Calculating the ‘Just Right’ Value for Incentives

Author: 
Tim Houlihan

Most incentives are paid out between 3 and 10 percent of the income earned during the incentive period. To figure out what the best amount of the award should be, consider starting with the midpoint of the average (7 percent) and make minor adjustments from there.

Matching Incentive to Your Corporate Culture

Track Incentive Results

Smart sales managers rely on good data to make decisions about successes and failures in their territory. The same rigor must be applied to your incentives. What worked and what didn’t? How were the incentive-related communications received? What was the ultimate ROI for the program?

Loss Aversion Is Real

Never reduce either the base pay or the current commission structure to cover your incentive budget. Never. The loss of regular earning opportunities will deeply damage your team’s effectiveness because loss aversion is such a powerful emotional trigger. Don’t go there. Incentives should always be above and beyond base pay and commissions. When incentives are non-cash, you also avoid the potential entitlement that goes with money allowing incentives to be swapped in and out of the game with minimal negative effects.

Test. Observe. Revise. [Wash. Rinse. Repeat.]

By testing different scenarios and adjusting the awards types, duration, rules by which your reps earn them and then tracking the results, you’ll see how to adjust your incentives into the “just right” range. Measure what works best in your culture, in your competitive environment and in your territories. Without measurement, you’ll playing from your gut when the other teams are using money-ball. You’ll be wiser and your reps will be more productive for it, too.