3 different incentive compensation management plans

Every vendor has a different strategy for incentive compensation management. For some businesses, quotas and commissions are the best tools, while other companies prefer to use flat salaries. Managers must tailor their compensation solutions to ensure that they will motivate positive behavior in a sales team. 

Companies can institute any one of hundreds of compensation plans. That said, some strategies are more popular than others because they have proven effective in every industry. Managers should consider the merits of scalable rewards, commissions for individual sales and profit sharing when designing their ICM strategies. 

Scalable rewards
Top performers deserve to earn more money than their average associates. When companies do not scale their wages according to performance, representatives become disgruntled and start seeking new employment opportunities. To combat employee turnover, Entrepreneur Magazine recommends a tiered incentive program

This system uses traditional quotas and sales incentives, but allows representatives to earn larger paychecks for exceeding their objectives. Managers should create tiers beyond their initial incentives that reward agents for reaching new heights. The amounts paid to employees should be tied directly to their returns, but the percentages should shrink at each tier. This prevents commissions from becoming exorbitant and eating into profit margins. 

Individual commissions
Some vendors are focused on selling high volumes of goods or services. Salespeople must be motivated to meet with dozens, if not hundreds, of clients every year. According to Monster.com, the most effective ICM plan to encourage this behavior is to distribute commissions for every sale

Monetary income is the best motivator for every employee, especially sales agents. If representatives know that they can inflate their paycheck with every deal, they will put greater effort toward generating leads and finalizing agreements. 

Managers must be careful with this type of plan. A cap should be created so that salespeople cannot exceed a specific financial threshold. This ensures that the company won't have to dedicate all of its revenue to compensation for its staff. 

Profit sharing
An alternative to individual commissions is profit sharing. The compensation system ties staff members' income directly to their employer's financial health. 

"The employer will say, 'If you can get a better profit out of that deal, your commission rises,' but it's still split with the company," Greg Bennett, an account executive with the Mergis Group, told Monster.com. 

Profit sharing discourages employees from slashing prices. When salespeople attempt to undercut competitors, they are essentially losing money because the company's profit margin will shrink.