Incentive plans for sales staff are failing

According to the pan-European report from Hewitt Associates, 41% of the companies interviewed, rate their sales incentive plans as ineffective or are uncertain of their plans' effectiveness. But despite this, less than a third (30%) of companies made changes to their sales plans during the first half of 2009, with many organisations remaining unsure of the impact of these changes in terms of driving the business.

Robert Miller, senior reward consultant at Hewitt Associates, said: "The low perceived effectiveness of sales plans, despite a relatively small number of companies actively making changes to them was a surprise element of the results. The findings reveal that most organisations have opted to change their targets to reflect economic conditions, but have stopped short of fundamental plan design. Many are adopting a wait-and-see approach before committing to any significant restructuring of sales plans. Another interesting finding was the increased use of long-term incentives to retain top sales talent through the economic downturn.

"Changes around targets were predictable. However, it came as a surprise to see that long-term incentive plans were used in 41% of the companies surveyed.  Another striking finding was how few companies actually tinkered with their plans through overlay incentives - temporary incentives that operate on top of an existing sales plan - such as an additional award of 8% of salary for hitting a target."

"We expected to see more initiatives aimed at top talent such as overlays specific to this group and higher accelerators for out-performance or higher incentive caps.

"When organisations that did make changes (25% of the sample) are examined, the study found the "usual suspects"; measuring and rewarding the salesforce on margin, introducing more role specific plans rather than a one-size-fits-all plan design, modifying the accelerators for outperformance under their plans or introducing a cumulative rather than a month to month measurement system."

The Hewitt survey also confirmed previous findings that the gearing of the package (i.e. the proportion of pay dependent on meeting targets) is influenced by the role of the individual sales person. For example, ‘hunter' roles typically have a more aggressive gearing, such as fixed to 40% variable. ‘Farmer' roles are more likely to have a 70:30 split. Geography also plays a strong role in this regard, with some countries, such as the Nordics, typically offering packages with a higher fixed component.

When it comes to setting targets, Hewitt's survey showed that the most common factor remains the previous year's actual sales results (29%), followed by market potential (23%) and sales history (17%).

Sales incentive plans typically include between one and three metrics. Hewitt's data reveals the main performance measure is revenue, which is used by over 70% of organisations and is consistently the most popular measure across sectors. Other common measures include unit volume and margin.  Customer satisfaction is used in 23% of plans.

Miller added: "As organisations begin to understand how they will emerge from the downturn, and adjust their market strategies and product mix accordingly, we will see changes to the design of sales plans. These changes will, in all probability, reflect those we have seen in the past following market upheavals; that is, ensuring that plans are role specific, have the right metrics, provide decent accelerators for overperformance, and are based on sound target setting procedures."