COVID-19: Sales Departments Seek to Protect Sellers’ Incentive Pay

Is your sales force an asset that will help the company rebound when the COVID-19 crisis abates?

72.2% of the reporting companies expect an annual sales shortfall of 5% or higher due to the COVID-19 crisis, according to the results from the Alexander Group’s COVID-19 Sales Comp/Quota Survey. Conducted during the week of March 23, 2020, the survey had responses from 203 sales departments representing 340,000 sellers in the US.

Sales leaders seek to protect sellers’ pay during the COVID-19 crisis. 82.2% are planning some type of sellers’ pay adjustments. Sales leaders have yet to identify the amounts and techniques. The primary reason for providing pay protection is retention of the work force by supplementing sellers’ cash flow.

The following factors will influence how much pay protection companies will provide to sellers:

• Revenue Impact: The extent of revenue impact will determine whether and how much pay protection to provide to the sales team.
• Pay Impact: For some, the downturn will have a significant impact on sellers’ total annual earnings. In other cases, such modest incentive opportunities, the impact on sellers’ total pay might be marginal.
• Performance Period and Payout Frequency: Longer sales cycles with less frequent payouts may not require immediate action.
• Downturn Length: The anticipated length of the downturn will affect sales leaders’ pay protection considerations. For many, the length and extent of the downturn is unknown.

Pay Protection Techniques

Companies are considering a variety of pay protection techniques:

• Quota Changes: Sales leaders are considering the following quota adjustment methods: target quota changes, bridge quotas using historic performance, quota indexing, terminating the current plan and developing new quotas and reducing or eliminating quota thresholds. 45.2% will be making quota changes. Others are considering making changes to quotas.
• Pay Guarantees: Various pay guarantee methods are available to sales leaders: dollar payments, percent of target earnings guarantee, percent of base pay guarantee, incentive pay trend-line bridge and increasing base salaries. 33.5% are considering incentive pay guarantees. 75.2% plan no changes to base salaries.
• Formula Changes: Another choice is to change incentive formulas such as payout rates, provide a recoverable draw, and move to a company bonus. 19.3% plan to change formula payouts.
• Sales Crediting Practice Changes: To address specific situations, sales crediting changes are available: credit relief for cancelled orders, credit relief for delayed or non-payment, shared credit and credit timing changes (e.g., booking to revenue paid). 61% of the companies are planning no crediting changes.
• Add-On Plans: Sales leaders can offer new, add-on performance plans such as contests/spiffs, individual awards/cash, recognition, development programs, team awards. 50.7% are considering offering add-on plans.

Other Considerations

What about companies facing dire conditions? Or, what about the reverse? Those companies experiencing a sales spike because their products are in high demand due to the COVID-19 crisis.

Those facing dire conditions can attempt to weather the storm by taking on debt, others might need to suspend all incentive payments, reduce base pay or reduce headcount through terminations and layoffs. Those expecting sales windfalls due to the COVID-19 crisis have different choices: allow earnings, redo payout formulas or cap earnings.

The Sales Force as an Asset

A significant drop in sales revenue can have a major impact on the sales force, including turnover caused by reduced earnings or company initiated terminations. Most companies consider their sales force a long-term asset possessing unique institutional knowledge about products, customers and company practices. The loss of the sales force due to turnover or terminations will directly impact a company’s ability to rebound from the COVID-19 crisis.