It is occasionally necessary to base sales incentives on behavior- or activity-based objectives. This is recommended only for sales people with very long sales cycles for whom effort and success in the current year will not yield financial results in that same year. The best results are achieved with flexible objectives when the following conditions are met:
- A limited number of specific objectives should be assigned to each person so that the plan is easy to understand and administer, and so that sales people have a clear understanding of what is expected, and what they will earn based on what they do. The objectives are weighted so that 100% of the target payout amount is divided among them.
- The objectives need to be stated in a way that provides for different levels of payout since pay at risk and upside both matter to creating good motivation. There should be some level of performance below which no incentive is earned (threshold performance), some level at which the target incentive is earned (at-goal performance), and a higher level at which some upside is offered (excellence performance). This will provide a basis for keeping sales people “in the game” over an expected range of performance, and will encourage over-goal performance.
- At the end of the performance period, evaluation of sales person performance should be straight-forward and objective so that any three people who understand the business and the objectives would easily agree as to whether the sales person had: (1) failed to meet the threshold, (2) exceeded the threshold but had not met the goal, (3) had met the goal but not the excellence level of performance, or (4) had met or exceeded excellence.
Well-crafted objectives like those shown above provide clear guidance and link pay to performance over a range of possibilities.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.