasedonupdatedrevenueforecasts.

■Announcea

retroactivequotareduction,thesizeofwhichwillbe

determinedafterthefullimpactofdisruptionis

known.

■Indexquotas(i.e.,

“gradeona

curve”)sothe

averageseller

earns100%(ora

lesseramount).

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Draws,guarantees

■

Thedecisionofwhethertotrueupsellers’payoutswhentheywerepaidat

andother

targetdependsonwhatleadersbelieveaboutthecompany’srecovery.

adjustmentsto

targetpay

■Payallsellers“at

■

Truingupandrecoveringoverpaymentsisappropriateifleaderssee

disruptionasapauseinsellingactivitiesthatwillbecorrectedaftersellingresumes.

target”(orafixedpercentageof

target)during

■

Analternativetoanannouncedtrueupisforsalesleaderstocommunicatethatiflostrevenueisnotmadeup,someoverpaymentsmaybeforgiven.

disruption.

■

Reducingtargetsbyafixedpercentagecanbecombinedwithquota

■Paysellersat

attainmentindexingtocontrolthedistributionofrewardsandtheoverall

targetduring

disruptionand

trueuppayouts

afterthecrisishaspassed.

■Paysellersat

targetduring

disruption,butdonottrueup

payoutsafterthecrisishaspassed.

■Reducetargetpaybyafixed

percentageforallrolesasacost-

cuttingmeasure.

spendingrisk.

Activities

■

Undernormalcircumstances,companiesoftenavoidusingactivitymetrics

■Paysellersbased

forcompensationplansbecauseactivityplansareperceivedas

onactivitiesor

inconsistentwithapayforperformancesalesculture.

MBOsduring

disruption.

■

■

Compensationplanswithactivitymetricsdonotdifferentiatevolumefromquality.

However,duringperiodswhensellingactivitiesarenotpossible,payingsellerstemporarilyonactivitiesthatareknowntodrivecommercial

outcomesisconsideredaneffectiveoption.

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Payoutcurve

■

Adjustingthedesignofpayoutcurvesisapowerfultechniqueforoffsetting

changes

theimpactofforecastvolatilityoruncertainty.

■Eliminateorlowerthresholds.

■

Removingpayoutthresholdscanincreasesellermotivationbyrewardingsuccessesevenwhentheoriginalsalesforecastusedtocreatequotasis

■Reducetheslope

miscalibratedforcurrentdemand.

ofpayoutsto

dampentheeffectofuncertainty.

■

Decreasingtheslopeofpayoutcurvesalsodampenstheeffectof

unachievablesalesforecastsbecauselowerattainmentscorrespondtohigherpayoutsthantheywouldreceivewithoutthedecrease.Conversely,

■Implement

higherattainmentsearnlowerpayouts,whichcanbedemotivatingfor

rankingplans.

■

sellerswhodeliverexceptionaloutcomesdespitereducedopportunity.

Rankingplanshavetheadvantageoffixed,predeterminedpayouttotals.However,manysalesleadersavoidthembecausetheypitsellersagainstoneanotherastheycompeteforhigherpositionsontheleaderboard.

Contestsandspiffs

■

Contestsareunpopularamongmanysalesoperationsleadersbecause

■Payakickeror

theycanbedifficulttogovernandtocoordinatewithsellers’main

bonusfor

compensationplans.

identified

activitiesthat

positionthesales

forcefor

increased

competitivenesswhenthecrisis

■

However,thenatureofdownturnsandsellingdisruptionscanincreasecontests’impactasamotivatorforsellers.Aslongaspartsofthesellinglandscaperemaindisrupted,companiesmayasksellerstoachieve

nonstandardobjectives.

■Forexample,renegotiatingacustomercontracttodriveadeeperand

longer-termcustomercommitmentisdifficulttopredictbutgenerates

measurablevalue.Acontestthatpaysaone-offbonusforachievingthis

passes.

objectivecanmotivatesellerstowardtheseoutcomes.

Source:Gartner

Recommendations:

■Determinewhichelementsofthesalescompensationplanscanchangenowandwhichrequireawait-and-seeapproachbeforefinalizing.

■Useestablishedguidingprinciplestoshapethedetailsofallchanges.

■Considerallelementsofthecompensationplansbeforefinalizingadecision.

■Emphasizecontinuityandstabilityforsellersbylimitingchangestoonlywhatisnecessarytoaddressdisruption.

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