Incentive Compensation Plan Design Best Practices for Maximum Buy-In
A common challenge facing compensation professionals when reviewing sales incentive compensation plan design is managing the relationship between the sales force and leadership.
The design and maintenance of sales incentive plans often lies solely with sales managers, leaving other groups like human resources with little to no visibility of the operation or design of these schemes.
When reviewing or redesigning sales incentive plans, it is essential to engage the sales management team effectively to obtain their buy in and acceptance of change, while also establishing maximum visibility for the entire organization. The following pointers will help you do so, improving your credibility and in turn, increasing the chances of a successful project.
Incentive Comp Best Practices
1. Establish Plan Design Governance
The sales incentive program ownership can reside with HR, Sales, Finance, or a combination of these groups. Ownership by a single function is dangerous, just because plan design requires buy-in from a range of stakeholders.
For instance, if the primary motivation for sales is the compensation plan and the plans are Sales-owned, they may lack sufficient control and be too sales generous e.g. high accelerators. On the other hand, plans owned by Finance might be too limiting and not incentivize the salesforce sufficiently e.g. capped plans.
Best practice, then, is to set up a multi-functional Commission Board. This body can ensure a balance of interests between sales and the company and exercise the right level of governance. With that said, governance is a wide subject with varied accountabilities including design, program management, compensation administration, reporting and audit.
2. Clearly Define Your Scope and Objectives
With any initiative, it is essential to establish clarity of purpose and a clear rationale. And when engaging the sales force, ensure that the objectives and rationale for change are clearly articulated and understood.
If a clear case for change is not built, you cannot substantiate the investment required and sales management and executives may feel that you are wasting their precious time.
Where the sales managers are in disagreement with the rationale for change, listen to their side of the story as they may have encountered these issues previously, and may have even developed a solution to the issue which you may not have been aware of.
A common example of this scenario is the provision of discretionary ad hoc incentives to staff to account for salaries which are not market competitive.
3. Take Advice from Sales Management
As mentioned, sales managers who have been around often have significant experience in developing sales incentive plans that is overlooked or forgotten by the reward team.
Including representatives from the sales management team will prove to be valuable to the overall design, as their involvement will lend credibility to the results and support in engaging sales force. Furthermore, rolling out of the plan will be easier as you will already have functional business champions in place to support the communication and present the new design.
4. Understand that Giant Leaps Require Small Steps
Where an organization is planning to consolidate multiple plans, it is sometimes easier to take a staged approach to the work, adjusting the plans over time in order to achieve a consistent design rather than forcing multiple business units onto a single plan immediately.
An initial model can be developed that accommodates the core principles of all the plan designs in place, and units can initially be assimilated onto this model. Over time, changes can then be applied to the individual business units to move to a more consistent approach.
This approach is helpful in a situation where sales incentive plan design has been neglected and where multiple often divergent schemes are in place across the organization.
5. Engage in Active Listening and Patience
People instinctively fight change and often the initial response to any design engagement will be negative. Patience and active listening will enable you to talk participants past the initial response to change and put you in a position where participants are ready to accept your proposals.
6. Be Assertive
As in the point above, people are often very skeptical about change. Even though you may have a clearly-articulated case for making such changes to the current incentive plans, you will likely encounter resistance from areas across the business.
Core to managing any redesign project is sticking to the principles that underpin the project, and in being calmly assertive to ensure that the project moves in the right direction.
Throughout any project, there will always be multiple solutions to the problems that are encountered, but as the project lead, it is your responsibility to conduct the necessary analyses to determine the most appropriate solutions and then to ensure that you are assertive in maintaining these elements within the design throughout the project.
Assertiveness is key to ensuring that the project reaches its conclusion—if you are not assertive, you run the risk of going in circles trying to please and accommodate all stakeholders, which can result in the project never being implemented.
7. Maintain a Regular Flow of Communication and Generate Excitement
Key to any change initiative is providing regular tailored communication to project stakeholders. Doing so will allow the project team to address many stakeholders’ concerns before they are even raised.
In addition, by managing your flow of communication, you can start to generate real excitement within the project. This is done through demonstrating real progress and clearly illustrating the benefits that the new design will deliver to staff and managers.
In closing, always remember that your project is serving the needs of the sales force. Often businesses get bogged down in managing other internal stakeholders and forget their key client (namely the sales force). If you keep a focus on effectively engaging and involving your sales team, you will go a long way towards achieving a successful project.
