At the beginning of the new fiscal year, incentive programs are rolled out with the best of intentions. However, half of the time, they do not produce the desired results. When properly implemented, incentive programs are highly effective at motivating behaviors and driving profitability, but when poorly executed, they cause frustrations and can hinder achievement of business outcomes. Avoid these common mistakes to better align your incentive programs with your business strategy to drive winning outcomes.

1. Overly Complicated Plans– When incentive plans are too complex, salespeople get frustrated because it is not clear what it takes to succeed. To avoid this, keep plans straightforward to enable the alignment of sales efforts and company goals. A well-designed plan should have at most 3 performance measures.

2. Disconnected Payouts– Commission payments are often made months after the sale is closed. In some cases, the credit is earned at the time of booking, but commission is paid at the time of invoicing. Since salespeople have no control over delivery or invoicing this delay is discouraging as they are typically driven by instant gratification. Minimize lag time between the commission earning activity and the payment of the reward so that salespeople can connect the dots between performance and reward and stay motivated.

3. Mid-Year Plan Changes– In a rush to roll out the commission plans for the new year sales leaders often skip the details and don’t iron out intricate details of all plan components. This often leads to unexpected business outcome and mid-year plan adjustments. Making mid-year changes to annual plans is extremely confusing to salespeople and must be avoided at all costs. Start the plan design exercise early so you have sufficient time to do proper modelling.

4. Lack Of Communication– Poorly communicated plans can cause confusion and lead to failure. Communicate the plans for the new fiscal year clearly with elaborate examples and graphical representations of possible sales and commission earnings. Terms and Conditions of the plans, which are often dictated by HR and Legal, should be rolled out as a separate document so that salespeople can focus on the inner workings of their compensation plan.

5. Re-tooling of Commission Calculation Platform – Depending upon the extent of the changes, it may take weeks, sometimes months, for your IT team to build the new plan logic in your commission systems. Some of the proposed changes may not even be feasible. Involve your systems team in the planning process so they can recommend on automation feasibility and timelines for the first payout.

6. Draws for the first payout – Commission payouts for the first month/quarter are often not paid as per actuals, but as Draws. If you plan to do it that way, communicate to salespeople early on. Don’t surprise them with Draws because the plan design or the system was not ready in time.

7. Commission Statements Redesign– If you are making significant plan changes, you must not only redesign the system for commission calculation, but also redesign the commission statements. If salespeople don’t’ understand how the commission is being calculated, the incentive plans don’t provide any motivation. Involve system analysts and BI experts in Planning process, so they have time to revamp the statements and dashboards.