Responding to the Impact of Mergers and Consolidations on Sales Compensation

What happens when two of your largest customers decide to merge and, as a result of anticipated efficiencies (good for them!), they announce their intent to reduce purchases of your company's products/services by nearly 40%?

Bad for you.  Particularly bad for the sales staff who have been covering both accounts, and whose chance of earning a sales incentive award has just been decimated, if not eliminated, by the event.  How to react?

While the latest wave of mergers and industry consolidations may produce economic benefits for the firms involved (and, hopefully, their customers), they are also having a significant impact on the sales forces covering affected firms - and their earnings.  In their most recent issue of Sales Compensation Shorts, consulting firm Colletti & Fiss discusses how best to address the impact of mergers on the compensation of sales staff.  They recommend the following action steps to sustain sales force motivation and performance when the customer base is hit by merger events like the one described above: 

• First, regardless of what is decided about revised or new sales targets, the current plan should be "closed-out" and payments made under it through that [affected] period, e.g., through the first half of the year.
• Next, sales should be reforecasted and a new, reaching yet realistic quota should be assigned.  Also, consideration should be given to the performance range - threshold and excellence point - so that they too are reasonably realistic under the new quotas.
• Finally, because sales lost through this merger will have to be made up by other Strategic Account Managers or sales reps, overachievement incentive opportunity should be validated as financially attractive and re-communicated as such at the time quotas are reset.

Frankly, I think this is an action plan worth considering at any time when sales opportunities are significantly impacted by an event outside the control of the sales force - which could include some regulatory changes of critical scope, natural catastrophes (e.g. Hurricane Katrina), etc.  Certainly, it takes a judgment call in order to determine which outside events are worth responding to in this way and which are not;  we cannot adjust sales quotas in response to every blip on a company's radar screen , but we must be mindful of the fact that nobody wins when compensation plans are no longer realistic or achievable.

Comments

[Wally Bock]

Over the years I've run into several folks who would suggest that an adjustment to the plan makes sense if the outside event that trashes sales opportunities is significant and permanent. The logic is that if the event does not create a permanent change, then adjusting quotas for it creates an expectation that bailouts will be the rule.

[Ann Bares]

Wally:

Those are solid criteria and worth considering. I agree that we have to be v-e-r-y careful about bailouts; because once that precedent is set it is tough to go back.

Thanks for the comment!