Your Sales Strategy Says One Thing. Your Compensation Plan Pays for Another.

Every sales compensation leader knows too much time is spent arguing about which KPIs to include in an incentive plan. Too little time is spent asking how much each KPI should be worth.

It’s a decision that’s often left to Excel wielding experts instead of business leaders. But it doesn’t have to be. 

Weighting your KPIs is one of the most powerful tools for modifying seller behavior. But too often, compensation leaders leave the decision to “default” to historical weighting, negotiate percentages with executives and settle on industry benchmarks.

This approach may give you the “right” KPIs. But chances are it’s paying sellers to do everything except your most important priorities.

Here’s why your sales incentive plan’s KPI weightings matter far more than you think.

1. Weightings Are Behavioral Decisions, Not Mathematical Ones 

Imagine a telecom leader trying to push customers onto higher margin, 5G plans.

Leadership meetings say that product mix is important and moving customers to premium plans should be a priority.

Yet, the compensation plan pays 60% of incentive compensation on total revenue, 20% on customer acquisition, 10% on retention and just 10% on strategic product mix.

Incentive plan messages are louder than leadership messages. The economic realities of the plan trump what anyone says in a meeting. As a result, sellers will spend the bulk of their time selling premium—unless total revenue opportunity is better in lower-priced plans.

Simply put, when you weight your KPIs, you are creating a relative value of what matters most to the organization. For sellers trying to maximize their earnings, that translates into clear behavior decisions.

Think about your KPI weightings as a hierarchy of priorities that you are explicitly defining for sellers. Ignore that at your own peril. 

2. Hidden Problem: When KPIs Conflict 

What happens when two KPIs come into conflict?

Look at a SaaS company focused on profitable growth. Revenue is weighted at 50%, new customers 25%, gross margin 10%, retention 10% and expansion 5%. Adding them all up sounds pretty good. 

But now let’s say a seller has two choices:

Choice A: Close a highly discounted deal this quarter. 

Choice B: Land a higher quality customer that produces less revenue now but much better overall economics.

Which do you think they’ll choose? 

Hint: The compensation plan already chose for them. And if contract length is equal, the seller will likely take the bigger commission payment today rather than waiting for higher retention bonus payments in the future.

Want another example? Say an insurance company wants to increase book profitability and retention while also growing premium.

If rewarding premium production accounts for 70% of incentive earnings, but profitability and persistency are only minor aspects of the plan, guess which business drivers sellers will pursue?

When KPIs compete, sellers will take the action that pays the best. Not because they are greedy. Because they are rational. 

That’s why leaders must consider the economic leverage embedded in your KPI weightings.

Yes, your plan may incent the “right” behavior 80% of the time. But what about that other 20%? Are your weightings quietly undermining the company strategy?

Awarding weightings is not just about saying revenue is important. It’s about understanding how your levers impact seller behavior when those priorities collide.

3. Engineer Economic Leverage Instead of Choosing Weightings 

Fortunately, there is a better way. One that requires you to ask four questions about every KPI you include in your plan.

Question 1: Strategic Importance 

How important is this KPI to the company’s short-term and long-term strategy?

Question 2: Seller Influence 

Can the seller directly influence this KPI through their work?

Question 3: Economic Value 

How much economic value is created when this KPI is driven? For example, how much value is added for each percent of margin increase?

Question 4: Behavioral Impact 

How much incentive leverage is required to change seller behavior (increase activity) to impact this KPI?

Once you know the answer to these questions, start asking better questions when designing your plan. Like this: 

Instead of saying, “Revenue has always been 60% of plan.” Try:

“How much of a seller’s earnings should be at risk on revenue?

Are we creating enough economic leverage to drive desired revenue behavior? Too much? Too little? 

Next, do the math. Model several different scenarios to see how changes to weighting impact seller behavior, plan payouts and most importantly the business. Do higher weightings on margin drive more profitable growth? Do lower revenue percentages shift seller behavior and improve product mix?

This is why your sales compensation software should do more than run calculations. It should open a dialog about how compensation impacts seller behavior. Allow Sales Compensation and Revenue Operations teams to model different plans before publishing them. Identify winners and losers. Show the impact on payout distributions. Forecast how changes to plan design will impact the business.

Don’t design an incentive plan in isolation. Then implement. Instead, simulate and predict the impact of reward before you put it into production.

Because sales compensation design isn’t a one-time exercise. It should be an evolving feedback loop of:

Design → Simulate → Deploy → Observe → Measure → Rinse → Repeat 

Sales compensation leaders shouldn’t strive to create perfectly weighted plans. Their goal should be to create plans where the economic incentives of the plan align with the economics of the business.

That’s a much more powerful strategic decision than any “percent-bating” exercise can provide.

Don’t forget why you are weighting KPIs in the first place. You are deciding what sellers will prioritize because they are responding to incentives, not strategic planning sessions.

Leaders make strategic decisions with every KPI they include in a plan. Don’t undermine those decisions by blindly choosing weightings.

Ask yourself: If our sellers behaved every day as our plan financially rewards them to behave, would we be happy with the results?

If not, it’s time to start engineering your plan’s economics.