HP Got Sales Compensation Wrong

Hewlett-Packard got it all wrong. “Meg Whitman is scrambling to fix a ‘nightmare’ glitch that affected thousands of her salespeople” according to a recent article by Julie Bort in Business Insider.

But there is an untold side of the story that a sales compensation professional can surmise from the points in the article. It’s the time wasted by the sales team shadow accounting, the loss of top sales reps, the financial turmoil these reps are experiencing, the emotional strain of being unpaid for performance, the lost sales opportunities, and the list goes on.

What I don’t understand is why fixing this wasn’t a top priority based on the cost of lost rep hours and lost opportunity in the millions! I have lived through mergers, acquisitions and sell off of business units. My top priority was to keep things as consistent in sales as possible. I wanted to focus them on continued selling and not having them get caught up in the company turmoil. I worked long and hard to make sure that every commission check was as accurately calculated as possible and resolved any issues quickly. You see in my experience if I made a mistake in a commission check, that rep wouldn’t believe I did it right for many months, maybe even 6!

Some of the key points in the HP sales compensation problem identified in the article are listed below along with the deduced untold story line:

  • Regional sales managers meet with Meg Whitman about sales compensation.

This means that these regional sales managers are taking time away from coaching their sales reps and other management activities that lead to a successful sales team to voice the complaints of the reps’ commission payments. Think for a minute of how many hours they spent having conversation with disgruntled sales reps before they would have a meeting with the CEO!

  • Thousands of members of the salesforce have not been paid correctly since November causing some to miss mortgage payments and face foreclosure.

I can’t believe the stress the sales organization is under. Can you imagine facing losing your house when you knew you had commissions that were due to you? How dedicated would you be? What would you be spending your time doing? If you left, your commissions would have to be paid out appropriately.

  • Draw liability incorrectly stating how much the sales rep owes the company.

I have known reps who refused to take a draw because they didn’t want to owe the company money back. Draw doesn’t really solve anything. In this case it is just a Band-Aid, a way to normalize cash flow for the reps when you can’t get the numbers right. When draw liability is calculated incorrectly the sales reps must figure out what is real, then fight with someone to get it corrected. What a waste of valuable sales minutes!

  • Commission tracking has been a problem for years.

If a rep spends just one hour a week manually tracking their sales and commissions due (shadow accounting) that’s 50 hours a year. Now if you have 50 reps doing this same thing you’ve just lost an entire sales person for the year.

  • Some estimate 10,000 sales reps have been affected by faulty compensation tracking.

Now multiple the above example to 10,000 reps and you have the output of more than 200 reps for an entire year lost. Assume an average cost per rep of $100,000 in TTC (Target Total Compensation), you have $20,000,000 being spent on shadow account. Some reps say it is a full time job tracking their commissions. And the cost gets worse when you factor in the lost revenue opportunity.

  • Attainment levels can change daily due to correcting crediting rules that are over-complicated.

Classic boom or bust. It appears that there is a problem with the data that is loaded in on a timely basis but is inaccurate. Imagine coming home one night and say, honey remember that cruise we wanted to go on, well now we can because I am a rock star rep. Then the next night, saying, I was only kidding! It impacts the whole family. There is no faith in the reports and the sales commissions plans will not motivate the desired behavior.

  • True up checks to pay commissions from Nov to June were often wrong.

I would guess that every sales rep is spending way more than one hour per week of their time trying to figure out what the real number is, then having lots of meetings to resolve the discrepancies instead of selling.

  • Overpaid reps left so HP wouldn’t demand the money back.

Would you blame them! But what happens if this is one of your top sales reps? The cost of replacing s sales rep can be more than $70k with recruiting and training cost factored in. It can be tremendously higher with lost sales opportunities are added in.

  • HP doesn’t have a precise way of tracking sales through VARs that are also credited to the rep.

I understand why HP might have a channel neutral philosophy in their sales compensation plans but it is critical to be able to track and measure the sales data they are using to credit the sales reps to be effective. Shame on HP for not factoring accurate data requirements into the negotiation with all VARs.

  • “This is a serious issue in the organization. They are pushing us hard to make our third quarter numbers and we’re saying: ‘We’re busting our asses for you and you can’t make this right for us?’ I like HP. I want to stay here because I believe in the products. But I can’t stay here if I’m not getting paid properly.” This quote for the article summarizes the problem nicely. According to CSO insights, sales rep’s satisfaction is tightly tied to retention.

Originally published August 2, 2016