Perfecting sales incentive compensation ensures better employee outcomes

There are a lot of different sales incentive compensation plans that organizations can choose from. Some of these incorporate higher risks than others while offering the potential for greater pay, but these scenarios can be dangerous for employees and corporate owners as well. If a company is offering its workers the chance at bigger bonuses, they need to make certain that there are regular fallbacks that help them maintain a regular income, or else engagement and retention could be at risk.

Makings of disaster
According to Money News, this is exactly the predicament facing Caterpillar, Inc. The major mining and construction vehicle manufacturing firm recently announced that, due to the poorest quarterly reports it's seen since the beginning of the recession in 2007, employee payouts this coming March will be the lowest yet offered by the business. The source stated this is due to the company's incentive compensation plan, which pays each individual worker based on a percentage of the overall revenue the organization brings in for a certain period. While such a strategy is preferable in stable and expanding markets, for industries like construction and heavy manufacturing, the paydays for personnel can be disastrous.

Money News added that this low pay rate will only impact non-union workers, who will receive only about 60 percent of their regular income at the March payout. These variable pay plans are present at roughly 90 percent of all firms, a sharp increase from the 50 percent recorded by Aon Hewitt over 20 years ago. The reliance on these kinds of programs helps companies mitigate their losses due to payroll expenses when they perform poorly, as well as theoretically prompting personnel to perform better and bring in more money for the organization.

"Workers are bearing more risks in their employment relationship than they have at any time in the last quarter century," said compensation expert Donald Lewin of the UCLA Anderson School of Management.

Focusing on success
The Guardian wrote that the problem with incentive plans of any sort continues to be that these assets are not in line with corporate goals or employee interests. The source stressed that organizations need to find sustainable means of maintaining financial balance and increasing revenues while still providing people with the pay they deserve. In order to avoid staffing and income crises, coming up with a budget that works and incentive compensation plans on track with these ideas is critical.