Successful incentive compensation plans push the right buttons to achieve optimal results for sales organizations. In their most basic form, you can consider incentive compensation plans to be a series of if/then statements. If reps achieve targets, then incentives are paid out. If reps fail to hit strategic sales goals, then they miss out on lucrative bonuses. These rewards and missed opportunities are used as a way to “program” the sales team by encouraging the right behavior and discouraging wasted efforts.
When building an incentive program there are numerous variables to take into consideration, including the company strategy, cost of sale, sales team structure, sales goals, role boundaries, individual rep characteristics, and much more. With so many different components and characteristics to account for, plan designers can feel overwhelmed, but don’t be discouraged! Here are some essential components that can help you align business goals and incentive compensation plans that get your sales team back on track.
Behavior Modifying Tips:
- Good plans have a balanced structure. Balance in this case aligns risk and reward in perfect harmony. If the level of reward is lacking sufficient weight, you could possibly encounter unmotivated sales reps. Likewise, if an incentive is too easily achieved, reps have the potential to coast through sales cycles. Coasting breeds complacency, which makes it increasingly expensive to meet sales targets. Both scenarios reveal the importance of finding balance. Remember that your main objective is to motivate your sales team. Successful plans do an effective job of evaluating effort and aligning it with the appropriate incentive.
- Good plans are also clear and concise. Incentive comp plans in today’s sales environments can be quite complex. Multipliers, accelerators, and the division of goal percentage between team members involved have complicated how plans are designed. However, modifiers have also increased the earning potential of sales reps. The confusion often occurs when reps are unable to understand the structure of their comp plans. Keep in mind that a comp plan could be highly beneficial to a specific sales rep, but if they’re unable to understand how they will be compensated then structure doesn’t matter. Be sure to build incentive comp plans that encourage reps to stay motivated, but make sure they are straightforward and easy to understand.
- Compensate Immediately. Paying out commissions as soon as possible is great way to sustain momentum and motivation. Although a predictable commissions schedule is desirable for a sales rep’s financial planning, they have the potential to become viewed as another aspect of regular compensation. This can impact momentum and reduce the sense of urgency when you’re making a targeted push. Immediate payouts aligned to achieving significant sales goals have a greater impact on motivation because it allows reps to experience, for lack of a better term, instant gratification.
Developing incentive compensation plans can be a daunting task. There are many components that need to be accounted for. If you’re currently having trouble with developing motivational incentive comp plans download our latest compensation plan design guide:
- Deliver on your promises. Trust is an important component of any successful team. Sales teams are no exception. If you truly want to motivate your sales reps, it’s important for them to know that their efforts are recognized and being rewarded accordingly. A common situation in some sales organization will play out where a top performer is penalized for being just that, a top performer. This result may stem from management’s belief that certain reps are being compensated too much. Reactionary adjustments like these send inconsistent messages to the entire sales team. These inconsistencies will distract top talent by prompting them to reconsider their earning potential, their value to the organization, and potentially their employment with the company.
- Focus on performance. Depending on the maturity of your sales team and their ability to deliver when most needed, another sales compensation variable to optimize is base salary. A base salary should provide a sense of security between commission payouts, but not enough comfort to develop complacency.
Reducing base salary for sales reps who have consistently delivered with their prospecting efforts is a great way to build motivation directly into their comp plan structure. However, if you have a new hire or an account manager, who’s main job focus is to maintain accounts and not seek out opportunities, a lower base salary would provide greater incentive to potentially seek employment elsewhere. As an incentive comp plan designer, you need to be attuned to the nuances of the roles on your sales team.
Performance should also be tied to overall business performance. After all, if an organization is struggling, it’s difficult to justify paying out huge commissions. Being cognizant of your organization’s bigger picture will allow you to find the balance between corporate and individual goals.
- Built-to-Order plans. Continuing with understanding the unique dynamics of each member of your sales team, another helpful tip would be to consider developing comp plans based on personalized incentives. This approach requires a greater initial investment in terms of discovering unique motivators for each rep, but the potential benefits can outweigh the necessary effort. Remember, loyalty and trust are key components for developing highly effective sales teams.
There is no set formula for creating effective incentive compensation plans. Sales organizations should be in tune with the talents and strengths of their sales teams. This will lead to better overall incentive comp plans with a focus on sustained motivation. These tips are only a starting point asyour organization may face a variety of different challenges when trying to cultivate a successful sales culture.
If you’re currently trying to make changes to your incentive comp plans or are considering sales performance management software solutions we would love to get in touch. With over a decade of experience helping sales organizations simplify their path to achieving and maintaining success, Intangent is uniquely positioned to provide guidance with anything and everything related to Sales Performance Management. Schedule your free consultation here!