Get the most out of your salesforce. Use incentive compensation plans to motivate, reward, and maximize performance.
Creating coverage models and building sales incentive compensation plans are often the first two things when businesses start sales programs.
The reason is simple: incentive compensation plans are essential in aligning reps with business goals and driving sales performance.
Yet without a sound, reliable system and structure for rewarding reps, it can be challenging to attract, motivate, and retain top performers. Not only can this negatively impact sales numbers, but it can also slow the overall progress of your sales organization and the company's ability to produce meaningful returns.
Incentive Compensation Management (ICM) is essential in designing, deploying, and adapting effective compensation plans and workflows.
According to Gartner, ICM software must be able to handle the complexities of crediting and compensation rules, as well as process large volumes of data quickly. This creates operational efficiencies that ensure you spend less time working through the finer details and more time focusing on the big picture as your company evolves and scales.
96% of sales managers want the flexibility to change compensation plans to reflect new business dynamics. However, most existing programs do not offer this level of adaptability.
Understanding the difference between total compensation, incentives, and incentive compensation is the first step in developing a good compensation plan. Clarity on these terms helps assign and standardize the various types of pay and benefits.
The sum of all forms of employee pay and rewards. This can include but is not limited to base salary, commissions, bonuses, and non-cash compensation.
“Rewards” earned for hitting key targets or milestones. Incentives are used to motivate salespeople to excel and go above and beyond.
A variable compensation that rewards salespeople for selling products or services and achieving individual and team-based goals.
Incentive pay (or “incentives” for short) are a form of compensation rewarded based on performance. They are often leveraged to motivate employees to meet (and exceed) quotas and goals.
Bonuses may be granted more liberally and are typically one-time, lump sum payments.
While some use “bonus” and “incentive” interchangeably, they are not always the same.
Bonuses are a type of incentive. But not all incentives are bonuses.
There’s no standard incentive calculation formula. Different businesses reward sales reps based on different sets of criteria.
That being said, incentive pay is most frequently calculated as a percentage of sales.
Simple plan: A rep has a $20,000 per year sales quota with a 10% annual commission. The incentive payment is $2,000 (10% of $20,000).
More complex plan: A rep’s incentive plan is 15% of total quarterly sales. Unfortunately, their first-quarter sales were only $10,000. Their additional comp would be $1,500 (15% of $10,000).
Smaller sales teams (fewer than 15 reps) often use an incentive formula in Excel to calculate commissions.
Larger teams? Automation!
CaptivateIQ makes it easy for users to calculate incentive pay and automate manual processes for greater efficiency — reducing data entry errors and freeing up admins’ capacity to focus on what matters most: designing compensation plans that deliver results.
You understand the key terminology and are ready to start an incentive program at your organization.
Not quite … creating a successful incentive compensation program also begins with knowing your employees and the types of incentives they would find meaningful.
Your goals and your workforce's needs are essential factors in determining what kind of incentives you should offer, but so is the type of company culture that already exists.
This means you must take steps before writing up a budget for this new initiative. You'll need to:
Once you've answered these basic questions, then it’s time to start designing the structure of your incentive program. Reviewing examples of incentive programs can be very helpful as you begin to set up your plan.
Here are a few:
While incentives can be an excellent tool for motivating reps, it’s critical to first:
Let’s clarify a few more terms you are sure to see moving forward.
A sales incentive structure differs from a traditional compensation structure in that it’s primarily designed to motivate and reward.
Incentives are not a mandatory form of payment by the employer, nor is it a given bonus for the employee. Sales incentives are only earned when you hit a specific target or bump into a predetermined tier.
Within a standard compensation structure, reps may receive mandatory payments like base salary every week or month. On the other hand, incentive structures are based on performance and are completely variable.
An incentive compensation structure is a broad framework that guides an incentive management program. For instance, your structure might state the exact sales amount reps must achieve to earn a certain percent commission. In addition to calculations, most structures detail the general targets or standards that must be met to earn incentives.
Incentive plans are often tailored to individual reps, outlining specific goals for each person. Unlike a broader, all-encompassing framework, an individual plan can be tweaked and customized according to each rep’s performance, taking their unique needs into account.
There is no shortage of incentive plan examples. But what are the characteristics of the best incentive compensation plans? What precisely should you aim to achieve when developing group or individual plans?
While there is no right or wrong answer, here are a few things to consider when developing an incentive plan:
A well-designed incentive compensation plan can encourage employees to give full effort. A poorly-designed plan can have the opposite effect, encouraging employees to slack off or even sabotage the company's goals.
But compensation plan design is tricky because one size doesn’t fit all. Structuring an effective plan depends on various factors, including the products or services you sell, your business objectives, and your industry.
Commission rates vary depending on the sector. For example, commission rates may be as low as 3% (for supply chain) to as high as 10% (for heavy-duty equipment).
$5,000 monthly base salary plus 20% commissions on the annual contract value
$32,000 base salary plus 5% commissions
30% flat commission on project profits
The rate of commissions for software companies varies based on the product or service sold. For example, commission rates may be as low as 5% for marketing solutions to 50% for customer relationship management tools.
20% commissions on any sales an individual makes
$40,000 base salary plus 25% commissions
$500 weekly base pay plus 10% gross sales
Sales reps for medical devices are often offered commissions and other benefits, including stock options and royalties.
$2,000 for every signed contract
10% flat commission on a $25,000 medical device
Minimum wage salary plus 10% gross commission
95% of all sales reps say a best-in-class sales tech stack is essential to their success, yet most still use outdated, legacy commission management solutions.
CaptivateIQ puts the control over incentive compensation back into your hands. Build customized plans and make adjustments as needed to improve outcomes and obtain better results.
The intuitive CaptivateIQ experience puts users in control of designing, deploying, and adapting effective commission plans so that sales teams can continually meet — and exceed goals.