{"id":10756,"date":"2024-08-20T11:53:08","date_gmt":"2024-08-20T11:53:08","guid":{"rendered":"https:\/\/www.salesforce.com\/?p=10756"},"modified":"2024-08-20T11:56:04","modified_gmt":"2024-08-20T11:56:04","slug":"incentive-compensation","status":"publish","type":"post","link":"https:\/\/www.salesforce.com\/eu\/blog\/incentive-compensation\/","title":{"rendered":"Why Incentive Compensation Matters \u2014 and How to Build the Program that Suits Your Business"},"content":{"rendered":"\n<p>Why do you reward your employees? It\u2019s not a hard question to answer: You want to show your employees that you value them while motivating them to perform at a high level. An equally important question \u2014 and the key to a successful incentive compensation program: <em>How<\/em> do you reward your employees?<\/p>\n\n\n\n<p>In this article, we\u2019ll cover the ins and outs of <a href=\"https:\/\/www.salesforce.com\/uk\/sales\/incentive-compensation-management\/\">incentive compensation<\/a> and provide some key tips for developing a program that simultaneously rewards your employees and supports the growth of your business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-you-ll-learn\">What you&#8217;ll learn:<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"#h-what-is-incentive-compensation\">What is incentive compensation?<\/a><\/li>\n\n\n\n<li><a href=\"#h-long-term-incentives-vs-short-term-incentives\">Long-term incentives vs. short-term incentives<\/a><\/li>\n\n\n\n<li><a href=\"#h-specific-types-of-incentive-compensation-nbsp\">Specific types of incentive compensation<\/a><\/li>\n\n\n\n<li><a href=\"#h-benefits-of-incentive-compensation\">Benefits of incentive compensation<\/a><\/li>\n\n\n\n<li><a href=\"#h-drawbacks-of-incentive-compensation\">Drawbacks of incentive compensation<\/a><\/li>\n\n\n\n<li><a href=\"#h-best-practices-for-designing-effective-incentive-compensation-plans\">Best practices for designing effective incentive compensation plans<\/a><\/li>\n<\/ul>\n\n\n\n<div class=\"layout-one wp-block-salesforce-blog-offer\">\n\t<div class=\"wp-block-offer__wrapper\">\n\n\t\t<div class=\"wp-block-offer__content\">\n\t\t\t<h2 class=\"wp-block-offer__title\">What Trends Drive Sales Productivity Today?<\/h2>\n\t\t\t\t\t\t\t<p class=\"wp-block-offer__description\">Get the State of Sales Report to discover productivity insights from 5,500 sales professionals.<\/p>\n\t\t\t\n\t\t\t\n\t\t\t\t\t\t\t<div class=\"wp-block-button\">\n\t\t\t\t\t<a class=\"wp-block-button__link\" target=\"_blank\" href=\"https:\/\/www.salesforce.com\/uk\/resources\/research-reports\/state-of-sales\/\">Read the Report<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\n\t\t<div class=\"wp-block-offer__media\">\n\t\t\t\t\t<\/div>\n\t<\/div>\n\n\t\t\t<div class=\"wp-block-offer__graphics wp-block-offer__contour\"><\/div>\n\t\n\t\t\t<!-- Standard Illustration -->\n\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__illustration\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-illustration-layout-one.png\" alt=\"\">\n\n\t\t<!-- Small Accent Illustration -->\n\t\t\t\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__accent\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-accent-layout-one.png\" alt=\"\">\n\t\t\n\t\t<!-- Left Side Illustration -->\n\t\t\n\t\t<!-- Cloud Illustration -->\n\t\t\t\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__cloud\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-cloud-layout-one.png\" alt=\"\">\n\t\t\n\t<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-incentive-compensation\">What is incentive compensation?<\/h2>\n\n\n\n<p><a href=\"https:\/\/www.salesforce.com\/uk\/sales\/incentive-compensation-management\/\">Incentive compensation<\/a> is a form of payment that rewards employees \u2013 often sales employees specifically \u2013 for achieving certain goals or objectives. It is often tied to individual or company performance and serves the purpose of motivating employees to work as effectively as possible and achieve better results.&nbsp;<\/p>\n\n\n\n<p>Incentive compensation can take many forms, including bonuses, stock options, profit sharing, and commission-based pay structures.<\/p>\n\n\n\n<p>Although <a href=\"https:\/\/www.salesforce.com\/uk\/form\/sales\/demo-icm\/?d=pb\">incentive compensation is primarily used<\/a> to compensate sales teams, it\u2019s not uncommon for other roles to earn incentive pay. Employees who work in sales operations, customer success, recruiting, and marketing are often eligible for incentive compensation beyond their base salaries.