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Managing Sales Compensation in an Uncertain Market
By David Cichelli, The Alexander Group, Inc.

As we enter 2009, the economic outlook for the year presents abundant uncertainties. The economic downturn: How bad will it be? How will it affect your company? What will happen if your company cannot meet its revenue objectives? Will you have to trim your workforce? Could you become a takeover or merger target? Or — hoping for the best and surprising all — the economy quickly recovers. Maybe your company greatly exceeds the pessimistic expectations for 2009. Perhaps your company will be able to capitalize on its unique market position or on the missteps of others. Maybe you will begin to add headcount. You might even be the stronger player buying beleaguered competitors. 

Regardless of whether the economy delivers you good or bad news in 2009, you need to carefully monitor your sales compensation program for effectiveness. 

Condition #1: Things Get Worse
Let’s begin with bad conditions first: Let’s assume the economy does a nose dive, taking your company and its salesforce with it. Your sales compensation program could rupture if the economy moves south much faster than expected. Fortunately, the world of full commission income producers is self-regulating. Headcount reductions naturally follow the slowdown of any full commission selling model as the survivors divvy up the remaining business. However, goal-based, target incentive salesforces need to make immediate adjustments to avoid a salesforce meltdown. Adjust quotas down if less than 45% of sales personnel will achieve target performance (and thus, target pay). And, if sales management reduces headcount — follow the money. As territories are re-sized, make sure the assigned quota accompanies each account to its new owner. If someone purchases you, help sales management merge the salesforces in an equitable and rational fashion. Create new incentive plans rather than try to force fit into an existing program that is now obsolete. 

Condition #2: Things Get Better
It’s difficult to be optimistic given today’s negative economic headlines. But if the economy rallies or your company finds a bountiful market segment, you might need to adjust the sales compensation plans reflecting your good fortune. For income producers, any uptick in the economy offers the opportunity to add more headcount. Do so quickly to secure market share. If more than 80% of your goal-based, target incentive salesforce is exceeding quotas, you will need to adjust quotas up. Do it at the start of the next performance period, never retro-adjust quotas that will adversely affect a salesforce. It’s not ethical, probably not legal, and it produces bad karma.

Oversight and Governance
During periods of economic uncertainty, step up oversight and governance of the pay program. Ensure that sales personnel are neither disadvantaged nor advantaged by the economic circumstances. Be mindful of side deals, guarantees, quota relief, unorthodox sales credits, special contests and overuse of KSOs (Key Sales Objectives). Ensure transparency of all field decisions affecting the pay program.

David J. Cichelli is senior vice president of The Alexander Group Inc. He has been a WorldatWork member since 1980 and is a member of the WorldatWork faculty. He can be reached at dcichelli@alexandergroupinc.com or 949-255-5650.

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