July 17, 2017
By Michelle Seger, Global Sales Strategy and Change Management Leader, SalesGlobe
In London last month for a conference, I couldn’t escape Brexit. In the newspapers, on the television, and conversations in every office, store, and pub I caught the words, “Brexit” and – with my ear ever-tuned to sales – couldn’t ignore its impact on how sales people will be hired, retained, and paid.
For sales people, money is not only a reward for doing a great job, it’s motivation. With the number of global companies headquartered or firmly planted in the UK, Brexit is causing a lot of speculation that company costs will rise due to increased compliance regulations, new tariffs, and labour pool shortages. As you can imagine, austerity and cost cutting have become top priorities.
But that presents some danger. If money is tight, how can sales organisations afford to keep the best people, especially if other global companies have more attractive compensation packages? How can sales organisations continue to attract top talent in a competitive market?
Consider the two strategies below: rewarding top performers with the right pay mix and upside potential, and implementing a threshold to make sure low-performing salespeople are not overpaid.
Analyse your total target compensation and pay mix
The sales organisation’s focus should be on paying the high performers enough to stay loyal to the company, while being mindful of the cost of sales.
First ensure the total target compensation is in line with the market (and keep in mind that comparison companies may not always be a direct market competitor, but may be companies competing for the same sales talent).
For companies that find themselves in a non-competitive market, rather than raise base pay – which is a fixed cost – understand the company’s tolerance to increase the incentive pay for each sales role.
It’s important to establish the concept of target incentive with the sales organisation to set an expectation of pay that should be earned for doing the job as planned. Without setting target incentive expectations, sales reps may not be clear on the opportunities available to them – so communicate often how much each sales person can earn, based on their performance.
Pay only for high performance, using upside and performance thresholds
To manage the cost of sales and still reward high performance, the best course of action is to pay a lower rate for low performance, and to richly reward the best performers. We call this the Reverse Robin Hood Principle.
The Reverse Robin Hood Principle states that an organisation doesn’t overpay the low performers but instead significantly rewards the high performers. This is achieved through upside and thresholds.
Upside lets top performers know whether they can really be significant earners. Upside potential is the incentive pay, above target incentive, that a salesperson can earn if they exceed quota and reaches the higher levels of performance in the sales organisation. The more pay at risk, the more upside should be available for the highest performers.
Without the upside potential, the incentive compensation plan favours the company, because it only pays up to quota. The risk is all assumed by the sales rep; if they don’t make their quota, they won’t earn their total target compensation. But if they knock their quota out of the park, they’re not rewarded much more.
Upside potential balances out the risk and reward equation for the rep, making it worthwhile for them to put that pay at risk rather than just take a flat salary.
Believe it or not, some companies have very little to offer reps above quota. There’s minimal incentive to reach beyond their goals. In these cases, the salesperson will likely seek a job with a company willing to pay them upside.
The second component of the Reverse Robin Hood is a threshold. A threshold is the point at which a plan begins to pay incentive. It assumes a minimal level of sales performance must be achieved before the plan begins to pay. Instead of paying low performers below threshold, the organisation uses those funds to reward the top. That’s a big challenge for a lot of organisations.
This principle makes a statement about philosophy that ultimately affects the sales culture. But if the goal is to retain high-performing salespeople by paying them well – and maintaining a reasonable cost of sales – the Reverse Robin Hood approach is effective.
While Brexit will undoubtedly bring surprises, sales organisations can, with a little effort and a solid sales incentive plan, prepare for cost-cutting measures and retain top sales talent at the same time.