How to Develop a Sales Incentive Compensation Plan (with Templates)

Karrie Lucero
Karrie Lucero
In Incentive Compensation, Trending
Karrie Lucero is a Content Marketing Manager at Xactly. She earned marketing and journalism degrees from New Mexico State University and has experience in SEO, social media and inbound marketing.

Creating a sales incentive compensation plan is a challenging task. It’s all about balance, but sometimes the perfect balance can be hard to strike. You need your incentives to drive the right sales behaviors in order to achieve sales objectives. But, before you even begin planning your compensation, you need to ensure your sales territories are aligned and balanced.

At the very start of planning, it’s important to understand what a sales compensation plan truly entails. In short, a sales incentive compensation plan details how the sales team is paid for achieving their sales goals. It addresses base salary, commissions, and incentives, and then links these monetary and non-cash rewards with sales performance. The sales commission plan should be tailored to each team role and the corresponding set of responsibilities.

Download our "Ultimate Guide to Sales Compensation Planning" for incentive best practices and everything you need for a sales comp plan design project.

Creating a Sales Incentive Compensation Plan

You should design your sales incentive compensation plan with simplicity in mind. To put it simply, your compensation plan should follow the ABCs of compensation, meaning it should be aligned with sale roles, based on company culture, and constructed to drive the right sales behaviors.

Consider the following tips in your planning process:

  • Include Motivating Incentives: Successful sales compensation plans have incentives powerful enough to motivate your top performers and help encourage mid- and low-performers to improve performance. Sales rep tenure can affect sales performance. Therefore, you should compensate top-performing tenured reps differently than you would a brand new rep. Otherwise, you risk losing a top rep, which can be costly.
  • Tailor to Different Roles: Not every role on the sales team is identical, and your incentive plans and commission structures should reflect that. Reps will most likely spend more time making calls and closing deals. Their managers will likely split their time between calls and administrative tasks.
  • Be Unique with your Sales Incentive Program: It is more time consuming and hard to find out what’s important to each of your employees, but it pays off. If you discover what personalized incentives work best for each employee, you can manage them more effectively.
  • Don’t Cap Commissions: If you’re in Finance, the above statement might give you a minor panic attack- but sales incentive programs that include commission caps send the message to reps to relax and stop bringing in new deals once they reach their set quota.
  • Pay Your Reps Timely (and Accurately): The more time reps spend shadow accounting, the more productivity falls. Using data-driven, end-to-end sales performance management (SPM) sales leaders can see critical sales data, and reps can see their earned commission in real time. Commissions calculated automatically ensure accurate, timely payouts–so everyone wins!

Other Sales Compensation Plan Considerations

So what does that mean for you? When you’re working on your sales commission structures, also consider these less obvious influences on your sales compensation plans, and how each one can affect motivating your sales reps.

  • Lopsided Base Salary to Sales Comp: Setting your salaries at the wrong amounts, or failing to balance between a sales commission plan and base pay for each role can make it difficult to recruit and retain top sales reps. And, if you can’t get the best sales people on to your team, you are losing out (to competitors). Likewise,  the cost to replace a rep averaging $155k. Constantly retraining due to high turnover means you’re also losing out because your sales team won’t be as efficient as it could be. Morale is likely to suffer as well.
  • Complexity of the Compensation Plan: Leaders struggle to communicate complex compensation plans effectively. Build plans with simplicity in mind, and clearly define goals and rep pay structures. The more each individual knows, the better.
  • The Number of Payees on a Deal: With our experience in the world of compensation, we’ve seen just about every scenario; but one that is always interesting is the number of payees on a deal. Some companies pay out a couple of people on a single deal while for others, it’s dozens. Our Strategic Services department has found that around 5 or so payees is optimal, and usually includes every individual that was directly involved in the sale.

Download our "Ultimate Guide to Sales Compensation Planning" for incentive best practices and everything you need for a sales comp plan design project.

SaaS Sales Commission Plan Template Examples

Putting together a sales incentive compensation plan is no small task, and thus, requires full consideration and understanding of each moving part. Here are a few sales incentive pay plan examples by sales team role to help you visualize what your frameworks might look like.

Account Executive

screen-shot-2016-12-01-at-3-15-14-pm

Customer Success Rep

screen-shot-2016-12-01-at-3-15-28-pm

Sales Development Rep

screen-shot-2016-12-01-at-3-15-37-pm

Sales Specialist

screen-shot-2016-12-01-at-3-15-47-pm

Front-line Sales Manager

screen-shot-2016-12-01-at-3-15-58-pm

Your sales incentive compensation plan is a key part of your overall sales strategy and planning. When combined with well-designed territories, the right incentives drive key sales behaviors to meet sales objectives and drive growth. Learn more about sales compensation best practices in our recent webinar with WorldatWork.


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How to Develop a Sales Incentive Compensation Plan (with Templates)

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