4 Key Plan Mechanics to Increase Performance
This blog post is the third part of a five-part series designed to provide you with guidance and thought leadership for the sales compensation plan design process. This third article will examine the four plan mechanics that are critical to increasing rep performance, and show you how an understanding of these core mechanics can allow you to maximize the effect of your sales compensation plan design process.
If you want to master a craft, you’ve got to know the tools of the trade. No woodworker has ever made a beautiful carving without understanding how to use a saw, or what the natural properties of pine are. You simply cannot expect to be great at something without intimate knowledge of its fundamental elements. The mechanisms by which a rep is measured and paid out based on performance are your tools, and if you want to master the incentive compensation design process, you need to understand them.
If you fully understand these mechanics, and the way that each one impacts rep performance, you can create plans that target specific behaviors, and align the efforts of your teams with the goals of your organization. While there are many options for plan mechanics, there are four mechanic types that are seen most often, so it’s wise to start with them. The four plan mechanics we will investigate today are: Commission Rate, Percent to Goal, Rank, and MBO/KSOs.
Commission Rate: Pays a set percentage or set amount per unit sold
A commission rate plan is best used when there is a desire for simple plan design and territories are relatively equal. This type of mechanic is simple to communicate and can be extremely effective for specific sales roles. However, this kind of mechanic can also be too simple at times, and may be considered unfair when there are large discrepancies in territories.
Percent to Goal: Pays a percentage of target incentive for each percent of quota attainment
This plan is best utilized when territories are unequal and individual quotas can be set with reasonable accuracy. This type of plan mechanic can quickly become complex, so for communication and administration purposes, steps must be taken to ensure that the mechanic is constructed to be simple. Additionally, for organizations that prefer to communicate an actual commission rate to individual reps, you can use a “personal commission rate,” which is based on an individual reps target incentive and quota.
Rank: Reps are ranked against each other and paid based on relative performance
This type of plan mechanic allows for a single goal and encourages focus for reps, but is not necessarily linked to an overall sales goal and as such may cause unnecessary internal competition. It is best used in situations where there is a singular focus and goal, and especially when competition has been deemed acceptable.
MBOs: Reps are rated by their manager on a set of performance objectives
This type of plan mechanic is flexible, and allows for measuring each rep according to their specific performance objectives. It also requires infrastructure to set goals and rate reps, and when not managed properly, can become a “giveaway” program. MBOs are best used in roles with long sales cycles, or where there is a focus on specific milestone achievements (see examples of MBO here).
Make Your MBOs Matter
Discover how MBOs will help motivate your team, increase performance, and reward behavior in “Make your MBOs Matter.” This comprehensive guide highlights how MBOs work, why MBOs are the solution for any job function, and how they work across generations. Say goodbye to the days when employee goals got lost in the shuffle, it’s time to embrace MBOs.