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The ABCs of Compensation Planning: How to Build Better Incentive Plans

Feb 23, 2021
3 min read
Sales compensation plans must be strategic to motivate sales reps and hit increasing revenue targets. Discover ways to improve planning and a simple formula for successful incentives with our ABCs of sales compensation.

Hitting your revenue targets depends on how well you design your sales compensation plan. But it can be difficult to design incentives effectively without the right data, insights, and tools to guide planning and analyze performance. Fortunately, Incentive Compensation Management (ICM) solutions can reduce the stress and time it takes to design, test, and implement a new compensation plan, and they can work to maintain and tweak the plan throughout the year.

First and foremost, you need a strong planning team to drive the compensation design process. This ensures that leadership is aligned on overarching goals and that all interdepartmental priorities are contributing to achieving them. Then you’re ready to tackle incentives. To help you create high-performing compensation plans, here is a simple formula you can use to make sure incentives are simple and effective.

The ABCs of Incentive Compensation Planning

The incentive planning process entails more than just your compensation plan, but at the very core, the strongest plans address three main considerations. At Xactly, we like to think of them as the “ABCs” that create the foundation of well-designed sales compensation plans.

A: Aligned with Individual Sales Roles

One of the most important compensation plan factors is that incentives are aligned with different sales roles. Your sales teams are made up of different roles, management levels, and responsibilities. Therefore, it is important that your incentive plans reflect the differences between each role.

Consider each member of your sales team. Reps, management, and leadership all have different responsibilities. For example, managers tend to spend more time on coaching and administrative activities; therefore, their compensation plans shouldn’t have the same selling quota as reps, who spend the majority of their time selling.

Tailor incentives to each sales role and the actions that have an impact on in the sales process. This will provide the best opportunities for your sales team to succeed and motivate them more effectively.

B: Benchmarked Against Industry Data

As the main driver of sales performance, incentives must motivate reps to hit their numbers. Comp plans must also be competitive enough to attract and retain top talent. But it’s challenging to gauge the competitiveness of your compensation when you only have your own data to compare to.

Using industry data can help set a baseline for what you should be paying reps. It can also help you determine the effectiveness of different sales incentive structures. With a data-driven solution like Xactly Insights, you’re able to identify how:

  • Competitive is your pay compared to the rest of your industry/market
  • Performance differs between high- and low-performing reps
  • Incentive pay compares to overall quota attainment
  • Quota attainment changes with tenure

C: Constructed to Drive the Right Sales Behaviors

Ultimately, the framework of your compensation plan must be aligned with company goals so that it drives the right sales behaviors. In order to hit increasing revenue targets, your compensation plans must be incentivizing reps to take actions that contribute to that goal.

This is where plan simplicity is essential. Your incentives must be concise and easy-to-understand so that reps are able to prioritize deals accurately. In addition, plans aligned with your corporate objectives enable leadership to better communicate the plan, which helps sales teams understand company goals and the actions they need to take for each role to succeed.

Continuously Improving Your Sales Compensation

According to Forrester, 65 percent of companies are facing higher revenue targets than ever, and they’re continuing to increase. It’s essential for organizations to be able to measure the effectiveness of their incentives on a continuous basis.

Incentive solutions, like Xactly Incent, ease the stress of the planning process and provides the data and analytics they need to create strong incentives. With the ability to analyze performance at a granular level, leaders are armed with valuable insights to make agile decisions and continuously stay on track to achieve their goals.

Discover more ways you can improve your sales compensation, use data to drive planning, and how you can get started today in our Ultimate Guide to Sales Compensation Planning.

  • Incentive Compensation
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Xactly News Team

The Xactly News Team reports on the latest product, events and market trends taking place within Xactly and throughout the revenue intelligence industry.