Publish Date

Jul 07, 2023

Flexing Sales Compensation – Avoid Layoffs

Tax Insights


**Queue the little known, but wonderfully catchy 1982 hit by Gary U.S. Bonds – “Out of Work”.**

Layoffs; downsizing; reductions in force. Call it what you will, someone is out of a job, and that sucks. It’s hardest on the people who likely lost their primary source of income, but now what’s left of the team has the same challenges as before, with fewer resources to tackle them, and that presents a whole host of issues. Sales still need to happen, regardless of the resources available!


One of the more progressive CFOs we have engaged with once said something that will stick with me like a gecko in a honey factory, “moments of crises are an opportunity to bring new ideas into the mainstream.” We’ve just been through a decade of cheap money and frothy valuations, but those times appear to be over and now we must transform how we think about recruiting, retaining, and reskilling key sales team members. What are some of the key methods by which we can reimagine how to design, implement and administer a sales compensation plan that focuses on profitable growth?

  1. Variable Compensation Reduction – In a very common sales compensation structure, a sales rep might have a fixed/variable split of 60% base salary and 40% variable compensation. Meaning at $100k on-target-earnings (“OTE”) that would put the base salary at $60k and variable compensation at $40k. One way to protect your company from having to do any headcount reductions is by cutting the variable component, coupled with a reduction in some quota as well. This is not an easy pill to swallow and requires a cohesive cultural strategy to pull off. However, in the long run It can enable you to preserve internal knowledge and allow the team to pivot back quickly to a “full quota” much quicker when the challenging stretch has passed.
  2. Territory Reduction – A team that may have been split covering the US by region – East, West, North, South – could be unified to cover the entire country. The company now closes the same number of deals while carrying less overhead as fewer reps deliver the same amount of sales. The biggest challenge here is the “protection” of leads and former territory, which requires strong customer relationship management (“CRM”) system and can be hard to pull off if too many processes are manual. But it becomes clearer who your weaker and stronger performers are much quicker, leading to faster team realignments as the market sorts itself out.
  3. System Efficiencies – An often forgotten investment in your sales team are all the systems they are provided. The cost savings aren’t typically as high as full headcount reductions, but it allows companies to start thinking about how to become smarter organizations. We recently worked with a client that enabled 13 different tools as part of their sales team stack. By looking at their compensation plans as a guide, we were able to tease out which systems added the most productivity and which were just “nice to have”. The outcome was a recommended reduction of 13 systems to just four, which led to an estimated 3.5 hours per week time savings of tool usage; time more appropriately spent on selling and earning.  And nearly as importantly, saving the company significant costs associated with these additional systems.
  4. Input Metrics – Traditional Pay-for-Performance models simply pay on the outcomes. Sales teams can do a lot of things correctly but still not get the desired outcomes. Think about how you can reimagine paying on input metrics that (should) lead to good outputs by weighting sales plan metrics accordingly. Shifting compensation to metrics in your control (e.g. pipeline development, client engagement, training materials, etc.) can help focus reps sales related activities to shorten the challenging economic timeframe.

There are many ways to look at a market downturn and rethink how to best position your organization moving forward, many of which don’t involve any sort of headcount reduction. Leading companies remain dynamic to weather economic downturns or slower periods of growth, they are able to reassess their growth and profitability models. Sales compensation is an easy, although rather sensitive, lever in which you can pull to create the fastest change.

If you want to rethink not just your sales compensation structure, but how to best position your company for future growth and profits, let’s chat.