Welcome back to this blog series on the building blocks of a successful incentive compensation plan. Part 1 discussed how to decide who is eligible; this installment takes a look at the next building block—choosing which outcomes trigger an incentive payment by defining the performance measures on which the plan is based.
Performance measures are the strategic engine of your incentive compensation plan, enabling you to achieve alignment with business priorities and have a real impact on employee behavior. By far the most common sales incentive performance metric is revenue. This metric does not mean that profitability doesn’t matter, but a true profit metric is often hard to measure and track at the individual salesperson level. Rather, proxies for profitability can be used to weight revenue for certain product categories more heavily than others—essentially rewarding for product mix. Or, the proxies can be used to measure categories such as price realization—that is, the percent of list price attained, which is another driver of profitability often directly impacted by the sales force.
Other benefits arise when you take the time to define performance measures. For example, although roles supporting the sales process may not be eligible for the sales incentive plan, their individual performance objectives can and should correspond with metrics assigned to the sales teams to ensure they both work toward the same goals. As a result, supporting personnel can also be aligned with the strategic aims of the sales force, without being placed on a sales incentive scheme that does not otherwise align well with their role.
While keeping it simple when designing an incentive plan is important, different roles—and different functions in the organization—may require different metrics. By embracing technology solutions for sales performance management, companies can easily manage multiple metrics within their incentive compensation plans, including sales revenue or volume, conversion rates, customer retention and more. Such solutions can also incorporate qualitative measures, such as customer satisfaction and net promoter scores, which can be valuable long-term indicators of positive sales behaviors and especially useful for organizations with priorities beyond sales.
Now that you’re well on your way to a successful incentive compensation plan, stay tuned for the next installment in this series to learn how to get the pay mix just right.
Learn more of the secrets for building sales compensation frameworks that work.
Join us at IBM Insight at World of Watson, where we present the building blocks of SPM.