Sales incentive compensation management: 7 Red Flags to Keep in Check

Sales 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 the when & how of any Incentive plan.

The issue in any of these two parts may significantly bring down the desired sales performance, sales behavior, and effectiveness of the management incentive plan

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 functioning Incentive programs.

Businesses should be looking for the below-mentioned red flags within their Incentive compensation programs. It’s when they should start brainstorming for changes with one or both parts of the Incentive plan.

1. When do 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. Organizational performance is one of the key factors behind introducing a sales compensation plan. Organizations need to be smart enough to implement a sales target that boosts employee motivation and encourages them to achieve it. This is the basic foundation of the success of a sales compensation plan.

2. When communication regarding the planning of your incentive schemes is done months after the Plan effective date.

For example, you have communicated an Incentive Compensation Plan on 1st March which is actually effective from 1st January. Complete visibility around your sales incentive program is mandatory. It helps to build transparency and sales reps feel more connected with the organization and start putting more effort into it. And once the organizations have better relationships with the sales representatives, sales performance management is easier. Introducing sales incentive compensation management software can help organizations track and monitor sales performance management and track performance measures.

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. Organizations need to take more responsibility and initiatives to introduce and maintain functional sales incentive programs. Better Management incentive plans must have a positive impact on sales behavior and sales strategy. Incentive compensation programs should not practice complex incentive compensation plans which become an obstacle to operational efficiencies.

More than 75% of your sales reps in the entire sales team are not able to achieve set revenue targets. Organizational performance is one of the key factors behind introducing a sales compensation plan.

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 behavior could have been driven.
This is a critical step in Sales performance management as you would have wasted critical KPI of the sales process on which salespeople behavior 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 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 from both design or process perspectives.
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 are a different topic altogether and you will find it in a different article.
Till then, Happy Incentivizing!!!