Employment Enterprises Blog

Focus on Outcome with Incentive Comp – You Get What You Reward

Posted by Chuck Csizmar on Dec 20, 2016 6:48:00 AM

sales incentive plan

A company's sales incentive plan is like the Pied Piper from the childhood fable; it plays a tune and the salesforce follows behind. Wherever the Pied Piper leads, the salesforce will go - whether it be down the straight and narrow toward a bright tomorrow, or into the rough, down the hillside, through the brambles and over the cliff. Because the melody being played is about money, and when that tune catches the ear those chasing behind will follow it anywhere.

I was once brought in by a client whose sales incentive plan rewarded the sale of products that generated a loss on each sale. And it wasn't part of a loss-leader tactic, either. The sales reps were rewarded - even though their actions were detrimental to the company. Bad behavior was rewarded, and therefore it was repeated over and over again.

Which begs the question, why would a tactical plan for incenting sales employees encourage actions that don't support the company's own self-interest? Isn't anyone watching the store?

What behavior do your own plans reward?

Do you know?

It's up to those who design the sales incentive plans to carefully pick the right pathway. Because as long as the money is flowing the sales rep isn't going to raise a red flag and ask, "are you sure you want us to do this?" That's not going to happen, as most incentive plans are not self-correcting. The lemmings will race over the cliff as long as a dollar bill is waved in front of them.

Have you looked at the details of your own plans lately? Do they outline a plan of action that rewards the right kind of measurements (sales volume, revenue, margin, market share, etc.) that support the company's objectives? That drives an employee behavior that helps to deliver business success? Do you expect a Return on Investment (ROI) for the incentive money you've targeted for payment?

Get your checklist ready

While there might be more variations in sales incentive schemes than snowflakes in the winter sky, certain fundamental design elements do apply as prerequisites for success.

  • First and foremost the company has to succeed. Only sales targets whose achievement advances the company's bottom line should be used to incent employees. Are you paying for busy work?
  • Spell out what you want the sales force to achieve. Can employees tell you what their specific targets are?
  • Provide enough reward to change behavior. Like any incentive, if you want to encourage a certain behavior you need to place a carrot out in front. Not enough reward usually equates to not enough effort.
  • The greater the selling effort, the greater should be the reward. If your reps are simply taking orders (product sells itself), are you paying for what would have happened anyway?
  • Make sure you can measure performance against quantifiable milestones. Are payments made on the basis of measurable results or discretionary judgment?

Yes, there are other important criteria for sales plan success, but unless you start with a clear map that details where you want your sales force to focus their efforts, you run the risk of missing the mark - which can be an expensive mistake. You will need a team effort, not the disconnected activities of individually focused entrepreneurs.

The success (and continued use) of a sales incentive plan should be measured by the success of the business, not by how busy employees are, or even how much revenue is generated. Unless activities can be measured and achieved, and support the company's business plan, you're better off with a straight base salary plan. Because providing incentive rewards that don't benefit the company is often paying for busy work.

So ask yourself, does your sales incentive plan encourage the right sort of behavior, activities that will drive business success? Are you paying for the results you need? Are you getting your money's worth?

It might be time to check.

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Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant. Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.

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Topics: Human Resources Insights

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