Sales Comp Changes for 2020 and Beyond
What revenue leaders are doing for Q4 2020
The Alexander Group’s recent research shows that executives are still juggling COVID-19 implications as they move cautiously toward 2021. Revenue leaders are optimistic, have shorter time horizons, and are keeping a close eye on sales compensation.
Re-engaging with clients
Our research shows that leaders are gaining a sense of “new-normalcy” as they reconnect with customers in the health tech, medical device and pharmaceutical sectors. Business meetings with social distancing limitations are starting to take place for a small percentage of respondents as they revitalize existing customer relationships.
Local laws and lockdowns still set the stage for how business is conducted. Regulations vary state by state, locale to locale and especially between nations. Keeping an eye on regional events, and how they impact customers and ultimately revenue, is still on the forefront.
Planning cycles are shorter
“Next quarter, things will be better,” is a common response receive from revenue leaders. Because of continuing uncertainty, organizations are using shorter time horizons to manage and create forecasts for 2020 and into 2021.
Our research shows that 50% of medical device companies are migrating to a quarterly or semi-annual forecast. In the pharmaceutical sector, 17% of companies shifted to a quarterly process, joining the 36% who were already using a quarterly or semi-annual process.
The dynamic nature of the current business environment is forcing companies to adopt a necessary skill for the future: agility.
Expense management continues
Our research indicates that leaders are watching their budgets, but few organizations have experienced previously expected headcount reductions. To hedge their bets, companies hired less expensive staff to augment their workforce, enhancing their social media presence and digital customer engagement.
Non-essential business expenses have been cut, especially T&E expenses. Due to stringent travel restrictions, fewer conferences and client meetings are dramatically reducing this line item.
Organizations are still figuring out their expense projections as they develop new models and shorter forecast horizons. Overall, we found that 30% have not reduced their budgets, with nearly a third not reducing their sales budget expenses, and over half actually increasing sales expense budgets.
Sales compensation plans continue to change for 2020
Sales compensation changes have become more regular than in previous years but deviate from past practices. While companies don’t want to pay too much, they realize that employees have bills to pay, making cash a healthy incentive.
For the remainder of 2020, 70% of healthcare organizations plan to make sales compensation changes. Current practices include incentive pay guarantees, add-on compensation, and less aggressive sales compensation plan formula changes. An estimated 17% of organizations will implement thresholds for the rest of 2020, with 11% implementing maximums. Plan changes for 2021 are still under consideration, with one-third undecided at present.
Is sales compensation fixed or variable? Our perspective is that it is fixed. During difficult times, companies implement plans to protect the company, pay market value to employees, while still limiting turnover. As a result, a large portion of the sales budget is fixed as companies strive to maintain expertise that will drive results during times of growth.
Quota setting is difficult but remains in place
As organizations continue to revise forecasting and goal setting models, over 8 in 10 medical device, pharmaceutical and health tech companies agreed that quota setting is more difficult in the COVID-19 era.
Only 25% of respondents plan to provide quota relief during the remainder of 2020, with only 6% providing any quota relief during 2021. Of those providing quota relief, the majority will do so across the board, followed by on a case-by-case basis.
Staying agile remains critical for Q4 2020 and beyond 2021
A second wave is a big concern for 60% of respondents as they head toward Q4 2020 and beyond, noting that restricted access as a probable result of another outbreak. Firms are depending on virtual engagement efforts to continue, as they become a permanent, but not the only, method of customer engagement for the future.
Medical device companies continue to try to strike the right balance between capital and consumables. The pandemic has not changed this challenge heading into 2021 but it may have caused a shift in how salespeople should spend their time – and how compensation plans should be structured.
Looking back on 2020, we do see a pattern of Q1 as pre-COVID-19, Q2 as disruption, Q3 as the beginning of stabilization, with Q4 expected to reflect continued stabilization. Remote work environments proved to reduce expenses and increase productivity, forcing organizations to rethink their previous dependence on large office environments.
Uncertainty remains an inherent part of the future. As companies reduce their planning cycles, re-imagine their sales compensation structures, and stay virtually engaged with clients and customers, it has never been more critical to remain agile in a dynamic business environment.
Preparing for 2021
The Alexander Group is dedicated to providing research that guides revenue leaders through these challenging times. For a deeper dive into this topic or to get a view of the insights by health tech, pharmaceutical or medical device segments you can schedule a virtual briefing with one of the Alexander Group Healthcare practice leads.
If you need help with your FY21 planning, please schedule a call with one of our practice leads, we are eager to help!
