The Complete Guide to Sales Force Incentive Compensation

A comprehensive guide for designing, implementing, and managing effective sales force incentive compensation plans that motivate salespeople, align with business strategy, and drive company success.

This book helps firms harness the power of sales force incentives while avoiding common pitfalls. It provides a complete, practical roadmap for designing and implementing compensation plans that truly work, moving beyond theory to offer actionable advice grounded in decades of experience with hundreds of companies. Readers will learn how to diagnose existing plan issues within the broader sales management system, make the four critical design decisions (pay level, salary-incentive mix, performance measures, and payout relationships), set fair and motivational goals, and manage the often-difficult transition to a new plan. Through a strategic framework, hundreds of real-world examples, and proven analytical techniques, this guide equips sales, marketing, finance, and HR leaders to build a compensation structure that attracts and retains top talent, directs sales effort effectively, and ultimately drives bottom-line results.

The model it argues

A causal model showing how Sales Force Effectiveness Drivers, including the key decisions in incentive compensation design, influence the psychological and behavioral states of the sales force, which in turn drive customer satisfaction and ultimately company performance results such as sales and profit.

Key ideas

Incentive Pay Level: The target amount of total cash compensation (base salary plus target incentive) for a salesperson who meets performance expectations, along with the planned distribution of pay for low and high performers. It is a strategic choice about how to position the company within the labor market.
Incentive Pay Mix: The relative proportion of a salesperson's target compensation that is delivered as a fixed salary versus a variable, performance-based incentive. This decision reflects the company's philosophy on risk sharing, control, and culture.
Performance Measures Selection: The selection of specific metrics and criteria used to evaluate salesperson performance and calculate incentive payouts. These measures signal strategic priorities and direct sales force effort.
Payout Relationship Design: The rules and mechanics that define how performance on a given measure translates into an incentive payment. This includes the shape of the payout curve, which determines the marginal reward for incremental performance.
Goal-Setting Process Quality: The extent to which the process for establishing individual sales goals is perceived as fair, produces realistic and challenging targets, and aligns individual efforts with overall company objectives. It is a critical enabler for any goal-based incentive plan.
Sales Strategy and Design: The set of high-level choices that define the nature of the sales job, including who to sell to (customers), what to sell (offering), how to sell (process), and through which channels and structure. This context determines the environment in which the incentive plan must operate.
Sales Force Motivation: The internal psychological state that drives a salesperson to initiate and persist in job-related behaviors and activities. It encompasses the direction, intensity, and persistence of effort.
Sales Force Attraction and Retention: The organization's effectiveness in sourcing and hiring salespeople with the desired profile and in keeping its most valuable salespeople while managing out poor performers.