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Reward Considerations for Business Crisis: #1-Smart Sales Compensation

6 April, 2020

My Intent

I want to be helpful and not hurtful. For 35 years, I have been influencing decisions on pay, benefits, working time, paid leave, unpaid leave, salary continuation, layoffs, furloughs, severance, pay cuts, reduced/deferred/cancelled bonuses, reduced performance targets, stay bonuses, salary freezes, salary range freezes, and of course work at home and staggered or flexible hours. I am still learning, and I don’t have all the answers, and if I don’t know your unique situation, I have no answers for you. But out of a sense of duty and intent to be helpful, here are my thoughts for your careful consideration. This is not advice for your organisation, but only considerations.

The intent is to do what is best for you, and for others, at the same time. I just spent 20 minutes refreshing my understanding of the Nash Equilibrium and Nash Bargaining theory, as it is relevant to these times. Here it is in simple terms: if we only do the selfish thing, things are likely to go very badly for all. If we only care for others, things also likely to go bad for ourselves. Best if we consider the needs and intentions of others along with our own–their economic prosperity and health–as we make our own decisions, things are most likely to work out best (least worst), i.e. equilibrium or harmony, if you will. Or as Jesus said, “love your neighbor as yourself.” John the baptizer said “let him who has two give to him who has none.” (I imagine most religions would teach the same.) If we don’t follow these principles, government is likely to step in and distribute things.

Business Continuity Philosophy

Rewards are the biggest cost for any organisation, generally speaking. When business is bad, employers have three choices, basically:

  • Business as usual–aim for profit, sustainability, going concern principle; don’t cut payroll, training, insurance or paid leave, growth mindset, hope for the best
  • Minimize costs–save the business first, avoid illegal or non-contractual actions, owners/shareholders needs prevail, finite mindset, assume the worst
  • Optimize costs and revenue–multi-stakeholder approach, care for each stakeholder and for the common good, simultaneously; help yourself and help others, hope for the best but plan for the worst

This article assumes option 3. Option 1 may work, but it may not, and you need a plan B. Option 2 may work short-term but burns a lot of bridges, including suppliers and your workforce. Option 3, however, has the best chance of long-term success, at least in my view. Which option is your organisation taking? if you’re taking option 1, you would not be reading this blog. If taking option 2, you might find some cost-cutting ideas from this blog, but ignore the rest.

Hope for the best, plan for the worst.

You want your business to survive, maybe thrive in some areas. Your restaurant has closed its doors, but take-out and delivery business is booming, and you finally have linked up with the delivery services. What was only 5% of revenue is now 100% of your revenue and has tripled from pre-crisis levels.

How can rewards help?

Protect Revenue with Smart Sales Compensation

Protect the top line. Retain your sales people and keep their heads in the game. How?

  • Continue salary at a level where they (sales) can at least pay their bills each month. Normally sales people should be paid lower salaries than others at similar job levels, but should have higher variable pay opportunities in the form of sales incentives and commissions. If you have paid your sales people 90% salary and 10% bonus (a 90/10 pay mix), you need to change, now. Go to 70/30, or even 60/40, both now and going forward. Never to back to “1 month bonus” like everyone else. It’s stupid for sales people. In fact, such a mix almost guarantees your sales people are not effective sales people.
  • Allow sales people (who are paid low salaries) to take a recoverable draw on commission. If there is no one buying, and you are confident sales will recover after the crisis, let the sales person borrow against future commissions to be earned later in the year. Pay now, earn later.
  • Reset performance targets, i.e. quotas. If you stick with quotas set prior to the crisis, sales people have concluded their efforts are wasted. They will not push. Keep their head in the game. Incentivize your restaurant managers on the basis of take-away and delivery. Assure them that dine-in business will not be counted during the social distancing phases. This shows you are fair, and it gives your sales people a reason to shave and look nice when they zoom their customers and prospects.
Lower the bar, to keep targets achievable
  • Focus on account management, as there is probably more to lose in terms of current customers and current business, compared to new customers and new products. Re-assign your “hunters” to be “farmers”, i.e. assign territory sales people to look after key accounts. Protect what you have.
  • Speaking of account management, forgive or adjust some of your receivables, as a sign of goodwill, especially if customers will pay your invoices without delay. Cash flow is always tough; in this crisis, it’s a matter of survival. Be smart, and show a little love to your customers, they will remember for a long time. Enlist your sales people to support cash flow. Collections is not their job, yes yes, I’ve heard it a million times, but sales is. The relationship with your customers began with your sales people. Empower them to cut their customers a little slack on invoice amounts, if they will in return pay what they owe. It’s good for cash flow, and good for the long-term relationship.

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