7 Deadly Sins of Incentive Compensation

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More than 8 years of accumulated big data delivers intelligence and best practices to organizations in all sizes, industries. These are the seven practices that our data shows work against you in your quest to incent right.

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  • If your incentive compensation plan has six or seven components, your sales team won’t know where to focus. Worse, you could be using your plan as a quasi-manager to compensate for weak leadership.
  • 7 Deadly Sins of Incentive Compensation

    1. 1. POOR ALIGNMENT WITH BUSINESS OBJECTIVES
    2. 2. Incentive compensation plans tend to be aligned with business objectives at the strategic level, but the devil is in the details. Misalignment creeps in when individual plan components conflict with broader goals.
    3. 3. Look at the components of your incentive compensation plan individually. Map them back to your business objectives to make sure they don’t inadvertently conflict. ATONEMENT
    4. 4. EXCESSIVE PLAN COMPONENTS
    5. 5. If your incentive compensation plan has six or seven components, your sales team won’t know where to focus. Worse, you could be using your plan as a quasi-manager to compensate for weak leadership. 1 2 3 4 5 6 7 PERFORMANCE
    6. 6. Shoot for three measures in your incentive compensation plan. Pushing that to 4 or 5 is sometimes justified, but when you hit 6 and 7, employee performance drops dramatically. ATONEMENT
    7. 7. OVER-SHARING THE WEALTH
    8. 8. How many checks do you cut on a single sales deal? A few? A few dozen? One hundred and sixty-one? If you’re paying team members whose contribution isn’t clear, then there’s a good chance you’re overpaying, and that the link between performance and payment is broken. 1 DEAL
    9. 9. About 75% of companies pay five people on a typical deal. Stay up to date on who contributes, and develop a pay structure accordingly. Let incentives drive and influence specific actions. ATONEMENT
    10. 10. DEMOTIVATING MEASURES
    11. 11. These discouraging practices summon the wrath of the sales team and weaken the connection between behavior and reward. Capped Commissions Holds & Releases Payment Timing
    12. 12. Drop those infernal caps. They prevent sales reps from reaching their full potential. Drop the holds. Don’t turn your sales reps into collection agents. Pay on time. Paying months in arrears is demotivating. ATONEMENT
    13. 13. ERODING PROFITABILITY
    14. 14. Unexpected payouts to sales reps can cut into your business’s profits. Example: Accelerators. They’re a great tool for motivating your team to sell more, but you have to keep your eye on the budget
    15. 15. Avoid unpleasant surprises by modeling not one, but several budget scenarios in your plan-design phase. Try these three: 1. What do you expect your sales performance to be? 2. What if a few high performers carry the company and earn far more than planned? 3. What if a big percentage of reps outperform the plan? ATONEMENT
    16. 16. INABILITY TO MEASURE SUCCESS
    17. 17. It’s good when your gut tells you that your organization is doing great, isn’t it? NOPE. A solid incentive compensation plan is built around data, not intuition or conjecture.
    18. 18. Use benchmarks derived from hard data to measure performance. ATONEMENT Use the approach that’s right for you: benchmarking against an aggregate group, against industry standards, or self- benchmarking against company goals.
    19. 19. LACK OF TRACEABILITY TO SALES BEHAVIOR
    20. 20. A solid foundation of data is one of the “thou shalt haves” of business. If information you need is swirling around a murky pool of data, then your compensation plans more than likely are based on intuition rather than facts, and audits will be a nightmare.
    21. 21. Ensure that anyone who earns incentive compensation can trace every payment back to a particular behavior or business event. ATONEMENT
    22. 22. INCENT RIGHT www.xactlycorp.com

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