The Steps To Building Effective Sales Reward Schemes

Three glasses of port

Sales Incentive schemes are one of the most important sales tools to get right and it’s one of the most likely to be got wrong. Here we provide a do and don’t list to help to design/check your own scheme:

  1. Make sure you are clear as to its main purpose. Any payment should look to deliver performance over and above the performance expectations attached to salary.
  2. Understand the difference between’ Why Work Here’ bonuses – usually paid out annually and connected to company performance, that don’t motivate on a daily basis but show appreciation – and ‘Why Work Harder’ bonuses – which are more directly related to individual performance, paid out more often.
  3. Make it a simple as possible. The best ones are where salespeople can work out their own bonus / commission in advance of receiving it; the worst are where they can’t equate their payments to what they sold.
  4. It should be agreed and implemented before, not after, the period it covers begins.
  5. The connection between performance, effort expended and reward should be as explicit as possible. In motivational terms, the shorter the gap between delivered performance and payout the better.
  6. Never change the rules half way through (usually done to avoid big payouts), it kills motivation and any trust in the system. Always add a rider that the scheme is subject to annual review and any previous payouts are no guarantee that the level will be maintained.
  7. Be very careful with ‘House Accounts’. These are revenue streams linked to managers that are outside the main Sales Exec scheme. Again they are usually used to prevent salespeople earning big commissions. The problem with them is they distract managers from managing, create cynicism and perhaps worst of all can deskill salespeople over time, as the House Accounts are often also the most complex, demanding customers that need high quality attention. If salespeople never work on these types of accounts their learning becomes stunted.
  8. Schemes should be uncapped. Scary when management doesn’t know what they are doing, very motivating for the hungry salesperson.
  9. An individual salesperson should be able to earn more than their manager, but if all the team are ahead of their targets it should mean the manager earns more than any one individual.
  10. Manager’s bonuses should not be paid out on the aggregate sales team numbers because this allows the poor performers to be carried by high ones and the manager having no incentive to sort the problem. A sales manager’s bonus trigger should be that all salespeople in their team must be at or above 100% of target. Tough, but if sales excellence and a high performance culture are goals, necessary.