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1、Steve Herz,Senior Director Analyst4 June 20203 Keys to Changing Sales Compensation Plans During Coronavirus Disruption and Economic UncertaintyGartner for SalesPage 1/10Gartner,Inc.|7238683 Keys to Changing Sales Compensation Plans DuringCoronavirus Disruption and Economic UncertaintyPublished 4 Jun

2、e 2020-ID G00723868-11 min readBy Analysts Steve HerzInitiatives:Sales Strategy and Operations and 1 moreSales compensation plans break down quickly under extreme disruption such as thecoronavirus pandemic.Sales operations leaders must refresh their guiding principles,plandistinct phases for short-a

3、nd long-term incentive plan change,and consider quota relief andother options to contain risk.OverviewImpactsRecommendationsTo balance their sales compensation plans motivational impact,stability and fiscal responsibilityduring times of disruption and uncertainty,sales operations leaders should:Anal

4、ysisOne of the most pressing and vexing challenges that sales operations leaders face duringtimes of severe sales disruption and extended global economic downturn is determining whatSales operations leaders will face difficult trade-offs between protecting sellers incentivesearnings and meeting comp

5、any cash-flow needs.Promptly updating an incentive plan improves seller morale,but moving too quickly in changingconditions may necessitate more changes later on.After the most acute phase of selling disruption ends,available revenue forecasts will still behighly uncertain.Reaffirm the core principl

6、es that govern compensation plan design by convening the companysexecutive leadership to update sales compensation guidelines in response to current challenges.Change incentive plans in two phases by separating options with immediate impact andfeasibility from those that require a wait-and-see appro

7、ach before finalizing.Identify the most effective short-and long-term incentive plan adjustments by thoroughlyconsidering both familiar and less conventional redesign options.Page 2/10Gartner,Inc.|723868changes,if any,they should make to sales compensation plans.Even seasoned sales operations leader

8、s may find that little in their professional experienceprepares them adequately for a global pandemic.Leaders serving in senior sales roles today havenever had to design sales incentives in conditions like todays complete selling disruption and long-term economic uncertainty.Compensation design chal

9、lenges caused by extreme uncertainty are compounded by the difficulttrade-offs sales operations leaders face.Some of these trade-offs are amplified versions of thetensions inherent in any sales compensation design process,but others confront sales operationsleaders with unfamiliar,emotionally comple

10、x decisions such as:In this note,we provide three recommendations to help sales operations leaders navigate disruption and uncertainty in their sales compensation plans(see Figure 1).Most sales operations leaders should begin with the first two recommendations to realize a more effective decision-ma

11、king process and improved seller morale.Sales operations leaders who are ready to begin implementing changes now can begin with the third recommendation,which includes a comprehensive list of incentive plan elements to consider adjusting,along with corresponding decision-making guidance.How to balan

12、ce the desire to“keep sellers whole”(i.e.,pay the average seller at target regardlessof company performance)with the responsibility to optimize company cash flowHow to provide sellers with dependable information about their incentives when predictionsabout customer access and demand are unstableHow

13、to preserve selling capacity to respond quickly to economic upturn just as customer orderdelays and cancellations are putting short-term pressures on company cash flowPage 3/10Gartner,Inc.|723868Impacts and RecommendationsLeaders Will Face Trade-O ffs Between Sellers Earnings and Company Cash FlowBe

14、cause commercial leaders are generally optimistic about revenue and protective of sellers earnings,they may not be adequately prepared to make difficult trade-off decisions under time pressure.Sales operations leaders,therefore,should prepare company leaders to take informed,decisive action by initi

15、ating a review(or creation)of the core guiding principles for sales compensation design.Because these guiding principles reflect broad company values,the head of sales operations should convene the right set of senior,cross-functional company leaders long before difficult decisions are needed.Aside

16、from sales,this process typically includes finance,HR,legal and compliance,and IT.The head of sales operations may include other functional leaders as appropriate for company culture but should bear in mind the need to reach consensus quickly.A list of discussion questions,customized to company circ

17、umstances,can facilitate this leadership meeting(see Table 1).The meeting output a statement of the executive leaderships compensation design principles updated for current challenges will serve as a reference point for all subsequent decisions about compensation plan changes.Table 1:Discussion Ques

18、tions for Developing and Updating Sales Compensation Guiding PrinciplesFigure 1.Impacts and Top Recommendations for Sales Operations LeadersPage 4/10Source:GartnerRecommendations:Prompt Incentive Plan Updates Improve Morale,But Moving Too Quickly May Necessitate More Changes LaterGartner,Inc.|723868

19、CategoryQuestionsPrioritizingValuesSpreadingthe ImpactDefiningDecisionThresholdsor TriggerPointsWhat core values and cultural traditions already in place must we consider whenmaking sales compensation decisions?How important is the continuity and stability of sellers incentive plans compared toagili

