We often receive questions about the merits of various comp plan elements and alternatives. Recently received a question about the frequency of bonuses.
The right mix of incentives and structure depends on what you are trying to achieve. While commissions are typically tied to closed sales, while bonuses are often linked to other sales events and MBO’s, any incentive should be tied to behavior and activities you want from your reps.
For instance, companies that want a high volume of activity, often pay commissions on a regular basis – monthly or even more frequent – in order to sustain high levels of output. The downside is that it creates a very short-term focus. Reps that are compensated on number of calls or leads, may be less interested in customer satisfaction than making calls to achieve their targets. Reps that are paid monthly rather than quarterly, may create sales spikes right before month when they are most focused on achieving their targets.
“Spiffs” are often used on top of the normal comp incentives to support specific sales campaigns – ie. additional commissions on certain types or sales for the current month, or $X for all reps who sell more than Y products this month.
While most reps (most people) would prefer more frequent incentives which create regular cash flow, companies often prefer paying incentives less frequently to preserve cash flow. Incentives paid quarterly may eliminate monthly spikes, but less frequent incentive calculations typically also produce less short term results. On a longer sales cycle or with larger deals, monthly incentives may be irrelevant and quarterly incentive calculations are more common.
Bonuses tied to team or company performance are often paid annually, when the numbers are actually tallied (revenues, profits, EBITDA, etc).
In all cases, the best incentives are easy to interpret for the rep, and tied to events the reps can directly control and influence through their own behavior.
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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