Are you paying enough attention to sales compensation? The impact of the coronavirus has extended deep into sales departments, and managers are making revisions to coverage, compensation and coaching. Still, reaching sales quota may feel impossible for many reps this year.
39% of surveyed managers say that less than 25% of reps will reach quota in 2020. That’s far higher than last year’s number of 19%, according to the 2020 Sales Compensation Program and Practices report from World At Work, which includes responses from 317 companies. To avoid having your reps feel demoralized and then disengaging, your organization may want to adjust a few key parts of your sales compensation system.
One area of adjustment centers on simplifying the variable piece of the compensation system. About 25% of surveyed companies use only one performance measure. That percentage has grown significantly in the past four years. Why? Sales reps and sales managers were likely spending too much time trying to understand how the system worked. And for reps, there was the temptation to focus on the aspects of the compensation system that most benefited them.
This year, 1/3 of organizations base the variable compensation component on two performance measures. These performance measures include:
- Total revenue
- New customer revenue
- Customer revenue retention
- Contract renewals
Total revenue is the most frequently used measure for over 60% of sales organizations.
The sky is not the limit when it comes to sales compensation. Over half of sales organizations, 56%, cap the upside of what a rep can bring home. But top performers, those stars in the 90% category, have an upside potential of 200% in 60% of companies. Managers don’t want to lose their sales stars to competitors. They’re right to worry. In our Voice of the Sales Rep survey, reps, on average, generate 70% of compensation from their base salary and 30% from variable items like commission and bonuses. Around 30% of reps told us they have left a position because they didn’t have a realistic opportunity to make money above their base salary.
Revisions to Coverage, Compensation and Coaching
While reps worry about their compensation, sales leaders are looking ahead and considering the COVID-19-related implications for their organizations for next year. They expect the following factors to impact their strategy going forward:
- Technology advancements (AI) 22%
- Natural occurrences (weather, health) 18%
- Macroeconomics (employment levels) 18%
In the next year, about 22% of sales organizations will make changes to coverage. And 20% expect to revise their sales compensation plans. That’s not surprising as many organizations now have a multi-channel approach with reseller agreements, face-to-face sales, web sales, and key account management all adding to the bottom line. Sales organizations must be nimble in these channels, because customers expect “speed, transparency and expertise.”
If you make a change to the compensation plan, be upfront about it. Give your rep times to prepare. They’ll be suspicious that you want them to work harder for less money, so make the upside clear and achievable. While you shouldn’t change the compensation plan every year, the current economic climate has led many companies to realize that quotas are too high and may be next year as well. The best course of action in this case may be to adjust quotas, as it can be easily done by region.
The World at Work survey results show that 20% of sales organizations will change up sales training this year. Managers recognize that reps may need to develop specific skills to sell in an environment where decision-making has changed. You may also find that your reps will benefit from one-on-one developmental sales coaching to improve their outcomes.
We don't yet know what 2021 will hold. Leading sales organizations aren't waiting to find out. They're making revisions to coverage, compensation and coaching.