Adapting Sales Compensation to Tariff Challenges: Strategies for Success

Tariffs Are Reshaping the Market—Is Your Sales Compensation Program Keeping Up? 

Manufacturers and distributors are facing a new economic reality as tariffs reshape the competitive landscape. Rising product costs, shifting demand and supply chain disruptions are forcing companies to rethink pricing, operations and go-to-market strategies. However, one area that’s often overlooked is sales compensation.

According to Alexander Group’s research, 47% of companies surveyed cite “managing uncontrollable external factors,” as the most prevalent sales compensation program management challenge in 2025. Given this anxiety, leaders must ensure their compensation structures remain fair and motivating for sellers, while still being aligned with business objectives. The challenges are clear:

• How do companies ensure sales teams stay engaged when pricing and demand fluctuate unpredictably?
• How do companies prevent overpaying for revenue growth driven by tariff-related price hikes?
• How do companies create a sales compensation plan that can quickly adapt to market uncertainty?

Without the right adjustments, companies risk demotivating top performers, overpaying for tariff-driven revenue shifts and missing growth opportunities. A proactive, data-driven and transparent approach to sales compensation design will be critical in navigating the uncertain tariff landscape in 2025 and potentially beyond.

The Three Major Impacts of Tariffs—and How to Adjust Sales Comp Accordingly

1. Price Increases: How to Ensure Sellers Stay Motivated

Most companies’ primary concern is that as tariffs drive up costs, many pass these increases on to customers through higher prices. While this can boost revenue on paper, it creates a challenge for sales compensation—sellers may hit revenue targets faster, not because of increased effort but due to higher prices.

If left unadjusted, sales compensation plans can over-reward sales teams for price-driven revenue growth, leading to high incentive payouts based on inflated performance metrics.

To avoid this, companies can consider a variety of solutions:

• Set Higher Quotas for the next period to reflect increased pricing and avoid overpayment on the same number of units sold
• Reset Quotas Mid-Year to incorporate higher-priced products
• Adjust Credit Down by crediting sellers for a smaller dollar per deal than what was actually sold (e.g., a seller receives 85 cents for every $1 they sell) to prevent inflated performance based on price hikes
• Reduce Commission Rates for sales compensation plans that pay as a percent of revenue or gross profit (rather than as a percent of target or goal) to accommodate for increased revenue/gross profit due to price inflation
• Use Units or Standard Pricing vs. standard revenue or gross profit metrics to compensate for volume rather than the additional profit associated with price increases
• Apply Windfall Policy to prevent excessive payouts for deals that benefit from tariff-drive price increases; no change to plan design practices

By proactively realigning sales incentives, companies can ensure that sellers are incentivized based on their performance instead of price increases.

2. Demand Surges: Managing Temporary Sales Booms

Tariff-related uncertainty often drives sudden spikes in demand. Buyers may stock up ahead of anticipated price increases or customers may reevaluate which supplier to use due to new pricing. These surges can lead to short-term seller overperformance, negatively impacting the cost of sales if not properly managed. 

Companies must ensure that sales teams don’t receive outsized rewards for spikes in sales that they did not influence while keeping sellers motivated to capitalize on market shifts.

To address this issue, companies can evaluate multiple solutions:

• Set Higher Quotas for the next period to incorporate projected demand increases
• Reset Quotas Mid-Year to reflect unexpected demand surges that were not included in original goals
• Adjust Quota Attainment Down by moving down a seller’s percent of quota attainment (e.g., 180% à 150%) to prevent inflated performance metrics against which sellers will be paid
• Reduce Commission Rates to avoid overpayment for short-lived demand spikes
• Apply a Windfall Policy to cap excessive payouts from temporary demand shifts

By building flexibility into compensation structures, companies can balance fairness and motivation while ensuring that sales compensation payouts remain aligned with long-term business goals.

3. Supply Constraints: Keeping Sales Teams Engaged Amid Product Shortages

Tariffs can disrupt supply chains, limit product availability and create fulfillment delays—all of which directly impact sales teams. Sellers may struggle to meet their targets through no fault of their own, leading to frustration, disengagement and even attrition.

To keep sellers motivated despite supply challenges, companies can evaluate multiple solutions: 

• Set Lower Quotas for the next period to reflect constrained supply levels
• Reset Quotas Mid-Year to account for prolonged supply chain issues that will prevent sellers from achieving their initial quota
• Adjust Quota Attainment Up by moving up a seller’s percent of quota attainment (e.g., 70% à 90%) to provide market competitive pay for factors outside of their control
• Increase Commission Rates to reward sellers who navigate supply challenges successfully and compensate them more per unit sold
• Pay on Orders vs. Shipments to compensate sellers more quickly for securing business, even if product shipment is delayed
• Use SPIFs to provide cash flow on strategic behaviors when sellers are unable to achieve earnings potential on core sales compensation metrics

A well-structured sales compensation plan should acknowledge supply challenges while maintaining engagement and incentivizing growing and maintaining long-term customer relationships.

Managing Uncertainty: How to Future-Proof Your Sales Compensation Plan

No company can predict exactly how tariffs will evolve, which is why building agility into sales compensation plans is essential. To mitigate the impact of ongoing uncertainty, companies can consider the following: 

• Using Shorter Performance Periods (quarterly or monthly) to allow for quicker adjustments
• Incorporate Team-Based Metrics to mitigate outsized impact – both negative and positive – on individual sellers
• Apply Pay Guarantees or Caps to mitigate the impact on sellers from uncontrollable factors with extreme influence on pay

Companies must continuously evaluate market conditions and adjust compensation structures accordingly with clear and transparent sales compensation guiding principles and communication that allows companies to do so successfully.

Guiding Principles for Sales Compensation in an Uncertain Market

Despite external volatility, sales compensation should always remain fair, transparent and performance-driven. Companies that stick to these guiding principles will ensure their compensation plans are both effective and sustainable:

• Pay for persuasion, not uncontrollable market dynamics 
• Enable agility to adapt as market conditions shift 
• Provide transparent communication to the commercial team; Be honest about challenges and share guiding principles

A well-designed sales compensation plan doesn’t just react to tariffs—it anticipates shifts, builds resilience and aligns incentives with business growth. 

Is Your Sales Compensation Strategy Ready for Tariff Disruptions?

Tariffs are creating new challenges, but with the right sales compensation adjustments, manufacturers and distributors can turn disruption into opportunity.

By proactively adapting sales compensation, companies can keep sellers engaged, maintain financial discipline, and continue driving profitable growth—even in uncertain market conditions.