How Consultants Help Design Sales Incentive Plans that Drive Results

Why Sales Incentive Plans Fail Without Expert Guidance 

Good salespeople are one of the cornerstones of any successful business. Without them, it’s difficult if not impossible for a company to be profitable. Yet some organizations have tended to overlook sales incentive planning and could benefit from a review of their overall compensation program as well as their approach to sales compensation.

Commissions are not a one-size-fits-all solution 

Sales compensation isn’t just about paying commissions, though some organizations fall into the trap of using commissions as a sort of blunt-edged tool without considering other compensation methods, like goal-based bonuses. Limiting the range of sales compensation methods to commissions or even one or two other remuneration triggers is not always the best approach, particularly if employers want to keep the salesforce motivated and engaged in activities and behaviors that will increase sales numbers. 

Four best practices in sales incentive plan design

The approach to sales compensation discussed above can lead to a permanent reactive posture that forces employers to expend valuable resources just thinking about how to adjust sales goals and incentives as variable events and circumstances ebb and flow. Worse yet, continual adjustments can lead to pay-related uncertainties that result in a lack of motivation among the sales staff.

To avoid this inefficient use of company resources, there are four key best practices for an effective sales incentive plan. 

1. Aligns with the firm’s business objectives and overall compensation philosophy—The sales department is not an island. It’s part of the entire organization and the team’s incentive plan should align with the same business strategy and overarching compensation umbrella as the rest of the company, albeit with specific sales compensation directives.
2. Tailored to fit the role and work model—Sales compensation is role-based since the duties and responsibilities can differ widely from company to company for the same titles. Therefore, it is important to tailor the sales incentive plan pay mix to ensure that it aligns with the proximity to decision-making, features the appropriate level of on-target earnings, and addresses interdependencies and teamwork factors.
3. Maximizes the motivational aspects of incentive compensation—Motivational factors are a key driver of a sales team’s performance. Maximizing the leverage, or upside earnings opportunities, beyond target performance goals in the sales incentive plan can potentially drive better overall company performance. Payout curves send messages like “The more you sell, the more you earn”; or “Getting to goal is what really matters—but always be mindful of next year”; or “Beyond goal is where the real money is”.  Getting clarity on what you want the message to be is important.  
4. Supported by an appropriate governance process—Any kind of incentive plan, no matter how well intended, is only as good as the governance procedures overseeing it, so assuring that the plan is subject to appropriate annual evaluation, design, deployment, and support processes is vital to its success. You want to make sure the “right” salespeople are being rewarded for the “right” results. 

Key takeaways for organizations to remember 

When to reevaluate your sales incentive plan

While there’s never a bad time to assess the health of your sales compensation program, the second half of the calendar year as annual budget planning starts to come into focus is often the most optimal. Determining if your organization needs to reevaluate the existing plan and implement changes or design a new one is not an exact science, but there are certain clues that will lead to that conclusion.

If the answer to one or more of the following questions is yes, then an incentive plan review could be in order.

• Have sales compensation payouts increased even though the company as a whole failed to reach target performance?
• Does the sales force appear unmotivated to drive growth despite having a potentially significant portion of their compensation at risk? 
• Are overall sales doing quite well, yet sales of certain products or services are consistently below targets?  
• Are sales results falling “just” short of targets period after period?

Newport’s compensation experts design tailored sales incentive plans 

Newport, an Ascensus company, provides in-depth, expert-level compensation consulting services and has the unique ability to design sales incentive plans for small to mid-sized companies. We can review your existing sales incentive plan or help develop one from the ground up.

The key features of our sales compensation evaluation and design processes include:

• Identifying the roles and eligibility requirements to be included in the sales compensation plans 
• Pinpointing the right pay levels and mixes using up-to-date market intelligence
• Selecting the right measures and weights to include in the plans
• Determining the right plan type (commission, goal-based incentive, kicker, sales performance incentive fund—or “SPIF”) and timing of payouts
• Nailing the message with the right payout tables and curves (it’s all about acceleration!) 
• Testing the plan and obtaining approval for rollout
• Setting up good governance practices

Contact us today to discuss your compensation consulting needs and for a free discussion of both your overall compensation plan and your sales incentive program. We’ll be happy to assist you and help devise a plan that’s tailored to your organization’s specific needs.