Incentive Compensation is basically performance-based compensation – exclusive of the base salary that a rep might receive – and is directly connected to the reps’ goals and milestones. A good Incentive Compensation plan will tell the rep in clear terms what they need to do in order to earn more. By setting clear and realistic goals for sales reps, an IC plan drives them towards profitability.
But, organizations are struggling to design, implement and manage a working IC plan! Growth leaders need to understand their company’s unique pay philosophy and try to create plans that align with the organization’s-
- Value systems
- Employee needs
Always remember that a plan that works for one organization may not work for you! Even so, it is also important to understand that some rules need to be followed in order to cook up the perfect IC recipe. The the fundamental principles that you should keep in mind while crafting your plan are-
- Organizational Principles-
These refer to the strenuous task of aligning your plan with your company’s expectations. Some questions that you should ask are-
- How do you define success? State clearly what your idea of success is.
- Then, ask if you can quantify your idea of success so that your reps can understand what they are working towards?
- Can you ensure that the targets you have set align with the organization’s goals?
The answer to these questions - KPIs or Key Performance Indicators. These are your indicators for success and the north star for your employees. Experts suggest that KPIs should be limited to three. Another commonly accepted suggestion is that each KPI should at least be 15% of the total incentive target in order to keep your reps focused on what matters. Make sure that the KPIs you set are SMART-
- Motivational Principles -
No two salespeople are the same. Therefore, it is not difficult to fathom that they will be motivated in different ways. Case in point – a new hire may be driven by commissions he gets from each sale while a veteran salesperson may be driven by the bonus he gets after hitting the set quotas. Ask your employees-
- Are they happy with the compensation that are currently being offered?
- What drives them? Is it more recognition, more money or more flexibility? Give the incentive a face.
When reps are directly involved in the decision making process, they are bound to feel valued. So, ask them even if you know. You may just be surprised!
You plan should take into consideration these variations among reps-
- Behavioral Principles -
In order to understand Behavioral Principles, you must ask if-
- Will your reps deliver against your plan?
- Should team behavior be rewarded? If yes, then to what extent?
- Is your plan simple and understandable?
Because ‘understandable’ is a highly subjective term, it would help to look at this checklist of behavioral principles put together by The Society for Human Resource Management and consultant Aubrey Daniels . Your plan should be-
A natural progression in your IC plan design is natural. With this ever changing business ecosystem, your plan is bound to change. Good plans will have the potential to adapt to changing company goals, product launches and new market practices. To learn more about how an automated Incentive Compensation Management solution can help you with your IC plan, book a demo with us today!