LeapComp - Sales Performance Management Blog

With the state of the economy, it is no surprise that most companies are rethinking their reward strategies. In a strong economy, one of the major arguments in favor of incentive compensation is employee retention. During a recession, the main argument is to keep employees motivated.

Many companies have different philosophies when it comes down to rewarding their employees. Some of them are currently looking at cutting costs, cutting incentive programs, cutting rewards, cutting travel, increasing quota amounts, etc. Others, on the contrary, are looking at reducing base pay, and to increase incentive compensation; they figure that if employees are only paid for performance, then they can afford to pay them. Then there are those who don’t currently pay commissions and start thinking that it could be a pretty good idea. Finally, there are many companies who are not necessarily looking at transforming their incentive compensation plans, but are looking at making them work better.

To have a better idea of how various companies are reacting to the economy, let’s look at some survey results.

Ann Bares posted about many studies conducted by Hewitt (411 organizations), Watson Wyatt (248 organizations), Mercer (190 organizations, based on yesterday’s WSJ article), WorldatWork (members only, 698 members responding to a Quick Poll) and BLR (Business & Legal Reports) (518 organizations).

Paul Hebert also posted about changes in the incentive industry, commenting on a few surveys from the Incentive Research Foundation.

I think the most interesting survey is the one from Towers Perrin. With over 450 companies participating to the survey in October, it shows how 39% of the participants were somewhat likely to very likely to reduce annual incentive/bonuses and how 18% were planning to reduce the number of participants receiving long-term incentives.

One of the big questions is, why would companies cut into their variable compensation programs in a down economy, when it is such a great tool to control payouts against actual performance.

As Ann pointed out, the only good reason to take “take a hatchet to their plans” is to get rid of discretionary plans not tied to measurable performance results, or to get rid of poorly designed compensation plans.

How should all these surveys be interespreted from technology perspective?  My interpretation is that companies may have less budget for new large IT projects, but on the other hand, it could be easier to justify the need for effective sales performance tools…  so while I don’t expect there will be a huge growth in the industry in 2009, I think it will maintain itself.  From an implementation perspective…  there should be a lot of work from implementing new plans, enhancing existing compensation plans, integrating systems from all the larger mergers that took place in 2008, etc.

I often get asked about if I think the SPM vendors will survive this economy, and I don’t see why not… if the company fundamentals are strong enough to re-assure people considering them.  One thing is for sure, it will be an interesting year!