Incentive Compensation Plan Effectiveness Checklist

Your compensation plan should always be a moving target. If your company has been using a compensation plan for over a year, or if you’re worried about whether the plan will make it through the upcoming year, take a look at our checklist to see if your company’s plan is working as it should.

Follow our tips to get the most out of your evaluation!

• You are aligned with management on the roles’ goals, responsibilities, and eligibility (for incentive compensation)
• You have identified the eligible roles for your compensation plan
  Tip: Don’t base pay on hierarchical titles; instead, base it on direct contributions to sales
• You have a limited number of performance measures (e.g. bookings target, new logo bonus) laddering up to clear, relevant business objectives
  Tip: Performance measures are critical to your compensation strategy, but focus is a strength. Using too many measures will blunt plan effectiveness.
• You have payout mechanics that align with the measures and strategy
  Tip: Quotas work best when the measure heavily depends on individual performance.
• You have targets that are highly motivating
  Tip: Set thresholds to levels that get fulfilled by approximately 90% of the sales force, otherwise, reps might lack the motivation to improve beyond their current performance levels.
• You have either a flat commission rate or an accelerator over target performance, measured monthly or quarterly to avoid boom/bust behavior
• You determine payout frequency based on the length of the sales cycle
• You have documentation that explains the measures in the plan, the key crediting rules, and any other relevant information that can help your sales reps understand the plan
• Your pay levels and mix consider long-term career growth
  Tip: When individual performance can be accurately, objectively, and immediately tracked, it makes much more sense to put more pay at risk than if job responsibilities fluctuate and the individual’s influence on sales results is harder to measure.
• You have fully examined and considered core elements of your incentive plan design in the context of the entire pay program (salary, benchmarks, bonus payouts, etc.)
• You train both admins and managers to communicate any plan changes
  Tip: Plan changes are best absorbed by the sales team when disseminated through multiple communication channels, such as individualized compensation plan letters, internal webinars, manager-led team meetings.

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