Incentive Compensation Management: 7 Best Practices

Incentive compensation management has become an integral part of sales-driven organizations. Over the years, they have identified, practiced, and observed how the introduction of incentive compensation programs infuses enthusiasm, dedication, and a targeted approach across the sales team.

Smart incentive compensation plans motivate the employees and give them a direction to put their best efforts. Successful organizations leverage compensation planning to reward every effort brought to different sales cycle stages, from opportunity identification to closing the deal. When done right, a thoughtfully crafted compensation strategy helps organizations to motivate their employees to walk the extra mile, put more effort, and thrive in this competitive world.

The challenges of implementing a powerful Incentive Compensation Management

Most organizations implement incentive compensation management but only a few manage to embrace success. The research says that most organizations are struggling to find the best practices to implement and manage their sales incentive.
For example, one of the most popular incentive management processes is to implement incentives based on the key performance indicators or components of the performance of the sales reps. This is how organizations measure additional efforts the employee has put in to achieve the business goals.
There is no wrong with this universal practice, but if you are only depending on one such method, you are committing a mistake as a sales leader or CEO. Sale is an exhaustive job and you must have multiple tactics and best incentive compensation management practices in your arsenal.

7 best Incentive Compensation Management Practices Every Sales Leader Must Follow

After working closely with the sales leaders and managers, we have learned useful sales incentive management strategies. Some practices are well versed and others are emerging and proving effective. Read on…

1) Bring sanity in Sales Performance KPI:

Often the sales incentive management gets obsessed with sales performance KPI to track and understand the sales employee behavior and reward with the best incentive plans. KPIs are critical for sales commission but they should not overwhelm the sales reps. The sales leaders must implement and manage the KPIs which are useful and provide value to the organization’s incentive management plans.

We recommend preparing your incentive plans with a combination of performance metrics that determines actual sales performance. It will remove the guessing, shadow account management, and provide actual data to enable realistic incentive allocation. Pick the best 3 or 4 KPI to motivate your sales employees and help them to achieve their peak performance.

It’s important to make this entire system balanced and effective.

Unnecessary performance measures inside management strategy or sales strategy will bring complexity and lack of focus in the overall sales compensation plan for the employees/sales professionals.

2) Align your sales incentive program with your organization’s larger goals:

One way to overcome all incentive confusion and questions is to align the incentive program with the overall business objectives. This will shape up the strategy and create the roadmap.
Here are four simple ways to kick off this process. When contemplating on your next sales incentive program, try to find out the answers to the following questions:

  • How is the business strategy reflected in the incentive program?
  • Are the right metrics being used given the current business circumstances and sales goals?
  • Why can your current incentive program not achieve business objectives?
  • What are the changes you want to introduce or the adjustments you want to make in the existing sales incentive program?
  • Once your sales incentive program is aligned with the bigger goals, you will be able to take better incentive management decisions and find stability.
3) Determine your short term and long term goals and prepare your incentive program accordingly:

Focusing upon strategies and KPIs is just half of the incentive game. Identify and understand your short-term and long-term objectives if you really want to make them useful for the organization and sales team. The more clarity you will have here, the better your incentive structure, commission to the sales representatives, and planning will be.
Often organizations switch between long-term and short-term incentive planning to cope up with the organization’s changes and challenges. Companies with less cash, for example, may focus on long-term compensation and try different combinations, for example, cash + equity and so on…
The business cycle, market competitiveness, and the organization’s objectives also play a dominant role in shaping the short-term and long-term incentive plans. Over the years, we have seen successful organizations retain their top sales talents and grow business with the right mix of both. As long as your sales incentive programs are motivating employees, driving them to get things done, and improve sales numbers- you can safely experiment with several incentive practices.

4) Establish SMART goals in your Sales Incentive Commission:

Incentive management becomes successful when there are realistic sales targets. Organizations build up their incentive schemes based on SMART goals which stand for-

  • S= Specific
  • M=Measurable
  • A=Ambitious
  • R=Realistic
  • T=Time-bound

As the incentives are based on individual results, it’s important to motivate everyone with a result-driven approach by giving them a pragmatic target. It will help your salespeople to establish monthly and annual revenue goals and/or goals for opening new accounts and keep earning the incentives.

Compensation management software not only rolls out incentives on time but also helps with sales performance management, avoiding guesswork and shadow practice with real-time data.

5) Make your sales incentive structure flexible and dynamic:

Every sales rep has their own share of success and achievements. There will be rainmakers, consistent start performers, and underachievers. Organizations introduce incentive schemes to motivate sales reps to improve their performance. However, if there is only one type of incentive, it’s tough to motivate the diverse sales team, a mix of star performers and underachievers.
We recommend you introduce a dynamic incentive sales commission structure that will help you to differentiate star performers from median/underperformers w.r.t levels of output given. It will help you to appreciate and acknowledge the employees who are putting in real hard work for an organization and reward them with 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.

6) Launch and test your incentive schemes before the plan effective date:

If you have made sudden and drastic changes in your incentive plans, we highly recommend you launch and test them before the effective date. It will help you to understand the challenges and iron out the loopholes if there are any. At the same time, your sales team and employees will also consider your seriousness to introduce an incentive system which helps them to give their best performance.
Also, review your plans periodically, at least every year to make sure of the following:

  • 1. Are your plans aligned with evolving and dynamic business objectives?
  • 2. Is your plan rewarding the right behaviors expected from the employees?

This shows your commitment and understanding to respect those who work tirelessly for the benefit of the organization and the organization benefits them with higher incentives. Successful testing ensures your entire compensation cycle is ready to implement.

7) Leverage the power of Sales Incentive Software:

At the end of the day, sales incentive management requires excellent mastery over managing complex data. Sales employees expect accurate incentive roll-out on time. Managing incentives on excel sheets by a team is conventional. Successful organizations have started using sales incentive software and their success shows the utility of managing incentives with a powerful application.

A comprehensive compensation management solution takes care of all the challenges of the incentive compensation program by taking care of management incentive plans, complex logic, bonus management, commission plan, and employee performance.
Compensation management software not only rolls out incentives on time but also helps with sales performance management, avoiding guesswork and shadow practice with real-time data.
Compensation Software helps organizations to prepare incentive plan modeling, accrual forecasting, sales crediting, managing complex compensation plans, and other techniques for bolstering your incentive plans and incentivizing your sales force.

Create a better incentive plan today.

The right incentive plan can shape up your sales team and improve the company culture. It will create an atmosphere of learning, education, mentoring, and healthy competition.
Best incentive practices create room for constant improvements as their structure is transparent, helping you to create a clear line of sight and predictability of the salespeople you earn and maintain transparency for salary structure.
What’s your best incentive strategy? What have been your biggest challenges in rolling out a successful incentive practice? Do let us know at