Case Study: How a Company Hurt its Business with a Change in the Comp Plan
This is a story of how a bad comp plan can ruin a sales force.
In 2011, P&O Cruise lines cut is commission rate from 12% to 5%. The CEO was upset with the rampant discounting used by his sales team. So he cut the commission rate in half.
The sales force revolted and sales plummeted.
To right the ship (pun intended), he hired a new head of sales. Chris Truscott became the head of sales in February of this year. Chris immediately took action. I admire Chris’s attempt to fix the problem he inherited. But, it is not going to work. Why not? Corporate is not allowing him to perform a U turn. Instead he is putting a band aide on the wound with SPIFFS. As a result, Chris is getting publically punched in the stomach.
The purpose of this post is to help you avoid this embarrassment.
There is a right way, and a wrong way, to change your comp plan. If you do not want to suffer as Chris is, download the Comp Plan Communications Plan here.
You live in a time where your mistakes get published for all to see. If you don’t know what you are doing, you will be exposed. Sales people have a voice. Your mistakes will get posted to glassdoor.com, LinkedIn, or any number of outlets.
Here is the rub: You, the CEO or Head of Sales, think you know what you are doing. You have been doing this for years and have been super successful. However, the world you operate in has changed so much. Relying on what worked in the past, will cause you public embarrassment. Open your mind to tomorrow’s best practices. If you do, you will thrive in this transparent world.
Here is a rule of thumb to follow:
Before changing the comp plan, always ask yourself:
“What will the fallout be?”
The below article about P&O’s comp plan was posted on July 8th here. I republish it below for educational purposes.
Agents underwhelmed by cruise lines' bonus payments
Independent agents have dismissed P&O Cruises new bonus payments, announced last week, as "derisory".
And Advantage leisure director Julia Lo-Bue Said accused the cruise lines' new head of sales Chris Truscott of failing to understand his market.
Truscott said the bonus payments had been introduced as part of his new Agent Matters campaign which he has launched after spending four months talking to agents. He said he saw "strong demand" for the cruise lines and wanted to build on their "most successful ever" launch this year.
While insisting that both companies will stick with the reduced 5% base rate commission introduced in 2011, Truscott said agents will get an additional £50 per passenger on Cunard's Vantage fares and an additional £20 per passenger on Getaway deals. P&O is offering bonus payments of £40 and £15 respectively.
However, the payments will only be made to selected agents, they will only apply to the first two people on each booking, and bookings must be made at least 60 days before departure. Also, the payments only apply to 2013 departures and must be for a minimum of seven days.
Truscott refused to reveal which agents or how many would receive the bonus payments, but he said they would go to those agents who "have demonstrated an ability and a desire to work with us and deliver incremental business".
He said he had taken onboard feedback from agents, but there is still a rift with Advantage, which has been advising members to switch-sell to alternative cruise lines since P&O and Cunard cut their base rate commission.
Truscott said he had met with Advantage head of commercial John Sullivan last week and "talked about opportunities for a fuller conversation" but Sullivan's colleague Lo Bue-Said was clearly unimpressed with Truscott's latest move.
"We're always happy to discuss any opportunity for members to earn incremental earnings however this is another example of how a supplier to the trade doesn't understand their market and expects the agency community to work for a derisory sum," said Lo Bue-Said.
"I'm trying to understand how this bonus commission offer will encourage the agents to proactively sell towards P&O and Cunard?"
She said it would also take some time for the two cruise lines to rebuild agents' trust. "If P&O and Cunard want to improve their sales and reward agents in an effective manner then I would suggest they do this with a long term view," she added.
Some Key Learning’s From P&O’s Mistakes:
- Understand your market, including channel partners, before you change the comp plan.
- If you cut the base commission rate, don’t try and hide it with SPIFFS.
- Don’t tie SPIFFS to lots of confusing qualifiers.
- Communicate clearly and frequently.
- Don’t pick a fight with key channel partners.
If you are thinking about a comp plan redesign, here are dozens of articles that may help.
There is a right way, and a wrong way, to modify the sales comp plan. Yesterday’s best practices do not work anymore. Get access to, and implement, tomorrow’s best practices. And keep the egg off your face.
Author: Greg Alexander
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