Sales Compensation best practices to Improve your Sales Incentives

Imagine getting hired for a sales position and not being offered the right mix of incentive compensation. Lack of motivation is going to become the first hindrance in this case which would directly translate to the organization’s bottom line in the long run. 

To ensure the continuous financial success of a sales organization, the employee incentive program, specifically the Sales Commission plan, should be thoughtfully designed. It should aim to not only incentivize and reward top performers but also motivate and encourage underperforming employees to meet the organization's expectations. Failure to do so not only makes the sales leaders look bad but also negatively impacts the revenue wheel of the organization leading to both financial and reputation loss in the industry. 

Nonetheless, creating and implementing individual incentives or a sales compensation plan can be challenging to perfect. There is no one-size-fits-all approach or mantra for this task. Each organization is unique, as are the employees and the environment in which they excel. Understanding their expectations from the organization is really the key to creating the best compensation plan. 

The main purpose of sales comp best practices is to drive employees to achieve the targeted results. There are several factors you need to consider when drawing up your team’s compensation structure.

5 Sales Compensation Best practices to Improve your Sales Incentives

To help you draw a strong, successful incentive compensation plan for your team, here are five sales comp best practices you need to know.

1.  Use Data-Driven Compensation Structure

A lot of people will guide you through a lot of different perspectives and actions, but you know your team better than anyone and know exactly what would work best for them. However, taking a reliable approach that’s equipped with market data, including sales forecast based on historical data, can help you offer a competitive compensation package for each role.

Additionally, identifying market competitive midpoints for various positions in the organizations and implementing them into your pay structure can keep sales operations competitive. 

Apart from compensation consulting firms, you can check out the Bureau of Labor Statistics to get historical data and trends of occupational and salary data. 

2. Align incentives with company goals 

This is fairly the most straightforward one, but hard to crack if you don’t understand the expectations and capabilities of your team members, especially in the context of field sales vs inside sales dynamics. The major objective for this practice is to drive the right employee behavior, and that’s only possible if the individual goals are well-aligned with the company goals.

Otherwise, your star seller will end up hitting a high amount of quota, and the lower performers will not be interested in contributing to the bottom line at all. So if the goal is to sell 10,000 units in 1 month, the best compensation plan should give equal opportunities to each team member to earn equal rewards for their efforts. 

3. Pay Reps Competitively 

Everyone wants to be rewarded well for the effort they put to meet the organization's business goals. The feeling of getting paid less compared to their counterparts in other organizations can have negative effects on an individual’s performance. So always make sure that the compensation structure that you plan for your team member is at par with the industry standard. And how will you know that for sure? With Data. Integrate the Sales Mix Calculator to ensure competitive compensation and motivate your sales team.

So always make sure that the compensation structure that you plan for your team member is at par with the industry standard. And how will you know that for sure? With Data. 

4.  Tailor Compensation to Individual Sales Roles 

5% commission per unit sold for all sales reps in your team? The Sales Managers or Team Leads may not appreciate this structure and neither do others at different levels. Each individual has worked hard to reach a certain level in an organization and appreciates when the organisation recognizes their efforts and compensated them accordingly.

Apart from the base pay, even the incentive compensation plan should reflect some degree of hierarchy based on their day-to-day tasks and total contribution to the organization, considering various sales accountability examples. Similarly, take into account the performance and tenure to boost performance across the team.

5. Consider Non-financial Compensation

Last but not least, think beyond “money”. The new generation of sales reps would be happy to receive rewards that fulfil their desires and aspirations outside the workbox. A short getaway, concert tickets, free yoga sessions with a celebrity yoga guru, or anything that drives their growth as an individual is some tools you can use to motivate your sales team.

But you’d need to have a bucket of non-financial reward options that present an opportunity to provide a thoughtful, personalized reward. You can give them a list of items to choose from or they can submit their own ideas for approval. 

Now here is a 6th best practice that you can add on to your sales incentive list- negative incentive examples. A less popular incentive among employees, negative incentives discourage undesirable behavior through penalty. It can be in the form of demotion, loss of benefits, fines, pay-cuts etc

In today’s challenging environment, where nearly 60% of the IT Workforce is working from home, organizations are putting in special effort such as creating new digital channels, providing training to boost employee morale and skills, adding specialized roles, and encouraging team-based selling, to retain talents. But without thoughtful compensation models, the employees may not feel valued enough to work and stay longer. 

A strategic mix of commissions, quotas, salaries, additional perks like holidays and bonuses can encourage positive behaviour among team members, and drive results. 

Given the divergent needs of individuals, it is a good idea to design different versions of incentive compensation plans and test them under different scenarios. For the most part, the plan must provide a greater portion of OTE (On-Target Earnings) compensation mixed through non-financial rewards in which sales representatives have greater control to reach their objectives in order to earn a deserved reward.

There are many types of sales comp best practices to choose from, and sales managers should implement a plan that aligns best with their team’s particular needs.

Moreover, integrating commission accounting seamlessly into tools like Kennect not only empowers organizations to create enticing commission structures but also allows for real-time tracking and adjustments. This dynamic approach ensures that commission allocations remain aligned with sales objectives, fostering a collaborative environment where salespeople are motivated by transparent and fair rewards, further contributing to improved sales performance and overall business success.