20、ty in sales compensation and responsiveness to changing market conditions?What steps must we take to avoid unintentionally incentivizing sellers to risk theirown health or the communitys well-being?Do we prefer to spread the impact of disruption and reduced demand equally amongall sellers or allocat

21、e it unevenly based on other criteria(e.g.,a roles ability togenerate short-term cash,a roles long-term strategic importance,a sellers actualperformance relative to peers)Do we want sales compensation changes to favor higher-performing sellers overothers?Should our approach to changing seller incent

22、ive compensation be consistent withour approach to nonsales positions in the company?Should high-risk/high-reward roles bear more of the impact from coronavirusdisruption?Is there a point at which we prefer to reduce sales force size rather than change salescompensation plans?If so,how should we def

23、ine that point?How much margin reduction or pressure on cash flow can we tolerate before wemust directly reduce spending on variable sales incentives?Identify nonsales leaders whose input sales operations leaders need to update guidingprinciples,such as finance,HR,legal and compliance,and IT.Reach c

24、onsensus among top sales and nonsales leaders on the guiding principles that willshape sales compensation changes.Include a summary of the relevant guiding principles when communicating changes to sellers.Page 5/10Gartner,Inc.|723868Sales operations leaders must balance the boost seller morale recei

25、ves from quick decisions aboutincentive plans with the risk of launching changes so soon that they wont stand the test of time.The sooner sellers get details about plan changes,the faster they can adjust their activities tomaximize their earnings.But if companies rush compensation plan changes into

26、production,theyare more likely to need additional adjustments as the selling outlook comes into sharper focus.Multiple rounds of compensation plan adjustments create legal,technological and operational risk.Even worse,they may cause changes intended to increase transparency and reduce sellerdistract

27、ion to ultimately undermine morale and sellers trust in leadership.Sales operations leaders should manage this inherent tension between decision-making speed andplan stability by dividing compensation action plan changes into two phases:Communication about short-term compensation plan changes(Phase

28、1)should emphasize thecompanys commitment to helping sellers stay financially solvent during the initial,highlyuncertain disruption.When communicating short-term changes,sales operations leaders shouldexplain the risks of committing to a permanent change when market uncertainty remains high.Atthe ti

29、me short-term plans are announced,sales operations leaders should also announce theexpected timing for rolling out long-term compensation plan changes.Recommendations:After the Most Acute Phase of Selling Disruption Ends,Available RevenueForecasts Will Remain Highly UncertainOnce local limitations o

30、n selling activities are lifted and market outlooks come into better focus,revenue projections accuracy will begin to improve.However,these forecasts will still be far lessreliable than the projections normally used in sales compensation planning.Instead ofPhase 1 Short-term sales compensation adjus

31、tments based on what little is known now(ifanything)Phase 2 Long-term adjustments that will be developed only when enough information isavailable to create reasonably stable plansAssess short-and long-term outlooks separately.Distinguish between the immediate disruptionto selling due to travel and m

32、eeting restrictions and the adjustments needed in response toreduced demand over a longer time horizon.As soon as possible,communicate to sellers that short-and long-term changes to salescompensation plans will be based on organizational values,guiding design principles andmarket conditions.Communic

33、ate the dates when short-term changes will be announced and long-term changes areexpected.Page 6/10Gartner,Inc.|723868incorporating the less reliable projections directly into sales incentive adjustments,sales operations leaders should understand and account for elevated uncertainty in redesigning c

34、ompensation plans.Some sales stakeholders may not appreciate the risks of taking new forecasts at face value and using them for compensation plan redesign,and they may therefore favor quota adjustments linked to new projections.However,while quota relief or restatements may be appropriate(especially

35、 with mechanisms added to contain uncertainty),companies may achieve the desired results more effectively and with less risk by changing other plan elements besides quotas themselves.Guided by their reconfirmed compensation design principles,sales operations leaders should understand and consider th

36、e full range of options at their disposal(see Table 2).Note that quota adjustments come in different variations,each with pros and cons depending on circumstances.Equally important is to consider adjustments to plan elements besides quotas either as stand-alone changes or in combination with other a

37、djustments.T able 2:Options and Decision Guidance for Adjusting Sales Compensation PlanOptions forAdjusting SalesCompensationComments and ConsiderationsQuota adjustmentsReduce quotas foraffected territoriesonly duringdisruption.Proactively reducequotas for allsellers based onupdated revenueforecasts

38、.Announce aretroactive quotareduction,the sizeof which will bedetermined afterthe full impact ofdisruption isknown.Index quotas(i.e.,“grade on acurve”)so theaverage sellerearns 100%(or alesser amount).Even when conducted with high analytical rigor,retroactive quota changescan seem unfair to sellers.

