How to Screw Up a Sales Incentive and Compensation Programs

By Robert Estupinian

 

A lot of business owners have told me that they believe that sales compensation programs failed or are not effective. Another common concern is the perceived difficulty of developing an effective sales force compensation program. The fact is that a properly designed incentive and compensation program can be easily implemented and can actually become an asset of the company if done properly.

 

When looking to develop a sales compensation and incentive program you can begin by avoiding five of the most common mistakes companies have made. Let’s begin to examine some of these mistakes.

 

1. Designing a Program That Does Not Involve Input From The Sales Department.

I have seen a lot of compensation programs that were designed by the CFO and his staff. These plans are often DOA (dead on arrival) by the time that the sales manager received the “good news”.  I was present at one company, when the new incentive program was introduced to the sales staff and the sales manager was totally unaware that the company was launching an incentive program. As you can imagine the program failed miserably and the sales manager ended up leaving shortly after its introduction.  By not including the input of at least the sales manager and preferably a top producing sales person, you miss a great opportunity to really understand what motivates the sales team and learn about their expectations. I am not saying that the numbers are not important. After all the sales incentive and compensation program must produce a return on investment that is a true benefit for the company first and foremost. However, in order for the program to be of real value to the company, as well as the sales team, you need input.

 

1. Changing The Rules of The Incentive Program

Nothing will demoralize a staff more than changing the rules in your incentive or compensation program once it is launched. At times this happens because the program was launched too quickly without looking at all the financial aspects first.  A common perception is to change the program because too many salespeople are hitting the targets to easily. 

 

1.  Paying Late

To a salesperson the incentive and compensation program is all too important. This is not an extra bonus for them. Rather, this is the other half of their compensation. Paying late communicates to them that the company does not care about them and that the incentive is not that important.   Another dangerous tendency is placing policies that delay the payout of incentives. These policies can actually create a situation where salespeople begin to do unethical things. I discovered this behavior occurring with a major mortgage company a few years ago. According to the policies of this particular company, a salesperson would only receive their commission on transactions that closed by the last working day of the month. Otherwise if the transaction closed one day later they would have to wait a full month before that commission would be paid. The result is that these salespeople began to do whatever was necessary to close a transaction to the detriment of the clients.

 

1. Sending an Incentive Check Without Details.

Alright so the company delivered the incentive check on time, but there is nothing on the stub except the amount of the check. This is at best is simply frustrating to anyone who has worked hard, and has a significant pipeline of business. The first thing that most salespeople wonder is if there is a transaction missing from the check, or has a mistake been made in the calculation. This results in time being wasted by a lot of people trying to get the details of the check amount. The whole thing is perceived as confusing and unprofessional by the sales staff  and this can develop into a disgruntle employee.

 

1. Making The Program Too Confusing.

A program that requires an advance degree in applied mathematics is simply not going to work. In fact such programs have the opposite effect with salespeople. They are not motivated but demotivated and begin to look for work with the competition. A program should be easily understood and administered in order to be effective for all concern. Having a simply but effective program also helps in being able to attract and retain salespeople.

 

We could go on and on about the various mistakes that companies have made trying to implement an incentive and compensation program. The fact is that an good Incentive and compensation program can be designed that increase the bottom line and helps retain and attract good salespeople. The secrete to putting it all together is having a sales consultant that understands both the needs of the business to increase their return on investment and the sales teams needs.

 

If you would like more information on Sales force compensation please contact me at 408-879-7280.