Category: Incentive Compensation Plan

Paul, a salesperson, applied for a job at a technology company; in the last round of interviews, he asks the sales leader the following questions:

“What is the commission plan you have in place for the employees?”

“How much does the plan pay for target realization?”

Payment of incentives to salespeople isn’t a new concept; almost every company that deals with selling products or services and paying employees makes use of this compensation plan. Added to the fixed salary of salespeople is a ‘variable’ payment section, the variable part is not defined and differs with each worker. 

For a company to accurately decide on how much each salesperson should be paid based on this variable, there’s a system that can be implemented known as the motivation scheme. 

THE INFLUENCE OF PERFORMANCE MEASURES ON A MOTIVATION SCHEME

A friend, who’s a sales manager, once reached out to me for assistance on how much he needed to pay his salespeople. As soon as he requested my help, a series of questions began to race through my mind. Questions like:

“Who should get paid” “How much?” 

“Should I add an equal variable to the fixed salary of the salespeople?” 

“Should I pay them with a bonus?” 

“Should I assign payments based on a commission factor? And should I only pay above a specific minimum performance.” 

Let’s take a look at the concept of business. Practically, idea pans out differently when put into practice. This is as expected anyway, because as the famous saying goes, “it is easier said than done.” A good idea is one that is appropriately assessed to satisfy customers, the company, and its shareholders. Without this, a dead-end to the business is looming.

This is also applicable when it comes to incentive programs, as the company takes time to craft and actualize a reward system that is beneficial and unharmful to all parties. The fantastic effort of a professional team takes to design an incentive scheme shows what a great process it is. The sales team takes it up from there and oversees the implementation, one which comes with lots of scrutiny as well. As these are all needed to bring efficiency, one could wonder what would have happened if no such assessment is done in the first place. Safe to say, it could have jeopardized the whole effort.  It is, therefore, essential to assess the system. To achieve this, it is vital to find answers to questions, such as; How does one know if the system is effective? What does effective mean in the first place? How does each company measure effectiveness, and how is it different between different companies? 

When shall we assess it?

Timing is essential in assessing an incentive scheme. To determine and analyze the results, it needs to be some time, whence one could be arriving at a wrong conclusion. Majorly, it all depends on the changes that occur in the system. The evaluation may be done if such changes were effective in 2-3 months, with a further six months required to see the significant changes in the system to manifest. The nature of products, services, and the sales cycle are the primary determinant in this case.