Strategic Rewards: When and How to Employ Multiple Incentive Compensation Plans

When sales team constantly hits targets, your company is doing great. But what happens when top performers suddenly stop hitting the quotas? Or the newbies not picking up the pace as fast as you hoped? It may be time to revisit your incentive compensation plan.

Instead of going for a one-size-fits-all deal, try tossing in multiple incentive compensation plans tailored for different parts of your sales team. It can bring back the spark, boost motivation, and send those numbers in the right direction again.

Keep reading to find out when it is time to change your incentive compensation plan. With the right mix of compensation for your all-stars, solid performers, and newcomers, you will have your sales team motivated and exceed targets in no time.

What Are Incentives and How Do They Work?

What exactly are incentives, and how do they motivate people? Incentives are rewards used to encourage certain behaviors or outcomes. They come in many forms, like bonuses, commissions, and non-monetary perks.

When implemented well, incentives can be very effective. They tap into our natural drive to attain rewards and recognition. For example, by boosting sales, you can offer commissions or bonuses for hitting targets. When you want to improve customer satisfaction, provide rewards for employees with the highest scores.

The key is matching the right incentive to your goal. Bonuses and raises motivate for the long term. Smaller perks such as gift cards or extra time off work well for short-term objectives or repetitive tasks. Mixing incentive types often has the biggest impact.

Be transparent about what is required to earn the reward. Change incentives regularly to prevent complacency. And, of course, follow through by actually providing the reward.

Do these, and you will have a proven strategy to motivate your team.

Types of Incentive Compensation Plans

When it comes to rewarding and motivating your employees, a single incentive plan is not enough. Depending on your goals and workforce, combining multiple compensation plans can be an effective strategy.

Bonuses

Bonuses are the most common incentive compensation plan. It is additional compensation provided as a one-time lump sum. Given for achieving specific targets or outstanding performance, bonuses act as a direct reward for individual or team accomplishments.

Commission-based

Many sales jobs offer a percentage of the money they make from each sale.  When your team sells something, they get a percentage of the sale – that is the commission. The more sales, the more earnings.

It presents a direct link between hard work and higher earnings. Commissions give employees a motive to hustle and boost sales numbers.

Profit Sharing

Profit sharing allows employees to receive a share of the company's profits. This plan promotes a sense of shared success. Profit sharing encourages employees to work well together and enhance overall company performance.

Stock Options

Stock options are not as common as the other incentive compensation plans. Employees can buy company stocks at a set price, making them business co-owners. When the company does well, its stocks go up, and so does the profit. It is a good way to tie employee perks to the company's success.

Recognition and Rewards

Incentive compensation plans are not only about monetary incentives. Sometimes, companies give their employees non-monetary bonuses to show they appreciate their hard work. These bonuses can be anything like recognition programs, travel rewards, or gift cards.

Giving non-cash incentives to employees is a great way to express gratitude and improve the work atmosphere.

Using the right combination of incentive compensation plans will provide the drive and motivation your employees need. The key to this is choosing based on your priorities and budget. With the variety of options available, you can craft a custom compensation strategy tailored to your organization's unique needs.

The Benefits of Offering Multiple Incentive Compensation Plans

Providing multiple incentive compensation plans for your employees has significant advantages.

Diverse Motivation

Employees have different motivations. When you offer multiple incentive programs, you appeal to a wider range of motivations and work styles.  Some employees may be highly motivated by individual performance bonuses, while others thrive on team-based rewards or profit sharing.

Flexibility for Employees

Giving your staff a choice of incentive plans allows them to select options that match their priorities. This can increase engagement and motivation by tapping into what really drives each person. Employees will appreciate the flexibility and autonomy to choose plans aligned with their values.

Competitive Advantage in Talent Acquisition

Offering multiple incentives makes a company more attractive to potential hires. It provides a competitive edge in recruiting top talent who are drawn to the flexibility and diversity of the incentive packages.

Improved Retention Rates

Employees stay with companies that recognize and reward their efforts. Having multiple incentive plans helps keep people around. It prevents employees from leaving and lessens the costs of hiring new ones.

Balanced Risk and Reward

Some plans, like bonuses, provide immediate rewards, while stock options offer long-term benefits. Having a mix ensures a balance between short-term gains and sustained employee commitment.

Factors Influencing the Need for Multiple Incentive Compensation Plans

Multiple incentive compensation plans provide advantages. But the timing is also critical. Multiple incentive plans may be necessary when:

Company Growth

Your incentive compensation plans must adapt as your company expands into new markets or product line. The incentives that work for your first sales team may not work with a new team in a different area or industry. Creating plans that suit each team's objectives keeps everyone interested.

For example, when you started with a small local team and now have teams in different regions, you must adjust their compensation. You must match employees' living costs and cultural norms. Pay sales representatives in the local currency, using salary and commission rates benchmarked to the specific region.

Business Model Changes

When a business changes its model, it usually means they are changing their focus. To get everyone on the same page, use multiple incentive compensation plans to match the company's goals. These plans help link how employees get rewarded to how the company takes risks and meets goals.

Product Expansion

As you expand into new products or services, the skills and efforts required of your teams change. The incentive compensation plans must match the unique demands of each product line. Incentive plans can push and reward ongoing learning when the changes mean learning new skills.

For example, when you start with one product but then drop a fancy solution and a wallet-friendly version, you must change your incentive plans. You can set bigger commissions for the fancy one and other perks for selling many budget options. This will motivate representatives to sell the right product for each customer.

Mix and match your incentive compensation plans to how your company grows and changes. When growing a business, the more things change, the more important it is to get compensation right.

Challenges in Implementing Multiple Incentive Compensation Plans

When implementing multiple incentive plans, several challenges may arise.

Complexity Confusion

Having multiple incentive compensation plans can create confusion among employees. They may find it challenging to understand the differences between plans. This can hinder them from maximizing their earnings, affecting overall morale and motivation.

To make things easier, try to simplify and blend the plans where possible. Use similar metrics, timelines, and payout schedules. You can provide training and guides to ensure employees will know the ins and outs of each plan.

Concerns about Equal Treatment

Employees may see certain incentive compensation plans more favorable to others. This can cause unhappiness and conflicts in the team. Making sure the incentive compensation plans are clear and fair is important to tackle this issue.

To avoid this, ensure transparency in designing and implementing incentive plans. Make it clear how to earn rewards and why each plan exists. Ask employees for their thoughts when planning to deal with worries about fairness. Keep checking and tweaking the plans to make sure they stay fair.

Admin Hassles

Managing multiple incentive compensation plans requires efficient administration. Handling all the paperwork, from tracking performance to giving rewards, can be overwhelming. When not handled carefully, it can lead to mistakes, delays, or inconsistent details.

Invest in solid incentive management software to streamline administrative tasks. This software automates calculations, tracking, and reporting to cut down on mistakes and delays. Make an easy-to-use system for employees to check their performance and incentives. Train administrators well to handle the extra work smoothly.

Using smart incentive compensation plans brings more benefits than challenges. To make things work well, just pay attention to motivation, talk a lot, and keep it simple.

Conclusion

Implementing multiple incentive compensation plans can be overwhelming at first. But it yields more benefits for both the company and the employees. You just have to know the right timing and the right combination of incentive plans.

Mix and match plans that work together, and you will have a strong engine to keep the company moving up. Do not forget to check and tweak the plans regularly to keep people excited and moving in the right direction. Using multiple incentives can be a win for both the team and the company, but remember, it is a big deal, so be smart about how you reward your employees.