5 questions that should be answered in an incentives scheme

Often, people think designing a motivational scheme is a task that can be done in no time; this is not true.  It is imperative that a team is responsible for the system looking to base it on the terms and conditions of the organization whether big or small. This would boost productivity and efficiency.

It is expected of big firms to have a designated design team with the sole aim of accessing current system incentives, improving or developing a new scheme if necessary. Does that mean though that only a big company should strive to create an effective incentives scheme?  

Here are five fundamental questions that will help a company with deciding on the system to use.

1.    Who from sales and non-sales functions and roles should participate in the motivation scheme? 

There could be as much as 15 persons in the sales team involved in the deal having different positions. A salesperson as the owner of a sales opportunity is tasked with running and closing the deal, while other people are playing their roles as well. These people are pre-sales, strategic or key account managers, product consultants; depending on the firm. Each has a unique position to play in the salesperson in bagging the deal. 

Should they be entitled to remuneration for their work? Should it be commission based?

Different opinions have been heard on whether the non-sales personnel has the right to commission from the deal. While some argue that there wouldn’t be a success if not for the inclusion of their efforts, whence deserves some pay; some opined that the company could pay them a higher salary that would compensate the lack of commissions.

There are five basic principles to keep in mind when deciding which role is eligible for sales incentives: 

1.   Develop a tangible rapport with customers and prospects through frequent interaction.

2.   Persuade customers on business matters through excellent customer relations.

3.   They influence customers to take beneficial actions and change their status quo.

4.   Possess a high level of sales process dealings or ownership.

5.   They are set with clear and quantifiable sales aims and objectives.

2. How much in incentives shall the company pay sales roles?

This is dependent on the payment structure of the company. This shall be decided based on a level in the market. Once it has been determined, the firm shall evaluate what should be the mix between the basic salary and the variable part, alternatively how much on top of the basic salary a salesperson shall earn through incentives. Some job descriptions and roles have standard pay whereas some pay varies according to accomplished tasks and responsibilities.

Certain factors would lead the company to pay more on the fixed part and others to the variable one. 

See below high-level guidance as to how one can decide on the subject. 

Factors leading to higher salary:

•    The role is centered on customers.

•    The success and sales philosophy are team-oriented, and

•    The target is set at long term

Why the need to move to higher Incentives:

•    The job role is more of a sales and numbers game role oriented

•   There is mainly a short-term cycle of the deal, and 

•   There is a highly competitive environment

Nevertheless, there are some factors to be considered before choosing the pay mix such as the sales opportunities, the company’s philosophy, and history, the support a salesperson gets and finally the way to run sales.

3.    What is the form of incentives to be paid? 

The company shall pick an appropriate motivation plan out of the various available forms of payment. Depending on the sales role, the sales philosophy and other factors the company shall decide which formula to use to pay the salespeople.

The decision to whether a target should be chosen or not is the first step to take. Having a goal means the salesperson that the payout depends on the performance of her against her target. If there are no quotas in place, a salesperson can get still paid with the same incentives formula, but it can be more simplified as the achievement doesn’t matter.

It is imperative to determine the actual role and best way to carry it out. There is a need to lay out the differentiate an income producer like a broker from a sales role that usually has a sales objective. 

Commissions, bonus schemes, bonus pools, team bonuses, profit-driven formulas, etc., are some incentives methods to consider.

4.    Which are the objectives an incentives plan shall pay for and how much? 

When designing an incentives scheme, it is imperative to identify how much to pay a salesperson for individual services. In a scenario where it is required of a salesperson to multitask, how much will the system pay for the extra job?

Once the incentive method has been determined, the next thing to do is decide the weight each has in the scheme and the importance of one measure against another. Generally, the company shall prioritize out of the 3 to 4 means the main ones having no less than 30% to 40% weight to the scheme. 

5.    What should be the frequency of payment and which are the factors determining when these shall be debited to sales people’s bank account? 

Monthly, quarterly or annual; how will the commission be paid? If there is a big deal where the first payment from the client takes place in 2 years, shall the salesperson get a commission before the payment? Shall the company pay when the contract is signed or when the invoice is settled? Or split it into two commission payments one with the signature and the second with the invoice? 

These questions are to be taken with the most active hands when designing a plan for compensation. Anything less can bring about an ineffective system.

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