Does Your Sales Incentive Plan Drive Growth?

DECEMBER 6, 2022

Employers heavily rely on their sales associates to drive profitable growth for the organization. Businesses that fail to grow often point to a struggle to hit sales goals or retain sales staff. To ensure continued growth, especially amid high inflation and recession concerns, make sure your compensation plan is competitive and motivating, and rewards desired sales behaviors.

A well-designed incentive plan drives positive results through improved performance and employee retention, and helps ensure equitable and appropriate compensation. Review your current incentive plan to evaluate several key factors and adjust as needed:

1. Quota Setting and Sales Targets

Sales leaders should determine whether the target- and quota-setting process needs to be altered and/or the plan design provides too much incentive for outperforming quotas. Compare the actual distribution of performance across the sales force to the expected distribution to ensure performance goals are appropriate. Take time to evaluate how COVID-19 may have impacted customers and demand for your products and services.

2. Pay for Performance

Carefully crafted plans should reduce the risk of overpaying for the wrong results. In a well-designed plan, the risk of a low-performing sales representative earning high pay is reduced. Determine this by plotting actual pay against actual sales or profits and identifying any outliers.

3. Pay Mix

Financial budgets and operating schedules are designed around expected levels of performance and target pay mix. Since pay mix — the ratio between fixed base salary and variable incentive pay — varies by role, it should reflect the role’s impact in the selling process. Use market data to determine the appropriate competitive pay mix for the various roles. You can also evaluate how sales roles have changed and if compensation plans have been updated to match.

4. Leverage

Leverage is the total potential incentives available to reward top performers. There should be significant differentiation between your top performers and your median performers. Your top performers will become frustrated if the pay differentiation is too low. Payout scales may need to be modified to create greater differentiation when sales team members meet and exceed targets. Analyze the ratio of the average earnings by the top 10% of the sales force compared to the median earnings. The ratio should indicate whether your plan has the appropriate leverage.

5. Performance Ratings

Review the relationship between total pay (base salary and incentives) and performance ratings to determine if your sales incentive plan is biased against your top performers. Performance ratings consider long-term measures such as knowledge, skills, abilities and leadership potential. Often, top performers are asked to participate in strategic initiatives, which take time away from selling activities. It may be necessary to adjust base salaries for your top-performing sales team members to deliver competitive total pay levels relative to the other team members.

Ensure the continued success and growth of your organization. Contact your local USI benefits consultant or email to learn more.