39、Proactive quota changes do not bring the stability that sales operationsleaders desire because updated forecasts are likely to be inaccurate.Additional rounds of quota relief may be required.Quota indexing has the advantage of fiscal certainty for both company andseller because,by definition,team pe

40、rformance will center around 100%attainment.However,this can create significant pressure on margins(andcash flow)when revenue comes in far lower than what is justifiable.If every55%attainer is paid at 100%of their target because thats the teamaverage,the cost structure of the plan will break.Page 8/

41、10Gartner,Inc.|723868Draws,guaranteesand otheradjustments totarget payActivitiesPay all sellers“attarget”(or a fixedpercentage oftarget)duringdisruption.Pay sellers attarget duringdisruption andtrue up payoutsafter the crisis haspassed.Pay sellers attarget duringdisruption,but donot true uppayouts a

42、fter thecrisis has passed.Reduce target payby a fixedpercentage for allroles as a cost-cutting measure.The decision of whether to true up sellers payouts when they were paid attarget depends on what leaders believe about the companys recovery.Truing up and recovering overpayments is appropriate if l

43、eaders seedisruption as a pause in selling activities that will be corrected after sellingresumes.An alternative to an announced true up is for sales leaders to communicatethat if lost revenue is not made up,some overpayments may be forgiven.Reducing targets by a fixed percentage can be combined wit

44、h quotaattainment indexing to control the distribution of rewards and the overallspending risk.Pay sellers basedon activities orMBOs duringdisruption.Under normal circumstances,companies often avoid using activity metricsfor compensation plans because activity plans are perceived asinconsistent with

45、 a pay for performance sales culture.Compensation plans with activity metrics do not differentiate volume fromquality.However,during periods when selling activities are not possible,payingsellers temporarily on activities that are known to drive commercialoutcomes is considered an effective option.P

46、age 9/10Source:GartnerRecommendations:Recommended by the AuthorGartner Guide to Sales Cost OptimizationGartner,Inc.|723868Payout curvechangesContests and spiffsEliminate or lowerthresholds.Reduce the slopeof payouts todampen the effectof uncertainty.Implementranking plans.Adjusting the design of pay

47、out curves is a powerful technique for offsettingthe impact of forecast volatility or uncertainty.Removing payout thresholds can increase seller motivation by rewardingsuccesses even when the original sales forecast used to create quotas ismiscalibrated for current demand.Decreasing the slope of pay

48、out curves also dampens the effect ofunachievable sales forecasts because lower attainments correspond tohigher payouts than they would receive without the decrease.Conversely,higher attainments earn lower payouts,which can be demotivating forsellers who deliver exceptional outcomes despite reduced

49、opportunity.Ranking plans have the advantage of fixed,predetermined payout totals.However,many sales leaders avoid them because they pit sellers againstone another as they compete for higher positions on the leaderboard.Pay a kicker orbonus foridentifiedactivities thatposition the salesforce forincr

50、easedcompetitivenesswhen the crisispasses.Contests are unpopular among many sales operations leaders becausethey can be difficult to govern and to coordinate with sellers maincompensation plans.However,the nature of downturns and selling disruptions can increasecontests impact as a motivator for sel

51、lers.As long as parts of the sellinglandscape remain disrupted,companies may ask sellers to achievenonstandard objectives.For example,renegotiating a customer contract to drive a deeper andlonger-term customer commitment is difficult to predict but generatesmeasurable value.A contest that pays a one

52、-off bonus for achieving thisobjective can motivate sellers toward these outcomes.Determine which elements of the sales compensation plans can change now and which requirea wait-and-see approach before finalizing.Use established guiding principles to shape the details of all changes.Consider all ele

53、ments of the compensation plans before finalizing a decision.Emphasize continuity and stability for sellers by limiting changes to only what is necessary toaddress disruption.Page 10/10Gartner,Inc.|723868Controlling Sales Compensation Spending Risk Without Demotivating Sellers Leading Sales Operatio

54、ns Through the Coronavirus PandemicShorten Sales Performance and Quota Periods to Ease Compensation Uncertainty Toolkit:Improving Compensation CommunicationRecommended For YouShorten Sales Performance and Quota Periods to Ease Compensation Uncertainty 6 Criteria to Optimize Sales Compensation Pay Mi

55、xToolkit:Pay Mix OptimizerControlling Sales Compensation Spending Risk Without Demotivating Sellers Prepare for Coronavirus Disruption to the Sales Organization 2020 Gartner,Inc.and/or its affiliates.All rights reserved.Gartner is a registered trademark of Gartner,Inc.and its affiliates.This publica

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