How Early- To Mid-Stage Startups Should Use Incentive Compensation In This Economic Environment

By Grayson Morris

With the global economy slowing during this exceptional period of uncertainty, it is essential that companies, especially early- to mid-stage startups dependent on outside investors, leverage incentive compensation to drive revenue growth.

Offering a commission on top of a base salary has served to motivate salespeople to meet or exceed their quotas. A well-designed incentive comp plan is an important strategic lever that can be applied to dramatically improve the financial results of a company. Well-designed incentive comp programs allow companies to improve productivity and reduce employee attrition. It also motivates employees to do their best work.

Retention matters

Retention of your top sales talent is always a top priority in periods of economic growth, with the average tenure of a sales rep being 18 months, but in periods of economic uncertainty it’s imperative. That is why it is important to set short-term quotas (e.g., quarterly) vs. annual. By doing so, managers can reevaluate every quarter to see how things are shaping up and make adjustments as necessary.

You definitely want to keep your best reps, so if they’re not making what they hoped to make, consider other options like one-time bonuses, activity-based comp, and Spifs (Sales Performance Incentive Funds). Simply increasing the base pay of sales reps will not solve the problem if they can just go to another startup and earn more money. With 2023 well underway and the news of the Silicon Valley Bank failure, startup executives must be cautious and work to ensure their sales reps feel confident in the company’s future and know that if they are able to achieve their goals, they’ll be well compensated.

Get clear

Other strategies that can be used include using accelerators generously. If you set your accelerators right, your top-performing reps will stick around, overachieve, and help you drive revenue. Finally, get crystal clear about what’s important to your business and incentivize that. For example, if cash flow is more important than just pure growth, you may want to pay on gross margin or reward reps for not discounting and signing multiyear contracts.

Here are some other considerations to keep in mind to better manage your incentive comp program:

Be realistic: Recent mass layoffs in tech have created a lot of uncertainty in the job market, so companies should work to ensure comp plans are achievable and will motivate sales reps to meet or exceed their quotas.
Communicate effectively: Clear communication will help build trust and motivate employees. Be transparent about how these compensation decisions are made.
Benchmark against industry standards: Stay competitive by benchmarking compensation against industry standards.

As companies scale up in size, the moving parts and complexities grow exponentially larger. Having a well-designed incentive compensation offering can help you better motivate the people who generate your revenue and result in improved revenue outcomes even in an economic downturn.

Grayson Morris is CEO of Performio. The company offers sales performance management software for businesses looking to automate their sales compensation calculations and provide increased transparency to their sales reps. Morris holds an MBA from Stanford University, an MS in mechanical engineering from UC Berkeley, and a BS in mechanical engineering from Rice University.

Illustration: Dom Guzman