4 Ways to Think Outside the Box with Incentive Compensation Metrics

Our team has talked to compensation teams at businesses of all sizes, and the one thing we hear time and time again is that there’s often a disconnect between higher-level company goals – such as hitting targets, driving down costs, and preparing for future growth – and what the plans and strategies actually incentivize. The comp plans that work the best are those that both a) motivate employees to succeed and b) pay off the bigger goals the company is driving towards.

And believe it or not, these two aren't aligned as often as you might think. 

While more traditional approaches to sales compensation often focus on sales quotas and immediate revenue, thinking outside the box can help unlock more sustainable, long-term results. By aligning your sales compensation metrics with strategic goals, fostering cross-team collaboration, and focusing on the entire customer journey, you can create incentive plans that not only boost sales but also contribute to the overall health and growth of your company.

Here are four innovative ways to rethink your sales compensation metrics to achieve just that:

1. Drive Performance Along with Strategy

Incentive plans should be tailored to suit the specific stage of the business’ lifecycle it’s in, as well as the industry it operates within. The key is to ask yourself: What behaviors do you need from your teams to support the organization at its current growth stage? Do you want reps collaborating with each other, or staying more focused on their individual approaches? If you want to move the needle on a key company-wide initiative such as launching in a new market, for instance, you should tie the rep’s compensation plan to the outcome you hope that initiative will drive.

Sales compensation metrics can be a powerful lever to drive these behaviors when aligned with strategic goals. Some creative ways to approach this include:

• Tie Company Metrics to Plan Incentives: For example, if your company’s gross margin goals are crucial to its financial health, you might add a multiplier to sales reps’ tiered accelerators when these goals are met. This encourages reps to think beyond their individual quotas and consider the company’s broader success, aligning their efforts with the overall financial strategy.
• Add Linkages or Gates to Metrics: Instead of allowing reps to unlock accelerators after landing a single large deal, you could require them to sell a minimum number of qualifying deals. For example, reps might need to close at least five deals to unlock their accelerator. This ensures that they focus on both the quantity and quality of deals, leading to more sustainable and diversified sales performance.

2. Incentivize Cross-Team Alignment

Achieving company goals becomes more feasible when different teams work in concert rather than in silos. For instance, in a software company, Sales teams pass the ball to Customer Success Managers (CSMs) after a deal is closed, and these post-sales reps ensure customer satisfaction and secure renewals. However, without the initial effort from Sales, CSMs would have no customers to manage. Therefore, it’s crucial to align objectives across teams and incentivize behaviors that contribute to shared successes.

• Incorporate MBOs into Commission Plans: Management by Objectives (MBOs) can be integrated into commission plans to ensure that sales reps’ goals align with broader company objectives. For example, part of a rep’s incentive payout rests on five newly-onboarded customers giving a 90%+ CSAT score, or 50 new accounts adopting a crucial product feature.
• Implement Cross-Team Spiffs: For example, Marketing could receive bonuses for new product adoption rates, while CSMs could earn spiffs for upselling the product. This approach fosters collaboration and ensures that all teams are working towards common goals.

3. Selling for the Full Customer Journey

In sales, a purpose-driven approach that focuses on the entire customer journey can lead to better outcomes, which broadens the scope of objectives beyond simply chasing quotas. Salespeople who prioritize the full customer experience tend to have a bigger impact than those who are solely quota-driven. Understanding the entire customer journey allows Sales teams to optimize strategies and deepen their relationships with customers in the longer-term.

• Usage-Based Consumption: Compensation plans can be designed to reward sales based on customer usage patterns, ensuring that sales efforts align with actual customer value.
• Post-Sales Incentives: Offering incentives for upsells or selling additional services can keep sales reps engaged throughout the customer lifecycle.
• Renewal Rate Accelerators: These can encourage reps to prioritize customer retention, ensuring that long-term relationships are maintained and strengthened.
• Bonuses/Spiffs for Core Product Adoption: Rewarding sales teams for driving adoption of core products can help ensure that customers stick with the product, leading to long-term success.

4. Alignment of Cash In/Cash Out

Aligning the timing of cash flow with sales compensation is crucial to ensuring that pay reflects actual performance. This alignment helps maintain financial stability while rewarding the right behaviors.

• True-Ups/Downs, Clawbacks, or Hold & Release: By aligning pay with performance or cash in/out timing, you ensure that compensation accurately reflects the company's financial realities. This might include mechanisms like true-ups to adjust pay based on final sales figures, downs to reduce payouts if certain conditions aren't met, or holding and releasing bonuses based on cash flow timing.

Rethinking sales compensation metrics is more than just tweaking numbers – it’s about aligning your revenue team’s efforts with the company’s broader objectives. By thinking creatively about which metrics to include in your compensation plans, you can build a more comprehensive ICM program that helps support the organization’s growth.

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