Accelerated compensation plans are those where the commission rate increases as the recipients performance against quota increases. They are a powerful motivational and sales management tool, especially for earlier-stage companies where a relatively small number of big deals can make a huge difference.
How do accelerated plans work? Well, in an example where the reps target commissions are $100,000 for delivering quota results of $1,000,000, commissions under various performance scenarios might look like this:
PRODUCTION COMMISSION COMMISSION RATES
$$ % of Quota $$ % Target Comp Overall Incremental
1,000,000 100% 100,000 100% 10.0% 10.0%
2,000,000 200% 250,000 250% 12.5% 15.0%
3,000,000 300% 500,000 500% 16.7% 25.0%
There is also typically a decelerator on underperformance, so that a rep who only delivered $700,000 (i.e., 70% of quota) might earn only, say, $60,000 (i.e., 60% of target comp).
Accelerated comp plans have these important benefits:
- They’re a great recruiting tool, because big producers can see big income potential.
- They’re a great retention tool, for the same reason.
- A sales rep in the middle of a great year is motivated to keep pouring it on because of the accelerated commission rates, rather than coasting for the rest of the year.
- The extra commission dollars are often less than the additional base salary, benefits, office, travel & entertainment, and other costs incurred by having several average or below-average producers instead of one big producer.
- Underperforming sales reps get the message in their paychecks.
At the same time, accelerated plans need to be crafted carefully because of the larger dollar amounts involved, so plan design flaws can be especially costly. Also, corporate directors, managers, and administrators need to understand them well enough to ensure that the incentive benefits such plans offer are maximized, and that may take extra effort because the math in these plans is a little more complex.
Finally, communicating accelerated comp plans to the participants is just as important as designing a good plan. Theres no point to having expensive plans like this unless the plans themselves help to drive the desired behavior in the first place, and thats only going to happen when the sales people and other participants know exactly how the plans work. That requires