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Every year, millions of dollars are spent on sales incentive compensation. However, new research reveals that at some organizations incentive compensation practices may undermine sales effectiveness. Consider the following findings from a 2012 sales performance study by consultancy Accenture and market research firm CSO Insights:
These findings raise the question of whether salary and commission structures are encouraging sales reps to establish the right priorities.
One likely reason for the incentive/output disconnect is that business models are evolving rapidly. For instance:
In net, it appears that many companies are trying to power new selling models with old approaches to incentive compensation. In many cases, however, it isn’t working.
Ways that organizations might tighten the link between incentive compensation and higher sales productivity include the following:
Re-examine commission rules and success measures. At a leading provider of electronic data storage solutions, more than 90 percent of the sales reps were sharing sales credit on a typical deal. The company reengineered its sales incentive program following an analysis of its sales-credit rules. Within three years, incentive spending decreased from 5.5 percent of revenue to less than 5 percent, while overall revenue grew by 60 percent.
Explore new ways to set targets, quotas and credits. Recently, a multiline insurance carrier moved from a one-size-fits-all approach for broker sales incentives to a tiered commission rate structure that provided higher incentive rewards for the most lucrative sales. This helped the carrier reduce its annual incentive spending by $40 million without compromising sales performance.
Curtail overpayments. A global bank analyzed its incentive payment program recently, and confirmed that in some cases, overpayment rates were running as high as 10 percent of total incentive spending. By rationalizing policies, strengthening controls and improving the integrity of commission data, the bank has since avoided more than $15 million in annual incentive over-payments.
Keeping data timely. A large telecommunications company was awarding outsized commissions on third-party dealers’ wireless products and contracts. The issue was residual commissions. Inadequate information updates allowed dealers to receive commissions beyond the eligible term, long after consumers changed contracts or began purchasing equipment from the company directly. Subsequent changes garnered savings opportunities of more than $10 million per year.
The bottom line: creating incentive programs and support systems based on the right metrics for the organization and industry can drive better sales performance with higher return on investment.
Jason Angelos is executive director, and Mark Wachter is senior manager, in the sales and customer services practice at Accenture, a global management consulting, technology services and outsourcing company serving clients in more than 120 countries.
© 2013 Accenture. All rights reserved. Posted with permission.
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