Salespeople Struggle With Bonus Targets In Downturn

September 22, 2009

Sales professionals face big cuts in pay thanks to recession-reduced commissions, and software trouble is adding to pay headaches as shown by a recent flap about sales compensation at computer maker Hewlett-Packard.

What’s more, firms in a downturn tend to use salespeople as scapegoats, says Paul Dorf, managing director of consulting firm Compensation Resources.

“Whenever the company’s sales go down, the company immediately turns around and blames the sales force and ... the compensation plan,” Dorf says.

A June report from consulting firm Mercer found that sales professionals were near the bottom of the pecking order with respect to changes in total cash compensation during the past year.

Workers in six job functions saw their median pay increase year-over-year while those in three job functions suffered a drop, Mercer said. Those in finance weathered a 0.2 percent decline, those in sales were hit with a 0.6 percent decrease, and those in marketing fared worst with a 1.3 percent drop.

Dave Kahle, president of sales consulting and training firm The DaCo Corp., says he notices firms paring back base salaries for sales employees and expecting them to earn more through commissions. More companies “are trying to put more of the risk on the salespeople, because they’re trying to protect their costs,” Kahle says.

But there’s a danger in sticking it to sales folks in terms of lower pay or unrealistically high bonus targets, experts argue, as organizations can hurt the morale of the ones responsible for bringing in new business.

Salespeople want to work in companies where 70 to 80 percent of the sales team hit their bonus targets, says Gary Damiano, vice president of marketing at business software firm Host Analytics.

But Damiano cautions that firms should not set base pay levels so high that sales employees grow complacent. That balancing act is “the challenge of doing sales planning in today’s economy,” he says.

A challenge at Hewlett-Packard has been paying sales pros the right amount.

This summer, The Wall Street Journal reported problems with internal compensation software at HP that allegedly prevented sales employees from getting their proper pay.

In August, a group of former HP employees sued, claiming the company failed to pay employees commissions earned on sales. The suit seeks to represent a class of more than 50,000 current and former employees.

In a statement, HP said it believes the suit “substantially exaggerates the scope” of the software problem. HP plans to fight the suit in court.
Julien Dionne, a blogger and manager with consulting firm OpenSymmetry International, says many Fortune 500 firms use homegrown sales compensation software that may lack flexibility.

These systems can complicate efforts to change sales incentive plans, such as moving away from schemes for mortgage brokers that reward selling large mortgages rather than sustainable ones.

Dorf recommends firms reset sales targets to more realistic levels.

Talk with top sales performers about those goals, Dorf suggests, rather than point the finger at them.

“Don’t panic,” he says. “Communicate with your people.”

—Ed Frauenheim

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