Incentive Compensation Management (ICM) software solutions are great for managing bonuses as motivational tools. ICM’s ability to track details allows for transparent and accurate information which can be used to calculate bonus payouts. The level of transparency offered also helps reduce the number of disputes. In theory this should be as simple as pushing a few buttons and setting up corresponding parameters. However, deciding on how to best motivate your sales team is far from just clicking a few buttons. Consider the size and scale of your sales organization – is a one-size fits all approach to bonuses going to motivate everyone well? Remember that there are many different roles that are required to help efficiently run and maintain a sales organization. Not all roles will have a direct correlation to impact sales, but all roles will have an impact on overall sales effectiveness.
Something to Lose, Something to Gain
The timing of incentive compensation plays a big part in motivating staff. With regards to your sales team specifically, experimenting and fine-tuning your bonus payouts may have unexpected results. You should evaluate the potential benefits of pre-conditional versus post type bonus payouts.
Taking a closer look at these options will provide more clarity:
These types of incentive comp payouts are familiar to most incentive teams. They offer sales reps a glimpse into the future by fixating their gaze on potential bonuses, motivating them to drive sales to meet their goal. This method is tried and true and should benefit most sales organizations looking to motivate sales teams using bonuses.
incentive comp structured using pre-conditional bonuses are designed to offer a different motivational strategy for a sales organization. Instead of having a sales rep first meet specific quotas and thresholds, a rep will be pre-paid at the beginning of the measurement period. If they fail to meet the standards pre-determined by their compensation plan, the bonus amount will be deducted afterwards. Although not traditional, many organizations have deployed pre-conditional bonus plans successfully.
At the heart of both scenarios is a sales organization’s desire to positively impact bottom lines through sales rep success. Depending on the relationship that you have with each individual sales rep, utilizing either method may lead to greater success. It should also be noted that these methods will change a sales rep’s behavior. With post bonuses, sales reps are working to maximize upside, commonly referred to as the “carrot”. However, with preconditional bonuses, the sales team is instead focused on minimizing the downside, known as the “stick”. When making a decision on sales comp, it is wise to review the data being captured by incentive comp admins. This will eliminate decisions based on intuition and instead let the data do the talking.
If you’re considering or currently going through comp plan redesigns, you should consider downloading Intangent’s free guide for creating the most effective comp plan for your sales organization. Download your free copy here.
When it Comes to Bonus Design, One Size Does Not Fit All
As sales organizations continue to review incentive comp bonus payouts, it’s important to review the make-up of your team. Compensation payouts should be created to reflect all contributor’s efforts so that there is no room for resentment or dissention to fester. Remember that it takes an entire organization’s efforts to be successful and only rewarding roles directly involved with creating sales and closing deals may lead to undesirable organizational culture.
Here are some points to consider when evaluating your incentive comp plan design:
- Why are you giving the bonus? incentive comp only works to motivate sales teams if they understand the method behind the decision. Clarity and transparency are essential building blocks to creating effective motivational incentive comp plans. For example, if your current plan is set up to have equal payouts between team members but does not reflect individual effort then certain reps who do not perform may receive similar rewards. This scenario, although unlikely, should be used as an example of what not to do when creating incentive comp plans.
- Rewarding Back-Office Team Members - A successful sales organization consists of more roles than just field reps. Field reps are customer facing, but are often supported by multiple team members in the sales process. There is an obvious hierarchy, but many different moving parts are required to function at a high level if success is to be met. When creating your next compensation plan, you should consider the incentive compensation structure for all sales and sales support roles and reward accordingly.
- Alternatives to Bonuses - It many cases, employers can get more value from each dollar spent by offering rewards that do not have an immediate link to paid incentives. Reward points programs, stack-ranking, perks, and benefits funding are examples of incentive programs that are highly motivating, but not nearly as costly as bonus programs. Gamification falls into this category as well. Teams using gamification make use of stack ranking and points programs to motivate primarily transactional sales team behavior. These programs are inexpensive to administer and pay out, but can have significant impact on the sales team’s success.
Effective sales organizations consistently evaluate incentive comp plans when trying to modify/develop organizational behavior. By being able to recognize which buttons to push, sales organizations can benefit from highly motivated employees at an optimized price point. Remember that market conditions and industry trends will constantly shift, which means that the incentive programs used to motivate high achievers will need to shift in response. If you’re currently going through incentive comp plan redesign, we would love to get in touch with you. Schedule your free consultation here.