Staying Agile in Uncertainty: Comp Plans that Withstand Macroeconomic Change
Agile sales compensation plans, capable of adapting to macroeconomic shifts, enable organizations to quickly respond to a shifting market landscape without requiring complete rewrites or significant disruptions. Especially during times of economic uncertainty, leaders must resist the temptation to build overly complex plans which, despite their thoroughness, often become rigid, difficult to optimize, and administratively burdensome.
When designing a Go-To-Market model, of which sales compensation plans are a key component, it is critical to start with an understanding of macro-economic trends that may impact your business. Due to an increase in economic uncertainty, many sales leaders are now prioritizing compensation plans that provide sufficient flexibility while still driving organizational strategy. Thus, plan simplicity (which creates the agility needed in uncertain economic times) is an important guiding principle given the current landscape.
Simple and Strategic
Best practice, in any environment, is to Avoid using more than three measures in a sales compensation plan. During times of increased uncertainty, it is worth striving for even fewer measures to provide the organization with increased flexibility. Plans that feature fewer measures create an agile framework that keep sales teams focused on core business priorities and make it easier for organizations to pivot should their situation change. This simplicity ensures that organizations can smoothly modify or introduce new measures without significant disruption or confusion when business priorities inevitably shift.
It is also important for organizations to develop clear policies that help curb the financial impact of economic volatility. For instance, tariffs may lead to inventory stocking before implementation, which can cause large, atypical orders that windfall clauses should address. Strong windfall clauses are communicated early to the sales team and align with the company’s culture and strategy. Organizations that plan by creating windfall clauses will be in a better position to handle large one-off orders in a way that avoids costly incentive payouts due to unforeseen circumstances.
Including these clauses at the onset allow for a safeguard to the sales compensation plan and is easier to get buy in from the team versus adding it mid-plan cycle when times change.
When to Change
If macroeconomic uncertainty makes long-term planning impractical, leadership may consider shorter pay and performance periods, and engage in business planning cycles over a shorter timeframe. Traditional annual compensation plans, while potentially more simple to administer and aligned to typical market practices, can limit organizational flexibility during rapidly changing economic conditions. It is also crucial to consider your sales cycle as a shorter pay and performance periods with a longer sales cycle can create unnecessary pressure and hurt deal quality. The table below outlines pros, cons, and key considerations for shortening a plan cycle to 6 months:
Wrapping Up
Tariffs and other macroeconomic variables undeniably complicate the task of designing fair and profitable sales compensation plans. However, designing agile sales compensation plans in mind can substantially alleviate these complexities.
SalesGlobe is a leading sales effectiveness and data-driven creative problem-solving firm. We specialize in helping Global 1000 companies solve their toughest growth challenges and helping them think in new ways to develop more effective solutions in the areas of sales strategy, sales organization, sales process, sales compensation, and quotas. We wrote the books on sales innovation with The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Quotas! Design Thinking to Solve Your Biggest Sales Challenge.
