Why Your Incentive Plan Is Probably Broken Before Launch

Organization’s believe their incentive plans fail because they are poorly executed. The truth is most incentive plans are broken before they hit the sales force. And its not usually the formula itself that’s the problem  its the broken process behind how they’re designed. Incentive plans get built in spreadsheets, sent through email chains, altered by multiple stakeholders, and approved without anyone understanding how they will impact seller behavior or align to the overall business strategy. By the time it’s approved, the plan has departed from its original intent, complexity has been added, and no assumptions were tested. Organizations are left with a compensation plan that creates confusion, motivates undesirable behaviors, and fails to meet strategic goals. In order for organizations to build effective sales compensation programs, they must change how they approach incentive plan design. Building a plan should be a strategic, collaborative, and data-driven process not just an administrative task.

In this blog, we will outline some of the most common pitfalls when designing an incentive plan and highlight how Sales performance teams can address them.

1. The Spreadsheet Problem: How Incentive Plans Lose Their Original Intent 

At most organizations, designing an incentive plan starts the same way it has for decades: in an Excel Spreadsheet. Maybe its a product leader, sales leader, or marketing exec who starts the process by whipping up a draft plan they think will incentivize a strategic outcome. Maybe they want to see faster adoption of a new product. Improve profitability. Increase retention. Whatever the case may be, when you boil it down to a plan created by one individual in a spreadsheet, the original intent is pretty clear and straightforward.

Then comes the email. That spreadsheet is sent to leadership for review. Finance asks questions to reduce payout exposure. Sales leadership wants to make quota easier to attain. HR vetoes any plans that may have governance concerns. Regional leaders want to talk exceptions because their market is different. Suddenly, ten different stakeholders have modified the plan based on their own needs, without understanding how their changes impact the overall plan behaviour.

When the plan gets approved, any original intent of the plan is gone. What was supposed to be a laser-focused incentive to drive a specific business outcome has turned into a wishy-washy document that tried to please everyone. Complexity is added. Payout logic is impossible to understand. And sellers are left confused about what they should actually be selling.

Let’s pretend for a second that you work at a company that is launching a strategic product. Leadership decides they want aggressive incentives to drive rapid adoption. They create a plan that pays 150% commission on that product and start the approval process. During review someone asks about payout %’s and they get pushed down to maintain budget. More conditions are added to limit who can sell the product. Management approval takes months. By the time the plan launches, that product only pays slightly more than your other offerings. Predictably, sellers don’t sell it. Why should they? It pays the same as everything else. When quarterly numbers come in, senior leadership asks “why don’t our sellers care about this product?” if you asked them about the incentive plan, they would likely respond with something like, “there is no way they wouldn’t want to sell that! We incentivized them!” 

Sound familiar? Every sales compensation program has a story like this. It’s why 99% of incentive plans are broken before they launch.

2. Incentive Design Is Often Governance-Heavy but Strategy-Light 

In addition to losing sight of the original intent as it passes through organizations, another problem is how many companies approach the planning process. Incentive plans are often treated as a governance process, not a strategic design exercise. Teams spend large amounts of time discussing how the plan will be approved, how payouts will be validated, budget limits, exceptions processes, etc. While these topics are important, what usually gets sidelined is the most important question of all: what seller behavior are we trying to drive?

When you don’t begin incentive planning with a clear understanding of desired seller behaviors, you’re left with a plan that may be mathematically accurate but behaviorally useless.

Let’s say you work at a company that spends 2 months designing a brand new incentive plan. They spend weeks building out payout curves in Excel, modeling different financial scenarios to ensure payouts are accurate. Everything is “buttoned up” from a finance perspective, but no one asks what seller behavior this plan will drive. Suddenly sales leaders start sharing concerns about sales force motivation. Finance hates tweaking payout curves month over month, but there is no process to adjust. By the time you launch that plan it may be too late to make changes.

What if instead of guessing at what will motivate sellers, you actually tested it first? What if you could see how sellers will respond to your plan before you ever launch it?

3. Why Modern Incentive Design Requires Simulation, Collaboration, and Continuous Testing

So how do you avoid launching broken plans? The key is changing how plans are designed. Static spreadsheets and waterfall approval processes won’t cut it. Organizations need to simulate incentive plans before launch, collaborate across silos, and continuously test & optimize plans.

Successful sales organizations are starting to model incentive plans before they’re finalized. Instead of sharing plans and asking “does this look good?”, teams are digging deeper. They’re asking questions like:

a. What behavior will this plan motivate? 

b.Who are the winners and losers in this plan?

c.Are there any unintended consequences that we should know about?

d.Does this plan reinforce our strategic objectives? 

Take for instance a company modeling their new accelerator plan. By simulating plan payouts based on historical sales performance, they can begin to identify how various seller types will respond to the new design. Will high performers feel rewarded? Will under performers respond by trying to game the system? What about your mid tier sellers? Will this plan motivate them to be better sellers, or simply encourage further disengagement?

Because everything in your plan serves as a motivator for sellers, you need to identify problems before they arise. The only way to know for sure how sellers will react is to test your plan.

Collaboration is another key piece of the puzzle. Too often Finance, Sales, RevOps, Product, and HR operate in silos when thinking about incentives. Each team has a narrow focus based on their individual goals and incentives move through sequential approval silos. It doesn’t have to be that way. When organizations operate as a true team around designing incentives, amazing things can happen. Don’t just move incentive plans through departments, bring departments together to co-design incentives around your business outcomes.

Lastly, continuous optimization is critical. Gone are the days of printing incentive plans and hanging them on the wall. Technology has evolved and your plans should too. Markets change. Buyer behavior changes. Your business priorities will change. Your plans should change too. 

If you want to stop launching broken plans, it starts with changing your process. Stop relying on spreadsheets as your source of truth. Involve stakeholders early. Test your plans using data. Understand how your plan will impact seller behavior before it’s too late.

Businesses that learn how to do this will build laser-focused plans that align to strategy, are easy to understand, and drive predictable seller behavior. Businesses that don’t will keep launching broken plans.