Getting a correct balance in relation to Commission/Incentive schemes can prove challenging for many companies.

This problem can be confounded by the fact that Is can also prove difficult (at least in my neck of the woods)to seek out advice and guidance in relation.

I intend to post (with your permissions of course) on the subject of commission structures referencing Julien’s original post and both Julien’s and Donya’s follow up comments.

Thanks again,
Niall

Thanks for the great comment and answer. Very good webinar also…

I think Donya captured the principles very well in her answer. I have seen a lot of plans not including caps or restricting the commission potential… And that can work until the company gets burned and have to tweak their plans and add caps mid-year to avoid exceeding their forecasted compensation budget. Obviously this is something sale reps really don’t appreciate!

A company should really think about adjusting their incentives if competitors/market offer bigger rewards for the same level of performance. If for some reason the reward can’t be matched, there should be other perks and benefits available to retain and attract employees.

Julien

We generally recommend that rates decrease at a very high level of performance, well above goal. And the decrease should continue to hold the rate above the “base rate” (immediately below goal rate).

I agree that this is not always appropriate, but should be considered when:
1. The plans are goal-based and goal setting is “loose” so that some people achieve, for example 200% of the goal. In this case, the high level of achievement could be due to a bad goal.
2. The sales people sell very large deals, which could tend to make performance “lumpy.” Oftentimes these deals are closed with help from senior leadership in the company, and often also at a lower marginal profit. While it may be harder to close a $4M deal than a $2M, it’s probably not twice as hard (and it may not be worth twice as much to the company).
3. The company has a history of capped plans. Deceleration is always much preferable to caps.

The other philosophical principle here is that you want to put as much money as you can right above goal so that the reward for getting to and beyond goal is the opportunity to live on a wonderfully accelerated slope. In fact, it’s great to put so much money there that the company would not choose to afford it indefinitely. So when you do decelerate, the rate is still quite attractive. This will serve to pull your OK performers up and over goal without causing unaffordable windfalls in comp.

- Donya Rose
Managing Principal, The Cygnal Group
http://www.cygnalgroup.com

Congrats on a very informative and interesting post. I have however a concern in relation to Pitfall 4. Extraordinary Performance is Over-Rewarded.

While I agree its makes no sense to have all your eggs in one basket in terms of only one or two sales people delivering.

The problem however might be in having deceleration in commission rates
over a certain threshold could potentially make it difficult to either hold on to or attract top sellers.

Im thinking here in terms of a market and compeitors that over reward the same leval of performance.

I would be interested to hear your opinions/thoughts/solutions around this.

Keep up the good work,
Niall