Like making a soda commercial that doesn’t offend, or bumping a passenger off of an overbooked flight, transitioning sales reps from a 100% commission plan to a quota-based plan seems simple enough on paper, but as recent history demonstrates, their successful execution is easier said than done.
As my colleague Chad Albrecht and I discussed in our recent article ("Have We Reached the Medtech Tipping Point?"), several companies recently have tried to make the change from a 100% commission-based plan to a plan that includes a salary plus variable pay. Most commonly found in orthopedics, these 100% commission plans from dollar one yield a host of challenges: No leverage with cost of sales, difficultly in redesigning sales territories and limiting sales growth. Not surprisingly, we encounter clients seeking to move away from these incentive plans all of the time, but it isn’t easy to do. I worked with a client several years ago that was dead set on replacing its 100% commission plan with a salary plus variable pay incentive plan. The addition of a salary was communicated as a “given” that wasn’t up for debate. As the project progressed, however, it became more evident that this type of a plan was going to significantly affect top-earning reps. Despite exploring and designing a myriad of transition programs, bridge payments, communication plans, etc., client leadership came to the conclusion that it was ultimately too big of a change to absorb. Through plan design changes, we were able to place more emphasis and focus on quota achievement, but those troublesome commissions from dollar one remained. Easier said than done indeed.
In my experience, there are three key steps required to implement this type of incentive plan change:
1. Account transition program: One key motivation for replacing a 100% commission-based incentive program with a quota plan is that it makes it much easier to realign accounts to optimize reps’ coverage of existing and potential business. Therefore, the implementation of these new plans is best accompanied by an evaluation of the sales force’s account alignment, although that will disrupt rep/account relationships.
2. Rep transition program: Typically, a small population of reps will see significant changes in earning opportunity as a result of the elimination of commissions. These reps with large territories are often long-tenured and successful, and they represent one of the biggest turnover risks to the organization. Crafting a program to provide these reps with a “soft landing” via supplemental and temporary earning opportunities can be quite beneficial. Ripping off the Band-Aid isn’t likely to be a successful strategy given the magnitude of the change involved with this group. These incremental payouts are best if tied to performance so that you aren’t paying disengaged reps extra while they search for their next jobs.
3. Proactive change management: Reps who will see a reduction in their earning potential as a result of the move away from 100% commission plans are never going to like this transition. There’s no changing that, but you can prevent the sales force from speculating, creating rumors and developing false information that makes the situation worse than it actually is. Identify the “burning platform” and the benefits to the organization and customers as a result of the change. Openly acknowledge the risks, and highlight the transition programs and the motivations for offering them. Lastly, estimate the costs of supplemental incentive programs so that budgets don’t prove to be a barrier in doing the right thing for affected reps.
A best practice in this situation is to identify which accounts will be changing hands, document and communicate the ideal hand-off process, and formally track it to gauge your progress and promptly course-correct as issues arise. You also can incorporate supplemental and temporary incentives into this process so that the rep handing off the account has additional incentive to ensure that the transition to the new rep occurs successfully.
Replacing 100% commission plans is a complex exercise with many facets to consider. It’s truly easier said than done, but it is by no means impossible, and you’ll see sizable long-term benefits if you can execute the transition successfully. Pay close attention not only to the new incentive plan design, but also to how your organization will execute and facilitate the change.