Incentive Compensation plan facilitates the alignment of salespeople behavior with broader business objectives. There are guiding principles that need to be followed while designing an incentive plan.
While designing a new incentive plan or making any specific tweaks to the existing plan, following steps should be taken (scope of the phase needs to be decided depending on the nature and reason of change):
- Immersion & Situation Assessment: Understanding of existing plan structure and qualitative assessment of key stakeholders
- Historical Performance Analysis: Quantitative analysis of performance data to better understand the effectiveness of current plans and performance patterns
- Develop Incentive Plan Options: Identify key business objectives and design guiding principles driving various payment parameters such as caps, floors, qualifiers, frequency etc.
- Qualitative Assessment of Plan Options: Assessment of plans in the light of guiding principles ensuring fairness and differentiation in payments based on different performance levels
- Financial Modelling: Prediction of total compensation as well as impact on individual salesperson payment based on current performance in a new plan scenario
- Final IC Plan Communication: Selection and communication of the incentive plan design using multiple channels
This blog post will focus on minor tweaks to be made to the existing incentive plan based on changing organization priorities or certain market events. These circumstances can result in following the type of plan changes:
- Performance metric change
- Payout curve changes
- Slope Change
- Threshold change
- Cap addition/deletion/update
- Commission rate modelling
- Updated sales/goals data due to alignment or market changes
- Change in plan component weights
- For the entire salesforce-geographical combination
- For specific geographies
- Addition of qualifiers
- Performance multipliers
- Change in rules for HR exceptions
Impact of any of these changes can then be seen in the overall performance of affected salesforce-geographical hierarchy combination:
- Plan performance parameters
- Total Payout
- Min Payout
- 10th Percentile
- Median (100%)
- Average (100%-105%)
- 90th Percentile
- Maximum Payout
-
no. of territories above cap limit
-
Engagement Rate (100%)
- Meaningful Engagement Rate (70%-80%)
- Payout scatter for territories across 2 models
- Payout statistics and distribution
- Top 5 performers in base vs. universe
- Bottom 5 performers in base vs. universe
- Top 5 payment increases
- Top 5 payment decreases
Output of the above tables can help relevant stakeholders decide whether to move ahead with the new plan parameters after comparing the payout statistics with plan design guiding principles.
Aurochs Software’s IC Calculation engine has built-in capability to support modelling needs for different pharmaceutical clients. Do you have similar needs within your sales organization? Does your sales organization group constantly struggle to keep your incentive processes up to date to meet business changes? We at Aurochs Software would be happy to engage in a friendly, informal “sounding board” discussion. We can offer an ear and views based on our years of experience working in this area, and can also help with some ideas, contacts and solutions.
