By Ariana Orozco
According to a survey administered by WorldatWork and SalesGlobe, 39% of organizations say that less than 25% of their sales team will reach their quota in 2020.1 That’s nearly twice as many organizations as those that missed the mark in 2019.
While organizations are eager to revive their sales efforts, changes to sales compensation are inevitable. The question is how to create new or adjusted incentives to drive employee behavior and organizational results for the future.
Setting Up a New Plan
Most of the data indicates that big changes are coming for sales compensation in 2021. In fact, Alexander Group’s survey findings indicate that 64.2% of organizations will make changes to compensation plans.2 That number is even higher for organizations in industries that were heavily impacted by the pandemic.
Although there are a number of factors to consider when developing a new sales compensation program, it’s critical to consider what is most important to reward. Consider switching to a “share the pain plan” and shifting outcomes based measures to activity based metrics. Effective variable pay plans serve to motivate and reward employees without adding additional fixed costs to your budget.
To develop a sales compensation plan, here are some key steps:
- Establish a taskforce that includes company leadership, finance and HR.
- Define who is eligible for each type of variable pay plan.
- Identify plan goals, metrics and the performance period.
- Set performance thresholds, targets and maximums as well as rewards and when they will be paid.
- Complete financial modeling, based on projections, to ensure performance targets and rewards make sense and are financially sustainable.
- Communicate the plan to employees prior to the performance period starting and provide updates as needed.
Tailoring the Plan to Your Organization
As always, there’s a certain amount of variation across industries. Your taskforce will need to determine the most appropriate action plan for your organization. Some of the actions organizations have taken as a result of the pandemic include pay protection plans, draws, guarantees, quota adjustments and formula changes.
Before you implement any changes to your sales compensation plans, consider some key criteria, such as:
- Are the number of performance measures appropriate or should they be further narrowed down to create more efficiency?
- Does the new sales plan account for the second wave of the pandemic and the impact it can have on organizational revenue?
- Do the current sales territories still make sense, or should they be adjusted based on individual impact?
- Are the new sales targets attainable or do they need to be further adjusted?
- Should the payout curve be flatter?
- Should the maximum and minimum payouts be lower?
- Does the new plan align with the overall compensation strategy and drive organization revenue and employee motivation?
Taking the time to evaluate your organization’s sales compensation plan on a regular basis makes good business sense. Among many advantages, a well-designed plan leads to reduced sales turnover, higher engagement and better overall performance. And those benefits, in turn, lead to a brighter future for your organization.
HUB International’s HR Consulting compensation professionals consult with employers of all sizes and industries on compensation program planning and management.