Disaster Recovery — Having a Plan in Place for Quota Adjustments
Large-scale disasters, like those we’ve witness this week in the Gulf Coast and southern U.S., remind us about the importance of being prepared. When it comes to quota-setting, being prepared includes having an adjustment policy for large-scale, unexpected events.
Monday morning in Nashville (photo courtesy of The Tennessean / Zuma Press)
Years ago we were asked by a global shipping company to help develop a quota-adjustment policy for its worldwide sales force. The company had no objective, consistent policy for quota-adjustments, but on a global scale it often experienced major disruptions to its business due to fires, floods, tsunamis, political strife and other natural and man-made disasters. Cultural norms seemed to play the greatest influence in whether and to what degree management adjusted sales quotas. Regional finance and sales teams often quarreled about the appropriate balance between shareholder and salespeople interests.
In Japan, for example, management would not adjust quotas for any event other than territory remapping. So when a regional airport closed for three weeks because of earthquake damage, all the region’s salespeople missed quota for the quarter, and their opportunity to participate in the annual club trip. Management reasoned that because shareholders and customers suffered from the closure, the sales team must also.
In France, after a flood wiped out two of a salesperson’s major accounts, management adjusted his quota to neutralize the impact. Here management’s rationale was it needed to keep this salesperson “in the game” to achieve its annual, regional quota.
While Japan’s regional management was adamant about the no-adjustment policy, many reps across the country felt they should receive a goal increase in order to level the playing field with those who suffered a business setback. Most of the regional managers in France felt they could not attract, motivate and retain sales talent without a flexible goal-adjustment policy. Germany sided with Japan on the position to leave goals intact, though its reps did not believe in sharing the pain. Most U.K. regions fell somewhere in the middle, based on each circumstance.
Cultural norms aside, corporate leadership required some definition of “large-scale.” Historical analysis found that 97% of the quota-adjustment requests were for five percent or less of a reduction. In the remaining 3% of cases, management requested a quota reduction of between 6% and 30%. Granted, not all business disruptions resulted in quota-adjustment requests; we felt available data were representative of the frequency and magnitude of events, though we needed to account for differences between developed and under-developed countries.
From this analysis and subsequent management interviews we were not able to identify any system or formula for forecasting business loss, and the appropriate relationship between the expected amount of business loss and the requested quota relief. Perceptions ranged from 3:1 to 1:1.
After much consideration and debate, leadership established that any event forecast to reduce a territory’s sales by 20% or more would result in that territory’s quota being reduced by at least 10%, with a non-linear scale such that larger events would receive greater proportional adjustment, and a forecast of 50%+ in lost sales would result in a 50%+ (1:1) quota reduction.
As one approach seldom fits all regional practices, leadership was sensitive to forcing this global policy on all regional teams. It required instead that regional management follow the adjust guidelines when it chose to adjust; regional management could elect to leave quotas in place following a large-scale event. If it planned to adjust a salesperson’s quota, it needed to follow the guidelines. Events considered smaller in scale – i.e., those forecast to have less than a 20% impact on the business – could not be adjusted, on the principle of “you win some, you lose some.”
This “opt-out” approach for large-scale events pleased the Japanese management. The hard line of no adjustments for smaller-scale events was, as you’d expect, very controversial in regions having a history of frequent adjustments. France, in particular, felt the policy would drive away its sales talent. Yet leadership argued that regional management needed a mechanism to bring incentive costs more in line with global standards, as a percent of revenue. Seems many of the adjustments were to get a salesperson to the next, higher bracket of the incentive rate table.
In October of 2005, about six months after the company adopted the global policy, I spoke to the head of sales operations for North America. He was pleased when, two months earlier, they had systematic way for adjusting quotas of salespeople based in New Orleans. Apparently some of those salespeople suffered significant material loss following Katrina, but did not have to fret about how the disaster would impact their earnings ability in the near term.
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