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-long-term-incentives-vs-short-term-incentives\">Long-term incentives vs. short-term incentives<\/h2>\n\n\n\n<p>Incentive compensation typically falls into one of two categories \u2013 long-term incentives and short-term incentives.<\/p>\n\n\n\n<p>Long-term incentives are awarded over several years or even decades. <a href=\"https:\/\/www.salesforce.com\/uk\/sales\/incentive-compensation-management\/\">These incentives may include<\/a> stock options, restricted stock units, performance shares, or other equity-based compensation that vests over time. Their purpose is to align the interests of the employee with the long-term success of the company, as the value of these incentives traditionally increases based on the company\u2019s performance.<\/p>\n\n\n\n<p>Short-term incentives, on the other hand, are&nbsp;typically awarded and paid out within the current fiscal year, quarterly, or semi-annually. They are usually tied to specific performance goals or targets and may include bonuses, commissions, or other performance-based rewards. Short-term incentives are used to drive short-term performance and provide immediate rewards to employees for achieving specific goals.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-specific-types-of-incentive-compensation-nbsp\">Specific types of incentive compensation&nbsp;<\/h2>\n\n\n\n<p>Let\u2019s quickly break down some of the specific types of incentive compensation that an organisation might offer:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Performance-based bonuses <\/strong>reward employees for achieving certain goals or targets related to their specific roles.<\/li>\n\n\n\n<li><strong>Restricted stock units (RSUs)<\/strong> give employees shares of a company\u2019s stock, which typically vest over time and are entirely owned by employees once vested. RSUs are typically offered by publicly traded companies that want to attract and retain their top performers.&nbsp;<\/li>\n\n\n\n<li><strong>Profit-sharing<\/strong> <strong>bonuses<\/strong> distribute a percentage of the company\u2019s profits to employees, usually on a quarterly or annual basis, incentivising them to work together to increase the company\u2019s overall profitability.<\/li>\n\n\n\n<li><strong>Commission-based pay<\/strong> provides a percentage of sales revenue to employees who generate sales.<\/li>\n<\/ul>\n\n\n\n<p>Some organisations use only one type of incentive pay, while others use multiple types of <a href=\"https:\/\/www.salesforce.com\/uk\/sales\/incentive-compensation-management\/\">incentive compensation to create<\/a> a more well-rounded incentive compensation program.<\/p>\n\n\n\n<p>You\u2019ll also see each type of incentive plan leveraged differently. Some companies pay sales teams only in commission, for example, while others pair commission with a base salary. What works for one company might not work for another. It\u2019s best to test out different combinations of incentive offerings until you find what works best for your specific goals and objectives.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<div class=\"layout-nine wp-block-salesforce-blog-offer\">\n\t<div class=\"wp-block-offer__wrapper\">\n\n\t\t<div class=\"wp-block-offer__content\">\n\t\t\t<h2 class=\"wp-block-offer__title\">Join the Salesblazer movement<\/h2>\n\t\t\t\t\t\t\t<p class=\"wp-block-offer__description\">We&#8217;re building the largest and most successful community of sales professionals, so you can learn, connect, and grow. <\/p>\n\t\t\t\n\t\t\t\n\t\t\t\t\t\t\t<div class=\"wp-block-button\">\n\t\t\t\t\t<a class=\"wp-block-button__link\" target=\"_self\" href=\"https:\/\/join.slack.com\/t\/salesblazer-community\/shared_invite\/zt-385fovphf-fxQGRIqM_op9u7qUULdOHg\">Get Started<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\n\t\t<div class=\"wp-block-offer__media\">\n\t\t\t\t\t<\/div>\n\t<\/div>\n\n\t\t\t<div class=\"wp-block-offer__graphics wp-block-offer__contour\"><\/div>\n\t\n\t\t\t<!-- Standard Illustration -->\n\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__illustration\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-illustration-layout-nine.png\" alt=\"\">\n\n\t\t<!-- Small Accent Illustration -->\n\t\t\n\t\t<!-- Left Side Illustration -->\n\t\t\n\t\t<!-- Cloud Illustration -->\n\t\t\n\t<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-benefits-of-incentive-compensation\">Benefits of incentive compensation<\/h2>\n\n\n\n<p>Incentive compensation can <a href=\"https:\/\/www.salesforce.com\/uk\/form\/sales\/demo-icm\/?d=pb\">provide the following benefits<\/a> to both employers and employees.