The 5 Must-Haves of a Sales Incentive Plan

During my early working years, I was often reminded that the best sales reps are driven by money.

Once, I even heard that being in the red (whatever the reason) is the biggest incentive for a sales rep to perform.

Without getting into a lengthy story, compensation is certainly a major driver when one takes on a sales position.

Therefore, the incentive plan is a key instrument for companies that should not be overlooked.

Let’s agree on five characteristics an effective sales incentive plan must demonstrate:

1️⃣ It must reflect the company’s strategy

Do you only remunerate turnover while the company is thirsty for margin?

Do you remunerate a one-year contract and a three-year contract the same way? A commodity product and a high value solution the same way?

2️⃣ It drives behavior and is motivational

The plan should impact (individual) behavior by rewarding the expected conduct and performance.

This looks like an open door; however, it is worth spending some time on defining the desired behavior, and the correlation between the plan and the outcome.

3️⃣ Simple to Understand

The plan should be straight forward and easy to understand, and calculations should be easy to calculate.

This prevents sales reps from feeling as if they’re in a black box until they are informed, by the relevant departments, about their compensation.

Ideally, one should be able to calculate their own compensation after each sale.

4️⃣ Avoid negative side effects

The more complex the plan is, the more it can generate unexpected side effects.

Beyond the obvious (e.g., a non-motivational plan), potential effects like sandbagging should be assessed and considered upfront.

5️⃣ The plan needs to be “sold”

Building an effective incentive plan is not an easy task. It can take a lot of time and effort and, because of this, it has to be successful out of the gate.

To achieve this, the plan must be sold (not just told) to the sales organization (Q&A sessions).

Ideally, it should be sold upfront, before implementation, with the ambition of gathering valuable input to make the plan more impactful and increase buy-in.

The plan actually needs to be “bought” by the sales community: the background and the plan itself must be understood, and it should leave the sales reps motivated to do their best.

Once the items above are agreed upon, the real work begins: building the plan in all its aspects (teaming with HR, the admin side of it, quantitative and qualitative KPIs, accelerators, thresholds, etc.).

This being said, the incentive plan is only a piece of the picture.

It must be combined with the proper target setting to make it a comprehensive picture.

In the end, an incentive plan will only prove excellent when targets are met or exceeded.

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