It’s important to pick the right incentives for your particular settings, according to MIT Sloan School of Business. More of their research is available in Selling Power’s article, Incentive Plans are a Balancing Act.
The expert findings include:
1) When to use team-based pay
Team-based incentive plans are most successful in a collaborative corporate environment. They also encourage peer mentoring. However, independent sales organizations should avoid team-based pay. Sales reps who are used to having direct responsibility for their commission may perceive group incentives as losing critical control over their take-home pay. Plus, you don’t want your poor performers free-loading off of their more dedicated colleagues.
The key is knowing your sales force.
2) Why short-term quotas are ideal for shorter sales cycles
Companies that adopt monthly or quarterly sales quotas can achieve consistently high revenue levels. These short-term incentives also give companies the flexibility to optimize their in-house targets. In organizations that experience seasonal demand, short-term quotas can penalize reps, encouraging them to game the system.
3) How to best connect strong incentives with measurable sales performance
The wrong incentive plan can promote counter-productive sales behavior. When desired sales outcomes are clear and reps have a good deal of control in results, use strong incentives. But in sales environments where demand is seasonal, studies show strong incentives have little effect, or may negatively impact overall sales performance.
The research also details how to fine-tune your sales compensation plans, with tips from real-life success stories of H.J Heinz and Company, Sears, and Safelite Glass Corporation.
To learn more about creating the ideal incentive plan for your company, check out the full Selling Power article here.