The primary purpose of an incentive compensation (IC) plan is to act as a strategic tool to align salesperson behaviour with strategic business objectives. It acts as a catalyst to motivate the salesforce and retain top performers. Clear communication and presentation to different stakeholders in a structured manner plays a key role in the overall success of an IC plan. A company can design a great incentive plan but if it fails to communicate it effectively, it may not meet the desired end objectives. Without clear understanding of an IC plan, the sales team eventually gets misaligned and disengaged.
Along with plan design documentation, it is desirable to engage the salesforce with supporting tools such as payout calculators / earnings estimators / forecasters which can help better understand the incentive plan’s design. “What-if” calculators help clarify the relationship between sales performance, corresponding performance measures, other plan parameters and final plan earnings. Ongoing use of these estimators can reinforce plan understanding and helps with re-aligning selling behavior to business objectives from deviations by encouraging reps to take full advantage of the various opportunities in an IC plan.
These interactive calculators also act as a motivation tool by enabling salespeople to easily view the impact of change in performance to their overall earnings in numbers. The estimators can also increase overall engagement by giving salespeople visibility into potential payouts based on different what-if scenarios such as increased sales, better team performance, etc. This information results in increasing the focus of salespeople and motivate them to stretch to meet / beat goals or at times go past an inflection point to become eligible for higher payouts.
For example, a salesperson will be able to see the impact on his total earnings if he would sell 50 more units of product 1 and 10 less units of product 2.
It is also important to provide clear and concise performance reports for salespeople to track their performance with clear direction. These reports can help them identify gaps while interactive what-if calculators can help salespeople understand lost opportunity and motivate them to course correct their selling strategy or put in extra effort if required to do so. This constant monitoring, tracking and course correction helps enhance effectiveness of the IC plan.
There are key elements that needs to be considered while designing these reports and tools
Modular & Visual
– Modular structure of the reports allows to understand different aspects of the business effectively
– Visual representation of data enables better understanding and results in quicker decision making
Clear & Transparent
– Metrics identified after discussions with relevant stakeholders
– Clearly outlines business trends and provides visibility into any exceptions
– Intuitive and Interactive to enable audience to analyze data performance
Automated & Scalable
– Automated & streamlined data processing and report generation process results in faster turn-around time
– Flexibility to make any updates helps with keeping reports in sync with changing business climate
– Scalable structure of master data for reporting supports adhoc report requests with minimal effort
– Clearly identify the reporting vs. exploration nature of the report
– Identify reporting measures and monitors metrics that are well understood and predictable
– Exploration helps develop an understanding of new processes and outlier situations
– Common interpretation of the metric and its trend clearly defines the nature of action required
In conclusion, there are several advantages for the company if it decides to institutionalize these reports/tools for the field representatives.
- Better IC plan understanding
- Transparent Calculations
- Lesser shadow accounting time
- Lesser dispute resolution time
- More selling time for both sales representatives as well as their respective managers
- Increased trust
- Higher retention of top performers
- Increased motivation to perform better
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