Incentive Schemes: 5 Best Practices Every Sales/hr Leader Must Implement

Incentive schemes are known to be the most effective plan for any sales organization in motivating employees to a superior performance level.

Remember, the fixed base salary you give to employees under your fixed compensation plan is for the no. of standard hours you have contracted that employee and for his/her right intentions/skill for the company. Also, this is for optimal levels of output expected from the job.

Then why payment of bonus, variable pay, incentives, straight commissions, or profit-sharing are required is a million-dollar question?

Well, most individuals give optimum levels of performance which is generally slightly better than the average performance metric of any company goals. Therefore, you provide additional compensation called variable payor financial incentives in lieu of additional efforts individuals put in to achieve much higher operational efficiency than average which benefits the organization sales performance directly or indirectly.

Let me use terms such as variable pay, commissions, bonus, or incentives here as 'incentives' for ease of writing & understanding. 'Which is what' is a different topic of discussion.

Coming back. So now, you have decided to keep incentives for your employees, but what is the method of payment and how much? For that, you design performance measures or key performance indicators or components on which you measure additional efforts the employee has put in to achieve the business goals.

You then create Incentive schemes that combine these performance measures and define how much should be given to an employee. While designing these Incentive schemes for Sales Compensation, there are a few best practices that help in ensuring the employee gets compensated rightly. Therefore, the smarter you design your Incentive schemes, the more productive your employee grows, the more he/she contributes towards higher sales performance, hence your organization grows.

"We must remember organization sales performance or productivity is nothing but the total sum of performance or productivity of all its sales reps/employees, negatives cancel positives and positives, of course, add up.”

Below are a few best practices for designing the right Incentive schemes for the employees to create more positive sales performance:

1. Most importantly, your performance metrics/key elements

should be based on the levels of output the organization intends to drive from the employees towards company objectives. FOR E.g. I have seen many sales organizations using company profit or EBITDA as the metrics for most of the employees/sales reps. Remember if the sales reps are not impacting the company's profit/EBITDA directly, there is no way the sales reps will work harder to achieve a higher monetary reward or any form of non-monetary rewards. Therefore, the motivation for putting in additional effort goes down and so is sales performance."The key aspect to note is that the employee/sales reps may have great performance ratings but may not be productive for the sales team. ” As in many organizations, performance ratings still can be managed through the right perception and right connections. Hence, a combination of performance metrics that determines actual sales performance from employees is a great tool to substitute perception management in organizations.

2. Ideally, performance measures for employees/sales representatives

Should not be more than 3 or 4 KPI'S and none of them should have less than 20% weightage.

As less than 20% of weightage will start being too small for an employee to motivate him/her to push up efforts to keep that up that peak performance.

And too many performance measures inside management strategy or sales strategy will bring in complexity and lack of focus in the overall sales compensation plan for the employee/sales professionals.
Critical is to keep all performance measures or components independent of each other for effective sales performance management.

3. Incentive Plans should not be based on activities

But outcomes that deliver business objectives. You may need the right tools to measure the same.
“Remember to pay for the right results and not for activities.” 

Though there may be some exceptions like the case of a new hire who may be judged on the right activities for the first 3-6 months.

4. Commission structure/types of incentive

Should highly differentiate star performers from median/underperformers w.r.t levels of output given.
This means that employees who are putting in real hard work for an organization should get much higher incentives than those who are just slightly higher than average performers.
This is important for pushing your underperformers towards star performance and for star performers to keep putting in efforts to remain the star hence a better sales performance.

5. Most obvious but important is to launch your incentive schemes before the plan effective date

This shows your commitment and understanding to respect those who work tirelessly for benefit of the organization and the organization benefits them with higher incentives.

Also, review your plans periodically, at least every year to make sure of the following:

    1. Are your plan aligned with evolving and dynamic business objectives?
    2. Is your plan rewarding the right behaviours expected from the employees?
Above 5 are the most critical practices for any Incentive plan to be highly effective.

It goes without saying that your Sales incentive plan drives your Sales Performance Management. Therefore, using Sales Incentive Tools will bring in method to your sales process. This will greatly benefit your sales leaders and agents.

Happy Incentivizing!

About Varun Gupta, This article authored by Varun Gupta. Varun is 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.
For more details reach him at [[email protected]]