Well-designed incentive compensation plans – especially sales commission plans – are a powerful way to motivate great performance. But they’re also easy to screw up, and the results are plans that not only fail to motivate, but are incredibly expensive, in terms of employee productivity. With that in mind, with this post we start a recurring series of blogs on the 121 Silicon Valley website: The Deadly Sins of Incentive Compensation. So let’s start with…
..Deadly Sin #16 – Changing the plan significantly every year, or even more frequently.
Yes, yes, I know… changing the plan from time to time may be necessary, especially to ensure that quotas and territories reflect the realities in the field, and when business models change. But when an enterprise communicates an incentive compensation plan, ideally it’s sending out a clear, unambiguous message about its strategic objectives and how individuals can contribute to those objectives. Flip-flops and major changes in incentive compensation plans send a message that the enterprise is unclear on its strategy, that it doesn’t have a sense of how the strategy translates into actionable decisions, or that it can’t communicate that strategy effectively. The result is, at best, confusion and frustration among the employees. demoralizing, employees discover that the day-to-day discipline, behavior and tactics that they thought would lead to a certain compensation level have been wasted.
Even worse, some significant changes to comp plans as an effort by management to rein in compensation that they’ve decided is too high. That perception is especially likely when the changes are introduced in the middle of a compensation year. Management teams considering this action should remember that a deal is a deal, and living with your mistakes is often less expensive in the long run than trying to fix them in a way that’s perceived as unfair and breaking the salesforce trust.
We will be sharing more Deadly Sins in the coming months. We won’t always present them in numerical order. We’re starting with Deadly Sin #16 now because it’s the time of year when companies with calendar fiscal years are planning for next year.