Sales Incentive Missteps: How Companies Lose More by Paying Less

1. Introduction

In the competitive world of sales, incentive plans have long been the cornerstone of attracting, motivating, and retaining talented salespeople. However, a disturbing trend has emerged in recent years: companies designing incentive plans with complexities and clauses that ultimately aim to minimize payouts to salespeople. This practice not only undermines the very purpose of incentives but also damages morale, motivation, and ultimately, the company’s bottom line.

2. History of Incentive Plans in Sales

Traditionally, sales incentive plans were straightforward — commission-based structures that rewarded salespeople in direct proportion to their sales achievements. Over the decades, these plans have evolved, incorporating various elements like multiple components, qualifiers, kickers and multipliers. However, the core principle remained: to incentivize and reward top performers.

3. The Problem with some Incentive Plans

The modern landscape, however, tells a different story. Some companies, driven by cost-cutting measures or by the motivation to solve every problem using the incentive plan, have started implementing incentive plans that are intricate mazes of targets and conditions. These often include multiple sales goals, diminishing commission rates past a certain threshold, qualifiers that trip up commission payments at several steps and clawback provisions. The result is a demotivated sales force that feels undervalued and exploited.

4. The Psychology of Motivation in Sales

Motivation in sales is complex and deeply tied to incentives. Salespeople thrive on recognition and rewards for their efforts. When they perceive their compensation plan as unfair, it not only dampens their motivation but can also lead to decreased productivity and disengagement. Complex incentive plans also come across as deceptive, since salespeople are not able to see clearly what they need to do to make an impact to their compensation.

5. The Business Impact of Poor Incentive Plans

The repercussions of poorly designed incentive plans go beyond the sales department. They can lead to a significant drop in sales performance, tarnish the company’s reputation in the job market, and result in a high turnover rate. Replacing a skilled salesperson is not only challenging but also costly for the company.

6. Best Practices for Designing Fair and Effective Incentive Plans

An effective incentive plan should be simple, transparent, and aligned with both the company's goals and the salesperson's efforts. It should offer achievable targets, provide fair compensation, and should not require the salesperson to hit more than two to three goals. Research shows that salespeople are not able to concentrate on their sales incentives plan if they have to track a large number of metrics that is used in their incentives payout. Regular reviews and adjustments are also crucial to ensure the plan stays relevant and motivating.

7. Legal and Ethical Considerations

Legally, companies must adhere to wage and hour laws and avoid discriminatory practices in compensation. Ethically, it’s about fair treatment and transparency. Companies should design incentive plans that are fair and justifiable, not just from a legal standpoint but also from a moral perspective.

8. The Future of Sales Incentives

The future of sales incentives lies in trust, transparency and accountability. As the workforce evolves, so do the expectations of sales professionals. Companies that adapt by offering clear, and fair incentive plans will be the ones leading the way in attracting and retaining top sales talent.

9. Conclusion

It’s time for companies to rethink their approach to sales incentives. Instead of creating plans that are designed not to pay, they should focus on fostering a culture of fairness and recognition. By doing so, they not only enhance their sales team’s motivation but also contribute to the overall success and reputation of the company.