So many sales compensation plans depend on goals or quotas. Regardless of the type of plan you have, some kind of productivity expectation is embedded in your plans. So in a year when “expected performance” is very difficult to establish accurately, how can you manage your plans with this in mind?
While there is no easy answer to this question, here are three good ideas worthy of consideration:
- Lower the stakes on quota attainment – If your quotas are less accurate than usual, then plan features focused on quota attainment may need to be rethought. Some companies offer binary quota achievement bonuses ($5,000 paid when the quota is achieved), or dramatic acceleration starting when the quota is achieved. These types of plan features put a lot of emphasis on the exact value of the quota. If quotas are inexact, some acceleration might be offered at (for example) 90% of quota, continuing to 110% of quota and then further accelerating. The total payout at target could be exactly the same, but the stakes on an exactly correct quota would be reduced.
- Risks: Moving to and beyond the exact quota will be less important to sales people.
- Advantages: Everyone can focus on approaching and exceeding the generally expected level of productivity without a lot of arguments or attention to the exact quotas.
- Shorter measurement periods – Most sales compensation plans are based on an annual goal, with monthly or quarterly payouts for progress towards those goals. If a sales person falls behind early in the year, then they can find themselves “out of the money” for most of the year. Breaking the year into halves or quarters, with separate goals for each, can give sales people an opportunity to get back into the game after a disappointing quarter or half.
- Risks: Sales people who have not made their total year number may still earn upside in an over-performing measurement period (quarter/half). Mitigate this by offering somewhat less acceleration for over-quota performance. Similarly, the chances of significant under-performance go up when the measurement period is shortened (less time to “catch up” from a disaster), so it may make sense to lower thresholds somewhat if you have them.
- Advantages: More sales people are working for more of the year with the support of the motivational value of their comp plans.
- Shorter measurement periods, with quotas updated just before the start – In a year when it is very difficult to know what to expect of each sales person by Q4, it may make sense to measure them quarterly or semi-annually and announce the goal for the coming quarter just before the new measurement period begins. This treats each measurement period as if it were a sort of “mini-year,” with an opportunity to adjust as needed based on new insights into business conditions.
- Risks: This can be a lot of work, almost like doing your annual planning exercise two or four times per year. It also risks offering upside to people who don’t make “their” contribution to the annual plan, and raises the possibility that the sum of all sales goals does not add to the annual plan. As in the prior option, reduce acceleration over quota and lower thresholds when measurement periods are shortened.
- Advantages: Goals can be made as fair and achievable as possible – not too low and not too high. Everyone is definitely “in the game” at the start of every measurement period, so motivation is maximized.
As such changes are considered, affordability is the right focus for the modeling effort. Make sure the cost of compensation is appropriate and affordable along every section of your payout curve, taking into consideration all the people who will be paid for each sale (the field sales person, their boss, maybe an inside sales person, etc.).
If your plan year is already under way, these ideas may be worth considering as the year progresses if the quotas turn out to be problematic. If they were set too low, it may be difficult to make any changes mid-year. If, however, they were set too high, announcing a mid-year “year end” and restarting with a shortened year, attainable goals, and appropriate compensation mechanics could breathe new life into a haggard sales force.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.