Seven common sales incentive plan design mistakes

The strongest plans begin with sales strategy and role accountability. They do not begin with a payout curve copied from another organisation.

1. Using the same plan for fundamentally different sales roles

Account acquisition, account growth, relationship management, technical sales and sales leadership may contribute in different ways. Applying one common plan can reward employees for outcomes they do not control or fail to recognise the work that creates long-term value.

Start by defining each role’s purpose, decision authority, sales cycle and influence on customer outcomes. Group roles only where the accountabilities are genuinely similar.

2. Choosing too many measures

Every measure sends a signal. A plan with six or seven measures often leaves participants unsure where to focus and creates a complex administrative process.

Use a small number of measures that reflect the most important outcomes. Revenue, margin, new customers, retention, strategic products and team performance can all be relevant, but each should have a clear reason for inclusion.

Measures should be distinct. Using several highly correlated measures adds complexity without materially changing behaviour.

3. Setting targets that are neither credible nor comparable

Targets should be stretching but achievable, and the opportunity to succeed should be reasonably comparable across territories or accounts. Historical performance alone may be misleading where markets, customer portfolios or product availability differ.

Target setting requires reliable data, commercial judgement and calibration. Organisations should document assumptions and review material changes during the year through a controlled governance process.

4. Selecting the wrong pay mix

Pay mix is the balance between fixed salary and variable incentive opportunity. A highly leveraged plan may suit a role with strong individual influence over short-cycle sales. It is less appropriate where outcomes depend on long-term relationships, teamwork, regulation or factors outside the participant’s control.

Consider market practice, role risk, sales-cycle length, business maturity and the importance of collaboration. A plan should create motivation without transferring inappropriate business risk to employees.

5. Ignoring the full payout curve

Design discussions often focus on target opportunity while neglecting threshold, acceleration, caps and performance below target. These mechanics determine both motivation and financial exposure.

Model a wide range of outcomes. Test low performance, target achievement, exceptional results, large individual deals and scenarios where revenue grows but profitability falls. Finance and sales leadership should understand the cost before launch.

6. Failing to define crediting and governance rules

Disputes commonly arise over account ownership, split credit, cancelled orders, bad debt, employee transfers, new starters and leavers. If rules are unclear, managers make inconsistent decisions after results are known.

Create plan rules before the performance period. Define approval authority, data sources, exception processes and how material unforeseen events will be handled. Good governance protects both employees and the organisation.

7. Treating communication as an afterthought

Participants should understand the plan’s purpose, measures, targets, earning opportunity and examples of how payouts work. A technically sound plan will not influence behaviour if employees cannot explain it.

Use clear plan documents, individual statements, worked examples and manager briefings. Provide a route for questions and correct misunderstandings early.

Additional warning signs

Other warning signs include persistent over- or under-payment against plan cost, a large number of manual adjustments, high performers succeeding despite rather than because of the plan and frequent disagreement between Sales, Finance and HR.

A plan can also become obsolete as products, routes to market and customer economics change. Annual review should assess whether the design still supports current strategy rather than simply updating targets.

A practical design process

Begin with business strategy and sales-role analysis. Define design principles covering performance, risk, affordability, teamwork and simplicity.

Select measures and determine how performance will be credited. Develop target-setting standards, pay mix, incentive opportunity and payout mechanics. Model cost and employee outcomes across scenarios.

Consult relevant stakeholders, finalise governance and legal documentation, then prepare communication and administration. After launch, monitor leading indicators, disputes, cost and behavioural effects.

Frequently asked questions

How many measures should a sales plan contain?

There is no universal number, but two or three well-chosen measures are often more effective than a long scorecard. Complexity should be justified by the role and strategy.

Should sales incentives be capped?

It depends on economics, risk and the ability to set reliable targets. Where plans are uncapped, organisations should model exceptional outcomes and maintain appropriate risk controls.

How often should plans change?

Review them annually, but avoid unnecessary redesign. Change when strategy, roles, markets or plan outcomes indicate that the existing design is no longer appropriate.

Should commission be individual or team-based?

The answer depends on how value is created. Individual measures suit clearly attributable results; team measures may be better where collaboration is essential. Some roles need a balanced combination.

Make sales incentives support the strategy

Reward Associates provides sales compensation and incentive design, commission-scheme review, modelling, governance and implementation support.

Book a free 30-minute Reward Consultation to discuss a Sales Incentive Effectiveness Review and the commercial questions your plan needs to answer.

About the author

Jean-Baptiste Jugand is the founder of Reward Associates and advises organisations on sales compensation, bonus design, incentive modelling, governance and implementation.