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-increases-motivation\">Increases motivation<\/h3>\n\n\n\n<p>By tying compensation to specific goals, employees are motivated to work harder and achieve better results. When overall comp is based on their performance, employees have more incentive to achieve their goals.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-facilitates-alignment-of-interests\">Facilitates alignment of interests<\/h3>\n\n\n\n<p>Incentive compensation can align the interests of employees with high-level company strategies, encouraging them to work towards the company\u2019s success.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-improves-retention\">Improves retention<\/h3>\n\n\n\n<p>Incentive compensation can help retain top-performing employees by providing rewards and recognition for their efforts.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-promotes-accountability-nbsp\">Promotes accountability&nbsp;<\/h3>\n\n\n\n<p>Incentive compensation plans set clear goals and objectives for employees, which holds them accountable for their performance and rewards them for their productivity.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-enables-flexibility\">Enables flexibility<\/h3>\n\n\n\n<p>Incentive compensation can be customised to fit the unique needs and goals of the organisation as a whole as well as individual employees, enabling companies to offer the right compensation packages for their specific staff.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-drawbacks-of-incentive-compensation\">Drawbacks of incentive compensation<\/h2>\n\n\n\n<p>While its benefits are significant, incentive compensation can present the following risks if designed or distributed poorly.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-undermines-teamwork\">Undermines teamwork<\/h3>\n\n\n\n<p>When incentive compensation plans over-emphasise individual performance, they risk creating a culture that doesn\u2019t place enough value on teamwork and collaboration.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-incentivises-bad-behaviours\">Incentivises bad behaviours<\/h3>\n\n\n\n<p>Poorly designed incentive plans can inadvertently motivate the wrong types of behaviour. Without provisions like <a href=\"https:\/\/www.salesforce.com\/blog\/clawback-clause\/\">clawback clauses<\/a> in place, employees might resort to unethical tactics or take a quantity-over-quality approach to selling. This can negatively impact sales results, morale, and overall productivity.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-can-be-difficult-to-maintain-nbsp\">Can be difficult to maintain&nbsp;<\/h3>\n\n\n\n<p>Incentive compensation can be costly for employers to administer and manage. Without the right resources, manual efforts to track and measure employee performance can be time-consuming and frustrating. The admin work alone can reduce an organisation\u2019s profitability \u2013 as the overhead of managing an inefficient incentive program inhibits admins from spending time on more revenue-driving activities.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-best-practices-for-designing-effective-incentive-compensation-plans\">Best practices for designing effective incentive compensation plans<\/h2>\n\n\n\n<p>While there\u2019s no set way to <a href=\"https:\/\/www.salesforce.com\/uk\/form\/sales\/demo-icm\/?d=pb\">design an incentive compensation plan<\/a>, there are a few key factors that will ensure you\u2019re setting yourself up for success.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-define-a-clear-structure-nbsp\">Define a clear structure&nbsp;<\/h3>\n\n\n\n<p>Define which teams will earn incentive compensation. Then consider the goals of each of these teams. Develop your plans around the factors directly within this team\u2019s control, and pay close attention to the behaviours you want to incentivise.<\/p>\n\n\n\n<p>For example, for an inbound SDR team, you\u2019ll want to incentivise the activities that indicate high inbound SDR performance \u2013 things like lead response time and qualified opportunity generation. If you neglect these factors and only reward closed-won revenue, you\u2019ll fail to incentivise inbound SDRs to perform their key responsibilities.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-establish-and-consistently-measure-clear-performance-metrics\">Establish and consistently measure clear performance metrics<\/h3>\n\n\n\n<p>Make sure you are measuring the same core metrics consistently, over time. You need to have reliable data around metrics like closed-won revenue, demos booked, and qualified lead generation to determine how these specific results should be weighed in your incentive plans.