Incentive plans are made of two parts, first is the planning/strategy part, i.e. the design part with the set of rules, etc. It answers the what and why of any incentive plan. The second is the process part or the execution part, which is more tactical. It answers when & how of any Incentive plan
The issue in any of these two parts may significantly bring down the desired sales performance and effectiveness of the Incentive program.
Generally, sales organizations have an Incentive program of some kind already in place, but it's always good to make things better. Let's talk about when exactly businesses should start making these changes with their already existing Incentive programs.
Businesses should be looking for the below-mentioned red flags within their Incentive program. It's when they should start brainstorming for changes with one or both parts of the Incentive plan.
1. When your star performers question whether their sales targets are achievable or not?
There are majorly 3 indications for this case:
Your core performers with the best skill sets are getting less monetary rewards (2x) than the average cash incentive pay-out.
More than 50% of your sales reps are not achieving the threshold i.e. no sales commission/incentive compensation
More than 75% of your sales reps in the entire sales team are not able to achieve set revenue targets.
2.When communication regarding the planning of your incentive schemes is done months after the Plan effective
For example, you have communicated an Incentive Compensation Plan on 1st March which is actually effective from 1st January.
3. When Sales reps or Sales managers
believe that they are getting penalized for things they cannot control.
If this is the case, then you can very well assume that the sales organization has stopped thinking about the short term and long-term impact of their sales compensation plans.
4. When Sales Performance
w.r.t one key performance indicator/sales metrics greatly influences incentive compensation in another KPI/parameter.
This is a critical step in Sales
performance management as you would have wasted critical KPI of the sales
process on which salespeople behaviour could have been driven.
5. When Sales leaders & Sales professionals
incentive objectives are not aligned together w.r.t to business goals in other
words there is a conflict between them on priorities.
Example: Individual Salesperson's
incentive/sales compensation is majorly based on the volume of business whereas
Sales Manager's incentive is based on the profitability of a customer. In this
case, Sales reps will go for “easy sales”.
6.When the sales team is having
consistent attrition of core performers.
This can very well happen because
of any of the above reasons. Performers like transparency in the sales process
and incentive compensation plan. Using Incentive Tools is a great way to
mitigate the above issues.
7. When Sales managers believe
that the incentive schemes are not reflecting their sales performance or the
performance of their territory, sales team or the product portfolio. This means
that Incentive schemes / Sales Commissions or Sales Incentive Plans are not
reflecting their sales performance.
Now, what options businesses have:
The very first option is to start thinking about evolving the Incentive Plans in both design or process perspective.
For example, 90% of sales efforts can be saved if you can get effective Incentive management software. But still, 50% of the problems can be solved through the right alignment of performance metrics/parameters with your Sales Incentive Plans.
Also, rather than having similar Incentive Plans for everyone which brings in generality, try to have different types of incentive plans for a different set of professionals. This will rightly align a different set of organization interests with employee output resulting in an effective plan. This can bring a peak performance w.r.t business results.
Above are two key remedies for long-term growth, but best practices of Incentive Plans is a different topic altogether and you will find it in a different article.
Till then, Happy Incentivizing!!!
This article authored by Varun Gupta. He is the CEO of Atmax Technologies, which specializes in Cloud solution of Total Compensation Management and Sales Incentives Management. His interest areas are Sales Incentives, Compensation and Benefits, Sales Enablement/Effectiveness, HR Technology, and Entrepreneurship.