The Shelf Life of an Incentive Plan: Why Every Plan Has an Expiration Date

Every sales compensation plan is built around a singular purpose: to drive specific business outcomes. Your incentive plan makes assumptions about the market opportunity, customers, products, competition, sales capacity, revenue priorities and more. The problem is that businesses don’t stand still. Products are introduced. Competitors react. Customers change their buying criteria. Economic conditions shift. Businesses grow and change strategy. However, many companies operate compensation plans that were designed for a version of the business that no longer exists. Indirectly, this creates a misalignment between executive priorities and seller behavior. Salespeople do what they are incentivized to do. If your plan has not changed since last year, they will follow the incentives designed to support your company’s priorities from 365 days ago. Revenue Ops teams are consumed with exceptions. Managers spend more time explaining plans than coaching reps. And executive leaders are left wondering why their strategic initiatives are not gaining traction. Incentive plans do not become ineffective because of bad design. They become ineffective because companies operate them past their expiration date. Successful organizations know when to evolve their plans before performance starts to suffer.

1. Every Incentive Plan Is Built on Business Assumptions

As mentioned earlier, every compensation plan begins as a series of business assumptions. Leaders assume that: 

a Priorities won’t change. 

b. Products will continue to perform as they have in the past.

c.Customer buying behavior will remain stable. 

d.Territories will remain balanced. 

e.Revenue targets will not need to be adjusted.

f. Sellers will perform behaviors that positively impact the business.

When planners build out incentives around these assumptions, they create a plan that will motivate seller behavior in service of your business strategy. The problem is that these assumptions almost never hold true for an entire fiscal year.

Say you’re a software company that kicks off the year focused on customer acquisition. To drive that strategy, you built a plan that incentivizes logo acquisition. You include aggressive accelerators and high commission rates to encourage your sellers to open as many new accounts as possible.

Fast forward 6 months. By the middle of the year, your customer acquisition costs have skyrocketed. Your executive leadership team has decided to shift their focus to customer retention, expansion revenue, and profitability.

However, your incentive plan? It still rewards acquisition. So what happens? Sellers keep signing new customers because that’s what the plan rewards.

Leadership talks about the new strategic priorities in town halls. They discuss how important customer expansion and profitability are during monthly sales meetings. But selling behavior doesn’t change. 

Why? Because regardless of what the PowerPoint says, sellers respond to incentives.

Perhaps your plan isn’t wrong. But it is no longer aligned to current business priorities. It has reached its expiration date. 

2. Recognizing When Your Incentive Plan Has Reached its Expiration Date

When was the last time you reviewed your incentive plan? More importantly, how did you know it was time for a review?

Unlike application software or your product roadmap, incentive plans do not come with little blinking lights that indicate they need to be upgraded.

Signs that your plan has become outdated come gradually. One of the first signs is when your plan continues to drive behavior that does not support current strategic priorities. For example, if your leadership team launches a new strategic initiative but sellers continue doing whatever it takes to maximize their payout under the current plan, it’s likely your incentives are sabotaging your strategy.

Another sign that your plan has reached its expiration date is whenRevenue Operations spends more time managing exceptions, approving manual adjustments, and explaining payout rules than driving seller performance. Management begins to request quota discounts, Territory Make-Good adjustments, and exceptions to pay rules because the plan no longer works for the sellers.

You might also see a shift in seller behavior. Top sellers focus on activities that optimize their payouts under outdated measures. Product adoption declines. Margins decrease. Forecasting suffers. And you see more and more commission disputes as sellers question rules that don’t make sense.

Let’s say your company launches a set of premium services that are significantly more profitable than your existing product suite. If your incentives still reward sheer volume instead of profit contribution, sellers will naturally pursue larger deals that generate more commission even if the margin is smaller.

The strategy changes. But your plan doesn’t. 

As your plan reaches  and passes  its expiration date, you’ll begin to see behavior that directly contradicts your executive priorities. At this point, many leaders assume that their sellers are resistant to change or that selling is simply too difficult of a profession to control.

The truth is that your sellers are responding to the incentives you’ve put in place. And if those incentives still prioritize last year’s plan, they will continue to do what the plan incentivizes them to do even if it hurts your business. 

3. Your Incentive Plan Should Be Reviewed as Frequently as Your Business Strategy

Too often, companies build new incentive plans once per year and assume that regular plan governance is enough to keep it effective. At RevLion, we believe Revenue Operations demands a new approach.

Incentive plans should never been viewed as annual initiatives. They should be treated as fluid, strategic frameworks that drive specific seller behaviors in support of your business.

Just as you would regularly review your financial performance, product strategy, and customer buying trends, you should evaluate your plan’s effectiveness with regular Incentive Health Reviews.

Ask yourself: 

a. Do our incentives still align with current business priorities?

b. Are sellers performing the behaviors we want them to perform?

c.Have customer buying patterns shifted? 

d.Do managers feel they’re spending more time explaining the plan than actually coaching reps?

e. Are new products getting the attention we expected?

f. Are our incentives driving profitable growth or just top-line revenue?

Hold a meeting. Bring together Finance, Sales Leadership, Revenue Ops, Product, HR and Sales Compensation. Review your plan. Poke and prod at every assumption that was made when designing the current plan.

You should own your compensation plan as a cross-functional team. Revenue Operations should not bear sole responsibility for incentives. If your plan remains static because only one team is responsible for it, you will naturally fall out of alignment with other parts of the business.

That being said, identifying when your plan has reached it’s expiration date does not mean you have to completely redesign your plan every quarter. Instead, it means asking questions about the assumptions that were made when designing your plan.

Are those assumptions still true? 

Perhaps your plan is perfectly aligned it’s just that sellers don’t fully understand it. In this case, you could solve your problem with better communication and coaching.

But what if sales managers are asking for plan exceptions more frequently? What if customer buying patterns have changed? What if new products are not being adopted as you expected?

In these cases, you may need to make adjustments to your measures, accelerators, quotas or perhaps even your strategic priorities.

Changing your plan is not the goal. Maintaining continuous alignment between sales incentives and your business strategy is.

As your business strategy evolves, your incentive plan should too. Approaching your plan with the mentality that it will always have a shelf life keeps you proactive rather than reactive. When you recognize that your plan was designed to drive specific behaviors in service of your business objectives, it becomes easier to know when those objectives have changed.

Incentive plans should never be stagnant. They should be reviewed, updated, and improved upon with the same frequency that you review your business strategy. When companies realize incentives have an expiration date, they can adapt their plans before the business starts to suffer. The companies that consistently outperform their competition won’t build better incentive plans. They’ll know when their plans need to be updated.