Best Practices for Incentive Compensation Management Process Excellence

by | Nov 11, 2022

When you look at sales incentive compensation from a macro perspective, it means encouraging sales representatives to perform specific activities in exchange for rewards and benefits to accomplish desired performance outcomes. However, it doesn’t seem as straightforward as you may expect when you start taking a closer look at the process.

Because your sales team isn’t a coin-operated vending machine, yielding the desired growth and revenue isn’t as easy as dropping in a couple of quarters in the coin slot.

For any incentive compensation management program to succeed, it needs the right combination of variables, such as base salary, incentives, and commission, to inspire and motivate sales representatives to drive performance and net sales outcomes with each passing quarter.

It’s the job of sales leadership to carefully choose the right incentive plan for the organization and its sales staff. Before they can proceed with it, several key questions need to be addressed. Let’s take a look at them –

  • What would adequate compensation for top sales performers would ideally look like?
  • What could be the disadvantages of underpaying or overpaying?
  • How can you identify when and if you are paying too less or too much?

Fortunately, sales operations teams can consider a data-driven planning approach, follow the best practices of incentive compensation management, and conduct regular analysis to find answers to these critical questions and prevent common incentive management mistakes that most organizations tend to make.

What are the Best Practices of Sales Incentive Compensation Management?

When you set sales quotas that are not fair then it causes distrust in the system and doesn’t provide enough incentive for sales representatives to go above and beyond, you cannot expect them to put effort into enhancing their performance further. In such instances, your organization will witness a drop in performance, resulting in a loss of revenue and potential deals.

If you’re keen to avoid taking such a plunge, here are five best practices you must implement to ensure that your sales incentive compensation management is effective. 

  • Setting the Right Bar for Sales Quotas 

Precise and accurate sales quota planning is paramount to the success of your sales force. Just like setting the bar too low would result in windfall gains for the salespeople, unrealistically high quotas can make them feel discouraged and burnt out. The best way to set quotas would be to rely on historical data along with territory potential markers. 

  • Making Incentives Worth Your Sales Representatives’ Time and Effort 

For sales incentives to be effective, they must genuinely motivate your sales representatives. If they don’t appear enticing enough, your sales force won’t work hard enough to achieve or exceed those goals. While weighing cost (effort) against the prescribed benefit (incentive), your sales staff’s earnings need to be structured so that the benefits stand out as a clear winner.

In order to achieve this, sales operations teams would require accurate sales forecasting to enhance seller performance, improve pipeline visibility, and gain insight into commission earnings. When done right, organizations will be able to avoid scenarios where they end up paying higher incentives even when performances have been low. 

  • Tailoring Incentives According to Job Roles 

Because each job role comes with unique responsibilities, you need to ensure that your compensation plans are customized based on specific roles. For example, you cannot expect the same compensation model for both a reporting representative and a manager.

Ideally, incentives should drive bottom- and middle-performers to improve their performance and reward individuals who have been overperforming consistently. Such incentives will encourage the right behaviors, helping organizations to achieve their desired sales and revenue goals. 

  • Avoiding Capping the Sales Compensation Plan

The role of incentive compensation plans is to drive behaviors that you seek from your sales staff. If you reduce the incentives when your representatives are able to meet 120% of their set quotas, it sends out a clear message that you want them to stop putting in effort when they reach that level. By doing so, you’ll end up missing out on opportunities that could translate into a higher ROI – all because your salesforce will hit their given numbers and stop working. 

  • Aiming for the Bell Curve 

You must give your sales incentive compensation plan adequate time to align with your company’s goals. When it happens, your job will be to revisit data and assess whether engagement within your salesforce has improved. If the data shows that they are barely exceeding or meeting the prescribed quotas, you must take a closer look at your sales incentive plan along with the actions it has been driving.

If you notice that your sales team has been barely hitting the quotas and reducing their efforts afterwards, it is usually because they are just meeting your set expectations. In that case, raising the bar can be useful. If they perceive rewards as worthwhile, your sales forcewill most likely rise to the occasion, ultimately driving the performance rates upwards. 

  • Leveraging a Sales Incentive Compensation Software 

There is no denying that the excellence of sales incentive management depends on managing complex data efficiently. Sales employees expect accuracy in their incentive payout rollouts, and it can be time-consuming to manage them on excel sheets. Because of this reason, successful organizations rely on the best sales compensation software applications to manage quotas and incentives.

With Auroch’s comprehensive compensation management solution, you can take care of all challenges you might face with your incentive management, from commission plan to employee performance track to bonus management.

Inspire with a Better Sales Incentive Plan Today! 

When you have the right incentive compensation plan, you can shape your sales team in a way that drives your organization forward. In turn, it will also enhance your company culture, creating an atmosphere of education, learning, healthy competition, and mentoring.

When you follow the best practices, you create room to make regular improvements to the system, enabling transparency and predictability in salary structures.

If you think your current compensation plan could benefit from a couple of tweaks, don’t shy away from the challenge. Instead, you must welcome it because it will pave your company’s path towards a brighter future.