What is Incentive Compensation?

2 min read

Incentive compensation is a strategic tool to align a salesperson’s behaviour with a broader business strategy. The sales incentive plan acts as a catalyst to motivate the salesforce and other support roles to go above and beyond the normal expectation.

Incentive compensation is the variable portion of compensation tied to sales performance (either directly generating revenue or indirectly impacting through managerial, support and executive roles). Sales commissions are a strategic tool to align a salesperson’s behaviour with the organizations broader business strategy.

Sales compensation plans act as a catalyst to motivate the salesforce and other support roles to go above and beyond normal expectations. Incentive Compensation also acts as an important driver to differentiate between salespeople based on performance. A good incentive compensation (IC) plan has multi-fold benefits as listed below:

  1. Improved Motivation: A well-designed IC plan aligns a salesperson's behaviours with broader strategic business goals. It motivates salespeople with appropriate levers and accelerators and gives them enough incentives to perform above and beyond expectations.

  2. Higher Topline: The primary goal of the sales commission plan is to improve engagement and alignment of the salesforce resulting in improved topline revenue and higher sales growth.

  3. Attracting Top Talent: Variable pay or sales commissions, in general, plays a significant role in most salesforce compensation structures and is usually a key differentiator in attracting top sales talent from the industry. Top salespeople thrive on challenging plans and are confident of earning pay from sales commissions.

  4. Teamwork: Sales Incentive Plans can even be designed to promote collaboration within the salesforce and across multiple roles. Team-based sales goals or cross-team qualifiers can be included as part of the plan to create a positive collaborative culture within the team. Salespeople feel more comfortable sharing best practices thus creating healthy work relationships with colleagues.

  5. Reduced Attrition: Satisfied employees are more likely to stay loyal to a company. A high churn rate spells trouble as the hiring process is generally time-consuming and administratively expensive. A good IC plan ensures that performers are rewarded, recognized and paid accordingly that helps in their ongoing retention and significantly lower attrition.

Overall, a well-designed and communicated incentive compensation plan motivates and engages salespeople by aligning them with the company's objectives resulting in improved topline, better business performance and reduced attrition.

Authors

  • Amit Jain

    Director of Customer Success

    Amit has more than 17+ years of experience engaging with several life sciences companies in consulting projects. His expertise lies primarily in the areas of incentive compensation, salesforce effectiveness, business intelligence, and analytics. Prior to co-founding Aurochs Software, he worked with several leaders in the incentive compensation space such as ZS Associates, Optymyze (former Synygy) for almost 10 years in several leadership positions leading several product and service initiatives. He was part of the global IC leadership team at ZS Associates and led the formation of an offshore center of excellence for incentive compensation design and delivered several key client projects.

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