The past three weeks of coronavirus has caused panic, work-from-home directives and some industries to grind to a halt—most notably airlines and hotels, but other industries as well. The stock market is down 20%, reflecting investors’ belief in what is to come for earnings for the rest of 2020. What affects the economy affects salespeople. And it if affects salespeople, it will inevitably impact their sales compensation performance and payouts. Here’s how companies should respond:
- Incentive Trips: Currently many organizations are shutting down their sales trips (either their annual sales kick-off or their annual sales incentive winner’s trip). We won’t go into this in great detail here, as my colleagues discussed how to handle this in a prior blog. But how to handle incentive trips requires careful consideration as you are setting a precedent for the future.
- Quotas: Salespeople will start missing their numbers in many industries. This will require quota adjustment consideration if it is reasonably clear how the performance of the sales force will change overall. We may not want to “make them whole,” but at least a partial quota adjustment may be in order given the extreme and external nature of the coronavirus. For many sales forces, the impact isn’t at all clear. In those cases, companies could consider a type of “indexing” method to prorate performance based on overall performance. This requires keeping quotas the same (no change) but handling the performance level differently in the incentive plan (discussed below).
- Plan Design Changes: Not every plan has quotas. And some companies will have no way to set reasonable quotas. So how should that be handled? One way is to “index” performance. This method says to normalize the entire sales performance distribution based on national performance. Essentially it’s a way to adjust everybody’s performance based on how your company performs overall to the market. In this model, you would likely not pay somebody at target who matched the national performance level, assuming you performed well below expectations.
If you don’t want to adjust quota or move to a normalized plan, there are a number of different ways you can adjust your plan:
- Adjust the payout curve by making it easier to get “in the money” by lowering threshold (perhaps as low as dollar 1)
- Scrap the plan and pay on activities/MBOs
- Scrap the plan and pay at target (i.e. a guarantee) or some portion of target
- Year-End Adjustments: While quota and plan design changes take precedent, you should begin thinking about year-end adjustments – your salespeople will be asking about them soon if they haven’t already.
All of the following are typically based on final year-end performance:
- Annual performance review
- Merit increase
- Recognition trip (e.g. President’s Club qualification)
- Long-term incentive eligibility
Because these elements depend on year-end performance (often vs. a quota), any impact from coronavirus impacts all of those elements above. And any adjustments you choose to make to the quota or the plan also impact them.
While the coronavirus’ impact on the economy came on quite suddenly, it’s now clear that it will impact the economy and sales compensation for 2020 and perhaps beyond. It’s time now to think about changes you may want to make for the short term and for all of 2020.