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VARIABLE COMPENSATION IN SALES – does the carrot in front of your nose still work?

Over the last few months, I have had a number of discussions with CSOs about changes to the variable compensation system in sales.

Discussion with customers about variable compensation systems in sales

I often had the impression that the impact of sales incentive systems importance was overestimated and that people hoped that with the "right" system, sales would more or less manage themselves. In other cases, the idea was to increase the proportion of variable remuneration in order to save costs.

In our experience, however, it is often the other way around: the compensation system should not demotivate top performers in sales. However, it can NOT replace good sales management .

So what is important when it comes to variable compensation in sales?

  • It should reflect personal performance, i.e. only reward what the persons concerned can influence themselves.

  • The underlying KPIs should correspond to those in the target agreement.

  • Possible negative impacts of incentives should be considered and avoided.

  • The system must be simple. Maximum 3 KPIs, preferably less.

  • The compensation must be perceived as fair, i.e. the target income must be competitive and, with effort, achievable even for average salespeople.

  • Billing must be transparent: Salespeople must be able to understand why they receive how much variable compensation.

  • Payment should be made in a timely manner close to the underlying performance, ie monthly in transactional sales, but may be longer in strategic and project sales.

This probably all sounds simple and logical. But as is often the case, the devil is in the details of implementation.

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