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How to Adjust Compensation Plans on the Fly When Circumstances Arise

By Michael Lai, Chief Architect, Performio
A hand writes on a sticky note over top of  a blank calendar.

The past few years have seen unprecedented disruptions to supply chains due to events ranging from COVID to wars to severe weather events. Through all of this, your sales team is doing its part: closing sales and providing consultative customer service. Sales grew more during COVID than at any other time since the switch to digital, in large part thanks to video conferencing software that allowed reps to continue selling even from a distance. This increase in sales ran into challenges with order fulfillment, however – causing a conundrum for companies and their sales organizations.

When reps can’t record revenue on the books due to external issues slowing deal flow, you don’t want to leave your valued team members short on anticipated income. They have bills to pay, and good sales reps can always find another job. So, when circumstances arise, how can you adjust your compensation plan on the fly to make them whole?

Keep It Simple

Let’s start with a simple piece of advice that may seem obvious: Don’t panic. Whether your company pays on revenue or orders, supply chain hiccups aren’t worth panicking about and creating an overly complex comp plan for the short term. A change of this sort is not only likely to cause a headache for admins who have to carry out the change; it may also lead to a loss of trust from sales reps who wonder about the data’s sources and reliability. Managing expectations is an important part of adjusting comp plans, so remember to be clear with all members of your team about changes to their compensation plan.

Companies using incentive compensation management (ICM) software enjoy an advantage when it comes to agile management of compensation plans, whether or not those plans need to be adjusted. From an administrative perspective, ICM software saves finance and HR teams’ time and effort by automating the complex calculations involved in determining commissions and bonuses. This reduces the risk of errors, thereby building trust with sales teams.

Both for maintaining trust and for streamlining processes, companies should be looking at ways to adjust their comp plans that don’t entail a drastic overhaul. For mature companies, this may mean looking at revenue: adjusting down for reps on revenue plans and readjusting revenue quotas, which is much less invasive than drastically changing comp plans. Growth companies may use orders rather than revenue as their benchmark, but the principle remains. Don’t go straight to redesign; choose an easily identifiable and adjustable factor that can be changed without scrapping an entire comp plan.

Choosing Alternative Metrics

So what metrics can you choose, if not revenue? Stick with something quantitative. Don’t use customer satisfaction metrics, considering that clients usually give feedback less than 1% of the time, and those who do give feedback often are those who have something negative to say. Simple is best: If you were previously paying based on both booking and revenue, consider switching to a model that pays only on booking for all reps.

While direct sales are usually the best benchmark for account executive positions, you’ll find more flexible metrics for sales managers and other roles that are not direct sales contributors. Quantity of calls and consequent percentage of conversions, for example, are easy to measure and pose none of the challenges of interpreting qualitative measurements. A semi-annual or annual plan that measures individual performance in relation to company performance is also a good option for those who don’t contribute to sales on a day-to-day basis.

If you’re unsure which metric to choose, or you worry about the impact of adjusting comp plans, ICM software will create models of different scenarios that determine the impact of changes to your comp plans. This allows you to work smarter, not harder. ICM software will show you how changing the commission structure or adjusting performance metrics might affect both sales rep behavior and overall revenue.

Focus on Talent

One of the dangers of not adjusting your comp plan when necessary is losing top talent – great sales reps can find another job they feel compensates them more fairly. To a certain extent, this can be attributed to the nature of sales roles. While mature sales reps with strong pipelines are generally more likely to remain with a company, the current uncertain economic climate is likely to decrease churn among new hires who may look elsewhere more quickly in a growth market.

If your company is looking to build a strong talent pipeline, consider this your opportunity. The best way to retain talent is by curating a program that provides multiple incentives – not all of which have to be monetary. Compensation planning measures such as draw programs are certainly attractive to new sales reps, but the culture of a company can do just as much for retention, if not more. Do new account executives know how they are going to successfully build their pipeline and close deals? Well-defined avenues to success, such as manager engagement and teams that actively contribute to a new account executive’s pipeline, go a long way toward encouraging self-contribution as well as creating a positive and supportive culture.

When it comes to understanding and adjusting compensation plans, new account executives and seasoned reps alike benefit from the use of ICM software. The transparency provided by an ICM platform ensures that sales reps understand how their compensation is calculated: Besides motivating reps and fostering a culture of accountability, this transparency is crucial to maintaining your sales reps’ trust when compensation plans need to be adjusted as circumstances arise.

Michael Lai is chief architect at incentive compensation management provider Performio.