December 7 by Sarah Van Caster

Derailing sales incentive compensation

At the beginning of each fiscal year, sales incentive compensation programs are rolled out with the best of intentions. However, half of the time, they do not produce the desired results. When properly implemented, incentive programs are highly effective at motivating behaviors and driving profitability, but when poorly executed, they generate frustration among the workforce and potentially hinder the achievement of business outcomes. Organizations need to understand not only what motivates salespeople, partners and customers, but also what is required to execute the organizational strategy. Incentive programs are all for naught if they are not aligned and coordinated across the organization, and even beyond, to include all resources involved in the Quote-to-Cash process.

Across industries and regions, we see the same missteps over and over. Avoid these common mistakes to better align your incentive programs with your business strategy to drive winning outcomes.

Common Sales Incentive Compensation Pitfalls

1. Overly Complicated Plans – When incentive plans are too complex, salespeople get frustrated because it is not clear what it takes to succeed. To avoid this, keep plans straightforward to enable the alignment of sales efforts and company goals.

2. Disconnected Rewards – Commission payments are often delayed months, if not quarters, after a sale has closed. This is discouraging to salespeople who are typically driven by immediate rewards. Minimize lag time between activity and reward so salespeople connect the dots between performance and reward and stay motivated.

3. Frequent Plan Changes – Frequent plan changes can cause confusion and irritation for salespeople. Minimize mid-period adjustments when possible and clearly communicate all changes.

4. Lack of Communication – Poorly communicated plan roll-outs (and plan changes), can cause confusion and lead to failure. Communicate plan roll-outs and updates clearly helping salespeople understand the benefits for both themselves and the organization.

5. Inconsistent Program Investment – Incentive plans should have the same level of intellectual investment as a company’s marketing plan or sales strategy and must be aligned with the organizations business goals.

Man frustrated at Incentive compensation plan

6. Plans Promote Wrong Behaviors – Incentive programs can result in unintended consequences. Identify three to five clear business goals and map all incentives to drive only those goals. Whenever possible, model the potential impact of proposed changes before deploying them.

7. Unrealistic Sales Goals – When quotas and targets are set too high or too low they are not effective. Sales targets should be aspirational, yet attainable. Define clear, realistic goals and ensure you have the proper sales resources to accomplish them.

Effective incentive programs provide value across the organization. Not only will your sales teams and partners understand expectations and focus on maximizing their performance (and company profits), customers will receive products and services that best suit their needs. And management will be empowered to execute the company vision based on the tight alignment of performance and business outcomes.

[Infographic] The 7 Most Common Pitfalls that Derail Incentive Programs

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