Business is a competitive world, and it’s even more cutthroat in sales. Markets change constantly, and successful businesses are focused on making sure their incentive plans align with their business strategy and provide a competitive edge to their sales efforts. Get it right, and your company can soar. Get it wrong, and you might as well plan to crash. Developing an incentive plan for an organisation is not a trivial task – there are all sorts of considerations, and there’s a lot at stake. In this extensive guide I’ll cover everything that CEOs need to know to build an incentive plan that’s designed for success in their business.
Table of Contents
1. Clearly Define Business Objectives:
2. Understand Sales Roles and Structures:
3. Balance Fixed and Variable Compensation:
4. Set Clear and Measurable Performance Metrics:
5. Foster Collaboration and Teamwork:
Frequently Asked Questions (FAQs):
Q1: How can I ensure fairness and equity in the incentive plan?
Q2: What role does technology play in optimizing sales compensation management?
Q3: How do I motivate my sales force to prioritise long-term customer relationships over short-term wins?
1. Clearly Define Business Objectives:
Any effective incentive plan begins with a view of what the business aims to achieve. Before detailing the plan itself, and its various elements, CEOs have to identify the overarching goals of the business. Whether the aim is gaining market share, increasing revenue, expansion into new markets, or improving customer attitudes, these are the objectives that the incentive plan is there to help fulfil.
For example, suppose your organisation is a software company and your CEO wants to grow the company’s market share in the cybersecurity business segment. The CEO could design an incentive plan where the sales reps are rewarded for growing the number of cybersecurity clients by creating an incentive plan that is clearly linked to the company’s strategic goal of growing the cybersecurity business.
2. Understand Sales Roles and Structures:
For an incentive plan to be effective, it must conform to each sales role and organisation structure One of the most important things for a CEO to understand when optimising a compensation programme is how that company can and will deliver sales under the different types of sales roles and an organisation structure. It could be inside sales, field sales, account management, or a combination of them. If the incentive plan aligns with what each sales role expects from its responsibilities and is fairly balanced with what a salesperson expects to achieve performance-wise in that role, across the board it will encourage fair and effective motivation.
For example, a CEO of a retail company might want to develop different incentive structures for store managers, sales associates, and regional sales managers, based on their roles in it, as reflected by overall sales and by different metrics related to customer satisfaction with transactions.
3. Balance Fixed and Variable Compensation:
Finding the right mix of fixed and variable pay is critical: while a basic salary secures loyalty and commitment, variable remuneration schemes such as commissions, bonuses and discretionary awards can help motivate salesforce performance and ensure that individual efforts are in line with organisational objectives.
An example: a telecommunications firm may provide a commission on top of the basic salary for members of the sales team. The commission is proportionate to the number of contracts signed with new customers or the additional revenue generated by offering more services to existing customers. With this scheme in place, sales representatives are motivated to constantly seek out sales opportunities and to maximise revenue generation.
4. Set Clear and Measurable Performance Metrics:
The success of any incentive design lies in the fact that it’s designed only around quantifiable and measurable performance metrics. CEOs have to define a set of key performance indicators (KPIs), that ought to truly correlate with the required outcomes and ensuing behaviours. These may include metrics of sales revenue, new customers acquired, retention of existing customers, or product adoption metrics in the days and weeks after purchase. Whatever they may be, they have to be: specific, measurable, achievable, relevant, and time-bound (SMART).
For example, a firm in manufacturing might consider metrics such as units sold, average order value and customer experience or satisfaction as indicators of how well it is using sales to encourage revenue growth and customer satisfaction. If a firm takes measures to track the metrics that matter for revenue growth and customer satisfaction, it can help encourage growth in sales and in ways that are conducive to customer satisfaction.
5. Foster Collaboration and Teamwork:
And while an individual-based incentive scheme will inevitably reward the team’s highest performing salesperson, by encouraging team-based incentives that recognise collaboration, sharing knowledge and support between sales teams, CEOs could encourage the growth of a high-performing, collaborative team culture that would be competitive on both counts.
For instance, a drug firm might offer a team compensation system in which payouts are based on the collective attainment of a shared target (eg, sales in a certain therapeutic class, or area). Such a scheme would stimulate cooperation among sales teams and bolster collective identification with a shared venture.
Frequently Asked Questions (FAQs):
Q1: How can I ensure fairness and equity in the incentive plan?
Ans: In order not to demotivate the sales team, and keep them hard-working, fairness and equity should prevail in the sales organization. CEOs can reduce perceived unfairness by: Clearly defining and communicating how performance is measured; Treating all employees the same; Frequently reviewing the ranking of our lowest and top performers — are efforts being equally rewarded? Is the compensation structure skewed in favor of one group? What can we do about it?
Q2: What role does technology play in optimizing sales compensation management?
Ans: Technology plays a critical role in automating and improving sales compensation management processes. Today, new generation of sales compensation software offer features such as performance tracking, incentive calculation, realtime analytics, which can be utilized by CEOs to automate administrative tasks, get actionable insights and take decisions to optimize their selling efforts by incentive compensation.
Q3: How do I spur salespeople to focus on maintaining a long-term relationship with customers as their main priority – not just short term money?
Ans: In addition to generating short-term revenue, CEOs can increase a salesperson’s bonuses to promote larger long-term customer relationships. A performance-based incentive plan that includes measurements of customer-satisfaction scores, repeat business and longer-term customer lifetime value can encourage the sales team toward behaviour that creates loyal, repeat customers and profitable, sustainable revenue streams over time.
To sum up, there are many matters for CEOs to keep in mind when they design the organisation’s final incentive pay plan, such as the business objectives and the sales forces and the roles of the sales force, the compensation models, performance measures, and organisational culture. With the understanding of these matters and the relevant real-life cases and insights we see earlier, CEOs’ incentive pay plans will contribute to the significant boosting of the performance of sales forces and the success of the organisation in the business market.
