Scenarios Involving An Incentive Compensation Plan

by on June 26, 2009 · 0 Comment POSTED IN: HR Info Center

Know How to Handle Incentive Compensation Plan Questions

Look at these scenarios involving an incentive compensation plan

  • Sales rep complains a company split my territory this year giving half my clients to another rep. That made it impossible to the goals of my incentive compensation plan.

    Setting goals accurately for an incentive compensation plan is probably one of the more difficult things that has to be done. And there’s no formula for figuring this out. Although if you have some sort of historical perspective about what the potential revenue is from a particular territory, I think you’ll be a lot more comfortable about setting the whole goals. But the company wants a certain revenue amount from the sales group. The sales managers pick the number and divide them up among all their people. So in this particular case, will it make it impossible for somebody to achieve, this person to achieve bonus goals? We really don’t know. But they should be fair and consistent and it’s important for the sales force to know that the quotas have been set fairly. Even if everybody has a hard goal, it’s better than having just one person feel that their goals are too difficult compared to everybody else.

  • The company president announces a new strategic direction. We want to focus on increasing business with existing clients. He tells his top team but a few months later, he learns that customer service reps are still being incentivized based on a number of calls answered per hour. Consequently, they hurry to get customers off the phone. Thus, missing out on an opportunity to up sell exactly the opposite of what the new strategy called for.

    You really do have to be careful about what you ask for because that’s what you’re going to get. So obviously, in this case, that incentive compensation plan has to change.

  • The entire team of new product development people is furious because they missed 100% of their incentive compensation plan goals. We designed to triple the product but marketing screwed up the launch. Why should we have to suffer for their incompetence?

    The sales team needs to be rewarded for what they actually do, and the marketing people need to be rewarded on what they do. They are somewhat tied together. But setting realistic goals will help.

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