Rob from the poor, give to the rich, says consultant Joseph DiMisa, and you can structure your incentive program so it really rewards top performers.
You have to lower incentive payments to poor performers to liberate funds to give bigger rewards to your top performers, says DiMisa. Rewarding performance is the first of his Incentive Design Challenges for 2013.
DiMisa, who is senior vice president, Sales Force Effectiveness at Sibson Consulting, outlined eight design challenges during a recent webinar sponsored by BLR and HR Hero.
Current Incentive Design Challenges for 2013
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Rewarding Performance |
Differentiating peak performers from average performers. DiMisa advocated the Reverse Robin Hood principle—take from poor performers and give to richer performers—that‘s what creates differentiation in sales pay. |
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Creating Clarity |
Simplifying the plans to improve line-of-sight. This is the holy grail of comp design, says DiMisa. Reps know what they are making from each sale. |
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Contests/SPIFFs |
Striking the balance between the pay program and supplemental incentives, often put into effect by marketing. It’s like whale watching—the comp plan is heading in one direction, then changes. Everyone runs to left side, then everyone runs to the right. And it’s like drugs—the more you give, the more they want. These programs are difficult to take away. |
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Managing Costs |
Controlling cost of sales under various performance scenarios. |
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Alignment |
Ensuring that compensation plan meets business objectives. |
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Quotas |
Implementing a market-based approach to setting and allocating quotas. Represent market potential vs. what the company wants. |
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Measuring Profit |
Why is the sales organization making money when the company isn’t? Controlling deals and costs. |
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Systems and Admin |
Tracking and managing a plan that will work. |
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Sales Compensation Philosophy: Your Compass
A sales compensation philosophy is the compass that guides the sales compensation design process and ongoing plan administration. DiMisa suggests that the following elements are typical:
- Role of Sales Pay
- Cost of Sale vs. Cost of Labor
- Performance Metrics
- Competitive Positioning
- Internal/ External Equity
- Level of Pay Dispersion
- Admin Guidelines & Communication
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The Top 10 Principles to Make Your Plan Effective
As you work on your plan (considering your philosophy), keep these 10 principles in mind, says DiMisa.
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1. Link to Company Goals |
Drive company objectives into the plan components controlled by each marketing, sales, and service job. |
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2. Accountability |
Hold participants accountable for results they control. Be sure you can measure what you are basing accountability on. |
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3. Alignment |
Ensure alignment of plans and philosophy, and also around team results. |
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4. Cross-Selling |
Create positive interaction between channels. Clarify double- crediting guidelines. |
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5. Pay for Results |
Pay for business results. Manage activities in that direction. |
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6. Significance |
Participants must perceive target incentive pay as obtainable and it must represent a substantial portion of total target pay. |
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7. Simplicity |
Use as few measures as possible with the simplest mechanics to |
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8. Differentiation |
Significantly differentiate pay levels for excellence. |
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9. Involvement |
Develop with input from their participants to incorporate ideas and create buy-in. |
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10. Management & Adjustment |
Manage to a metrics dashboard and don’t be afraid to course-correct if necessary. |
In tomorrow’s Advisor, how to show the ROI of comp program changes, plus an introduction to a free webcast on practical HR strategy.
I like the reverse Robin Hood idea, but will the C-Suite be onboard with it? What if they prefer that money not being paid out at all (because the poor performers don’t meet their incentives)?