COVID-19 – What might be the impact on employee compensation and benefits? Part 3 – Sales Incentives

We have previously discussed the impact COVID-19 may have on long term incentives (LTIs) and also on the future of gig and temporary workforces. Today we will look at sales incentives and sales commission plans to try and understand any short or long term changes that may occur in those incentive plans due to the pandemic.

Some companies have well thought out and well designed sales plans in place that have mechanisms in place to ensure fair payouts even at the far ends of the performance spectrum. These plans have likely been stress tested previously and may need no adjustments despite the global pandemic and the impact that is having on sales. However many companies are having to adjust their plans mid-cycle either to support the payouts for their sales reps or to balance the payouts and ensure fair delivery of awards across teams who have had varying impacts to results due to the virus. Here are some of the changes we have seen implemented:

  • Quota adjustments when targets set pre-pandemic have become unattainable. This may be ok for companies with healthy margins who can still afford to pay out at target despite below target sales outcomes however for companies with tighter margins that need sales results to fund the incentive this is not so easy. Quota (or performance) adjustments can be either discretionary or formulaic:
    • Discretionary – this enables leaders to take in to account whatever variables they choose which may help come to the ‘right’ outcome but it is also challenging to portray and ensure fairness.
    • Formulaic or Uniform – applying the same adjustment to all can appear fairer and ensures relative payout differentials remain intact but unless the relative impact of the external event (COVID-19) is build in to an adjustment formula then it will favor those who are impacted the least by the headwinds.
  • Reduced thresholds for companies who require a minimum % of target sales achieved before any payout is generated. Reducing the threshold is an easy way to ensure some payout for more of the population without impacting relative results or greatly increasing costs.
  • Capping is being considered by some companies where some or all of the employees have greatly benefited from the impact of the Corona virus. It is unfortunate these companies did not have this or a similar mechanism in place previously as doing this mid-cycle is never popular with sales reps who thought their big pay-day had arrived!
  • Guaranteed minimum payouts are being introduced by some companies where they feel that some sort of payout is required  or maybe even needed for the employee to survive. The problem with this is it elevates payouts for some employees up to a level that others have achieved through their actual results so can be seen to be unfair. If companies feel that employees can’t manage without receiving some of their incentive or ‘pay at risk’ then maybe they should think about a less aggressive pay mix for the future.

These are all short term changes, what does it mean for the longer term? It is unlikely that there will be significant long term changes to sales plans due to COVID-19 however some companies should use this as an opportunity to rebalance plans so that they are better equipped to manage future shocks and be fair in both the good and the bad times.  If you would like a detailed review or report on your company sales plan do reach out to us at support@sharpevaluation.com and one of our consultants will be able to assist.

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