After a decade of low inflation driving low annual increase budgets, interrupted by the global financial crisis, employers are slowly realizing that there is no value in an over-engineered annual “merit increase” process that attempts to differentiate among levels of performance and relative position in salary range, with a 3% budget.
The ineffectiveness of base pay increases for rewarding performance and differentiating while maintaining financial flexibility has led organizations on a decades-long search for an incentive compensation solution. Many more have failed than have been successful for three reasons: 1 – Objectives of the plan were not clearly defined, along the lines of “pay for performance” with no link back to the organization’s strategies. It has often been assumed that behavior would change when the plan was implemented. Most of the time that is not what happened. 2 – The failure to recognize that the total compensation and benefits program, as is, is filled with incentives and disincentives along with other management processes. Implementing a “bolt-on” program, particularly with no significant changes in existing incentives, has a a probability of failure. 3 – The net result in most programs was that results did not improve, behavior did not change (at least not for the better), but inevitably costs increased.
The ubiquitous use of variable pay programs has created a compensation environment in nearly all occupation categories and industries that can no longer just focus on “salaries and wages.”
Sales compensation – the structure of base salary, commissions, incentive compensation, bonuses, and recognition awards – has become a separate category of “pay” as if salespeople are different from everyone else in the organization. True, their job has more “moving parts” than some – variations in product lines, geographic territories, customer base, direct versus indirect sales, channel conflicts, split credits…the list goes on. The design and administration of compensation for any job could be given similar scrutiny with incentives designed accordingly. But they aren’t. We continually see over-engineered sales compensation programs as we hear that performance for other jobs “just can’t be measured.” Good salespeople are, indeed, good salespeople. Program complexity that exceeds the capabilities of administrative systems need to be revisited. See Principles #3 and #11 at consciouscompensation.com