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All tagged Performance Measures
Just in time for compensation season, Hubtek and Prosperio Group are here to Tell You About the top 6 sales compensation mistakes that you definitely want to avoid.
Performance Measure Selection is Critical to Incentive Compensation Success. Defining these details for all of the roles in your organization can be tedious to say the least, but it is ESSENTIAL for a good plan design. It’s also essential that you have many heads working on this together. One person cannot think of all angles. For example, something is missing from the measures part of the table below that looks like it might be pretty important for this role. Can you see it? I’ve highlighted the miss on the next table and added in an incentive to cover it. Notice I don’t say what kind of incentive (commission, goal, bounty, etc), just “incentive” as it will be in the next phase that we develop the mechanics of the plan (we call this part Detailed Design, and it’s a lot of fun).
Now, since we have a pretty good idea of how much to pay, we need to consider what it is you are paying for. It is not, or should not be, as simple as just paying for gross profit (net revenue), as you probably need different types of gross profit to run your business. You need gross profit from existing customers, and you need gross profit from new customers. You need gross profit that maximizes your network, and minimizes your cost to serve. If you only pay your employees for any gross profit dollar that walk in the door, you may find you are getting gross profit dollars that are pretty wrinkly and worn out, when you’d really rather get some nice new crisp bills in hand. So, how to decide what to use in your incentive plan?
Incentive plan measures must be both objective and quantifiable but performance plan measures can be subjective and qualitative. Because so many elements differentiate a successful sales representative from an unsuccessful one, it is critical to create two sets of performance measures: one for the incentive plan and one for the performance management plan.
Most organizations use some kind of pay for performance program for their employees. There are cash incentive plans and non-cash incentive plans. The non-cash incentives include trips and recognition programs.
Whenever you implement or change your incentive plan, you should use the best performance measures possible. A “performance measure” is the metric by which you are gauging an employee’s results, such as revenue, profit dollars, profit percentage, net income, EBITDA, number of new customers, number of customer calls, number of invoices processed, etc.
…you need to be very careful how you design your incentive plan or you just might end up dealing with some unexpected consequences, and possibly paying out more than you intended, or worse, getting no measurable return (or negative return!) for dollars you are spending.
