In this time of uncertainty around the health, societal, personal, and business impact of COVID-19, one would think worrying about sales commissions falls very far down on the list. But from a business perspective, the social distancing, shelter-in-place orders and work-from-home mandates could not have come at a worse time for sales – the last two weeks of the quarter. We can assume that almost every salesperson is going to miss the Q1 quota by a mile.
It’s safe to assume that most companies will not go belly up for one bad quarter. But your sales team certainly will not be happy about missing their quotas due to circumstances beyond their control. Now is the time to consider what temporary changes you might want to make.
Several of our customers have reached out to us looking for guidance on how to handle Q1 sales compensation in the light of this unprecedented situation. Here’s what we are telling them.
When the economic impact of this outbreak become clear, business leaders may have to adjust the sales capacity as per the new landscape. But in the short term, broadly speaking, CFOs and Sales Leaders have four options to choose for Q1 Payout:
- Reduce the Quota for the quarter
- Pay Recoverable Draws
- Pay Non-Recoverable Draws / Bonus
- Do Nothing i.e. pay as per actual Q1 attainment
Several factors should be considered in determining what is right for your organization:
This is a shared crisis. Most companies in retail, airlines, and hospitality industry are facing massive shutdowns. As of now, more than 70 retailers have announced they will be closed for the next two weeks. Retail typically does not pay for sick days, yet, according to Business Insider, “most of these companies – which range from mall brands like Urban Outfitters to major athletic retailers like Nike – have confirmed they will pay employees for lost shifts during this period.”
Put it in this context: When the word spreads that the local retailer is making the financial sacrifice to help its employees, but your company is not willing to help its sales staff – how does it impact your brand? Think about it not just from the perspective of current and future sales team, but also how would your customers and prospects perceive your company?
Risks from High Turnover in Sales
You’ve invested in your sales team. What you decide could very well impact their choice to stay with you or leave once we’ve come through the end of this turmoil. According to HR Digest, “the total cost of employee turnover can range from tens of thousands of dollars to 1.5-2x of their annual salary.” Consider that in your decision – or more bluntly – do you want to keep your sales team, or risk losing them.
It all comes down to how quickly you can hire and train new sales personnel. If it requires months of training before the salesperson can be effective, you can’t afford to do nothing as it would risk dissatisfaction and high turnover in your sales team.
We’ve recently been in a very tight hiring market where many companies – especially B2B companies – promote their perks and values. We don’t know what we’re looking at. The New York Times reports that “Layoffs Are Just Starting, and the Forecasts Are Bleak.” It might be hard to take the financial risk to change your sales compensation plan – even temporarily – in a chaotic economy. The decision you make should also reflect the company values you highlight in the hiring process.
What percentage of On Target Earnings is Variable?
If the salesperson relies heavily on the variable sales compensation to make the ends meet, this situation is going to cause them lot of financial pain. Employers should feel the tremendous humanitarian pressure to provide some assistance.
Deals are Lost or Delayed?
It is possible that the economy comes back on track within Q2. The question is – the prospects who were ready to buy from you in Q1, but didn’t buy, will they come back to you in Q2 or are those deals lost forever? Would Q1 situation lead to higher demand for the rest of the year? If so, your sales team still has a shot at meeting the annual quota, and all you need to provide is a recoverable draw in Q1.
The decision your company makes is unique to your situation – both today and what you have forecasted. It’s not an easy decision – but it’s one many of us have to face.