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-ensure-fair-and-consistent-payouts\">Ensure fair and consistent payouts<\/h3>\n\n\n\n<p>You also want to make sure your business is able to consistently deliver on the incentives you\u2019ve promised to employees. If you fail to make accurate, consistent, and timely payouts, employee engagement, morale, and trust in leadership will suffer.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-provide-transparency-to-employees\">Provide transparency to employees<\/h3>\n\n\n\n<p>Your employees should be able to understand how their performance tracks to their goals, what specifically they\u2019re getting paid for, and how to access and understand their incentive compensation statements.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-review-and-adjust-incentive-plans-regularly\">Review and adjust incentive plans regularly<\/h3>\n\n\n\n<p>If an incentive plan isn\u2019t working out as intended (or at all), then it needs to be adjusted before it does more harm than good. We recommend reviewing your goals and KPIs at least quarterly in order to catch and resolve issues before they happen.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-invest-in-incentive-compensation-management-tools\">Invest in incentive compensation management tools<\/h3>\n\n\n\n<p>What systems or tools do you have&nbsp;in place to help you manage and maintain the manual work that often goes into managing an incentive program? Be sure you have the answer to this question before rolling out your plan. If you have a large team or limited bandwidth, you\u2019ll want to explore <a href=\"https:\/\/www.salesforce.com\/uk\/sales\/incentive-compensation-management\/\">incentive compensation management<\/a> solutions that can help keep your program operating smoothly.<\/p>\n\n\n\n<p><a href=\"#h-what-you-ll-learn\">(Back to top)<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-continuously-fine-tune-your-incentive-compensation-strategy\">Continuously fine-tune your incentive compensation strategy<\/h2>\n\n\n\n<p>Incentive compensation is too essential and multifaceted to exist as a set-it-and-forget-it program. Make sure that you\u2019re regularly analysing your compensation strategy \u2013 from your overall philosophy down to the specifics of individual plans \u2013 so that you can identify areas for improvement and make adjustments that benefit your employees and promote high performance across the entire organisation.<\/p>\n\n\n\n<div class=\"layout-four wp-block-salesforce-blog-offer\">\n\t<div class=\"wp-block-offer__wrapper\">\n\n\t\t<div class=\"wp-block-offer__content\">\n\t\t\t<h2 class=\"wp-block-offer__title\">Launch Sophisticated Compensation Plans Fast<\/h2>\n\t\t\t\t\t\t\t<p class=\"wp-block-offer__description\">Is outdated commission management hurting your growth? See how to quickly create automated incentive plans that motivate your reps.<\/p>\n\t\t\t\n\t\t\t\n\t\t\t\t\t\t\t<div class=\"wp-block-button\">\n\t\t\t\t\t<a class=\"wp-block-button__link\" target=\"_blank\" href=\"https:\/\/www.salesforce.com\/uk\/form\/sales\/demo-icm\/?d=pb\">Watch the Demo<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\n\t\t<div class=\"wp-block-offer__media\">\n\t\t\t\t\t<\/div>\n\t<\/div>\n\n\t\n\t\t\t<!-- Standard Illustration -->\n\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__illustration\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-illustration-layout-four.png\" alt=\"\">\n\n\t\t<!-- Small Accent Illustration -->\n\t\t\t\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__accent\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-accent-layout-four.png\" alt=\"\">\n\t\t\n\t\t<!-- Left Side Illustration -->\n\t\t\n\t\t<!-- Cloud Illustration -->\n\t\t\t\t\t<img decoding=\"async\" class=\"wp-block-offer__graphics wp-block-offer__cloud\" src=\"https:\/\/www.salesforce.com\/eu\/blog\/wp-content\/themes\/salesforce-blog\/dist\/images\/offer-block\/offer-cloud-layout-four.png\" alt=\"\">\n\t\t\n\t<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Learn how to build an incentive compensation program that fuels your company&#8217;s growth.<\/p>\n","protected":false},"author":111,"featured_media":10755,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"sf_justforyou_enable_alt":true,"optimizely_content_id":"b95dd7ab568d4133a2530e05d447fdd1","post_meta_title":"","ai_synopsis":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"sf_topic":[367,277,4,108],"sf_content_type":[],"coauthors":[382],"class_list":["post-10756","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","sf_topic-salesblazer","sf_topic-sales-strategy","sf_topic-sales","sf_topic-sales-cloud"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.2 (Yoast SEO v27.2) - 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