Sales reps talk with hundreds of clients every day in hopes of closing a deal. This can be an unfulfilling task as it entails rejections and sometimes, insults from the customer as well. Motivating sales reps is hence the key to keeping them engaged and driven towards their end goal – close more deals. A great way of motivating sales reps is by using incentives to reward them for their performance or hitting a certain milestone. Incentive compensation management thus becomes vital for a company having several sales reps.
Incentive compensation is the extra pay that an employee, usually sales reps, earns by achieving a certain sales target for a given period of time or for achieving any other milestone. This is given on top of the regular pay for the employee and is one of the biggest motivating factors for sales reps to perform better.
What is Incentive Compensations Management
For an organization with hundreds of sales reps and different incentive schemes and categories, it can be difficult to manage incentives for everyone. This is where incentive compensations management comes into play. It aims at using incentives strategically to closely align the sales reps with a company’s objectives and drive better business outcomes.
There are different ways in which incentives can be structured. This can include straight commissions, awards, recognitions, spiffs, bonuses, prizes, and more. The incentive plan should reflect the values and goals of the company but designing this plan can be difficult. The plan should speak to your sales reps and guide them to prioritize tasks and deals in order to make the best deals possible.
Different Types of Variable Incentive Compensation
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Sales commission structures
This is the most popular incentive compensation plan. In a commission structure, sales reps can be paid directly as a percentage of each sale they complete or revenue they generate or it can be more complex with a percentage of quota completion and other parameters involved.
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Sales Performance Incentive Fund (SPIFs)
SPIFs are incentives that are highly effective in the short term. These are usually used with commission structures so that sellers can focus on the increasing competition or if a new product is about to be released.
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Management by Objectives (MBOs)
MBOs are great for incentivizing several different roles in your company. This works for non-sales employees as well. In this incentive plan, individual employees can set a goal or target after discussion with their manager and will receive a bonus if they are able to hit that goal.
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Bonuses
It doesn’t matter if you are a sales rep or a normal employee, bonuses help in motivating everyone. Companies can reward bonuses for an individual hitting a target, a team achieving a certain quota or even the entire company reaching a certain stage of business.
Must Read: 10 Productivity Hacks for Salespeople
Benefits of Incentive Compensation Plans
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Drive higher sales
Incentives tend to create a friendly competitive spirit amongst the sales reps as to who can reach a higher target and earn more incentives. This competition is great for the company as sales reps would push each other and themselves to perform better and close as many deals as possible.
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Improves teamwork
Apart from individuals, teams are given bonuses and other rewards as well for completing their assigned quota. Every member of the team comes together and collaborate to achieve a common target and earn a little reward in the end. And since the reward is based on the performance of the team rather than an individual, it leads to improved teamwork between employees.
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Reduced employee attrition
A company with a high turnover rate can find it difficult to hire new employees and keep the hiring costs minimum. Compensation plans that include bonuses, rewards, commission over base pay, and more not only attract new hires but try to keep the existing employees happy and still working for the company.
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Increased engagement
Without the impetus of getting extra pay for closing deals, sales reps often lose interest in the job. This is why incentives help in increasing the engagement of sales reps. With the motivation that they can be paid extra for selling more products, employees start putting in more effort and going the extra mile in talking with the customers and closing more deals.
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Boosts morale
Employees that feel undervalued or unappreciated aren’t a positive influence on the rest of the company. They feel demotivated and uninterested to push themselves for achieving the business objectives. Incentive compensation rewards employees for their work and performance making them happy to be in the company. And a happy employee is an efficient employee.
Incentive compensations management is an essential aspect for any company. Sales reps make up the backbone of any consumer-facing company and keeping them motivated and encouraged with the help of monetary or non-monetary incentives can give higher dividends for the company.
