The 5 Most Common Incentive Compensation Management Mistakes – and How to Fix Them

Compensation professionals are expert jugglers, constantly managing a delicate balance of program management, communication, and reporting.

In the midst of multitasking, ICM (Incentive compensation Management) best practices can sometimes slip through the cracks. But to get the most out of their efforts, it’s important that comp professionals do what they can to steer clear of the most common pitfalls. 

Here are the five biggest ICM mistakes I’ve seen comp leaders make – and how to avoid them.

Mistake #1: Not Aligning Incentives to Business Goals

According to CaptivateIQ’s 2024 State of Incentive Compensation Management Report, only ⅓ of compensation professionals actively align incentive programs with organizational goals and objectives.

That stat doesn’t inspire a lot of confidence, but it does make sense when you see that many of today’s compensation professionals simply don’t have time to put on their strategic thinking caps. Over half of those surveyed said that many repetitive and day-to-day tasks, including processing payouts and fielding inquiries – are completed manual, taking up almost 50 hours per month.

Compensation teams, especially those that are smaller or under-resourced, often implement commission plans with the sole goal of delivering payouts accurately and on time, without necessarily considering how they will drive the desired business outcomes, or measuring the impact after the fact. Essentially, for too many teams today, paying commissions is an item to tick off a checklist rather than a strategic business lever.

To avoid falling victim to a directionless compensation strategy, identify how rep behavior and outcomes can be incentivized to help the organization more efficiently meet its high-level objectives, and work backward to build a winning plan. And as new product lines, go-to-market strategies, or market expansions are introduced and prioritized, revisit your strategy and implement the appropriate changes to support those evolving goals.

Mistake #2: Not Reviewing Your Incentive Plans Frequently

As I mentioned, compensation professionals wear many hats, so it’s not uncommon for today’s practitioners to get quickly overwhelmed when they’re too mired in the tactical.

The most recent State of ICM Report shows that only 32% of comp professionals today are regularly reporting on program performance, while only 35% are making changes to reflect market conditions and 40% are optimizing their programs based on insights.

That leaves a lot of room for improvement. Compensation planning and management shouldn’t be a set-it-and-forget-it exercise – as the business changes, so should your ICM plan. New geographies, product lines, and market conditions require plan adjustments.

My advice? Set a consistent cadence to review your plans and ensure they’re working as intended to motivate payees and support critical business goals, then optimize outcomes based on what you see. What’s working well? Where do you need to revisit your initial assumptions and make tweaks? Once you gather insights about how your plans are performing against expectations, you can continuously iterate and improve.

If you’re looking for a good place to start, these are a handful of metrics we recommend reviewing regularly, bucketed by how they tie back to and impact your incentive compensation program: 

Make sure you’re able to answer the following questions simply by pulling the right reports:

How efficiently is your program run?

• Percentage of commissions accuracy
• Commissions time-to-payroll

How well does your program motivate reps?

• Win rate
• Average deal size
• Average deal length
• Percentage of reps hitting quota
• Revenue growth
• Individual attainment
• Team-level attainment
• Deal velocity

What’s the ROI on your incentive compensation spend?

• Compensation Cost of Sales (CCOS)
• Customer Acquisition Cost (CAC)

Mistake #3: Setting Unattainable Quotas 

Ambitious compensation plans challenge and motivate your reps to do their best work, but while aiming high is a good strategy, it’s important to strike the right balance – unattainable quotas can adversely affect employee morale and prevent teams from meeting their targets.

Quota setting can go wrong when teams only focus on the ideal state, rather than what’s realistic based on the business structure and team dynamics. Compensation leaders must build plans that support business goals while also enabling payees to be successful. 

Here are a few ways to create realistic quotas:

• Set goals based on historical performance and current team capacity 
• Align quotas with your business goals 
• Consider the nuances of your business structure and sales motions
• Facilitate a discussion with reps to gather feedback on what’s working and what isn’t

With reach-yet-achievable quotas, your team will be set up to more reliably hit their targets time and time again, and help your organization meet its revenue goals.

Mistake #4: Overcomplicating Rollouts and Communications 

Because they include many variables, compensation programs are oftentimes complex – and it’s not surprising that reps can sometimes be confused by plan details.  

When reps lack clarity, they aren’t as motivated, and therefore aren’t as likely to help support the business by driving towards desired outcomes. According to the State of ICM Report, almost half of commissionable employees surveyed said that visibility into payout calculations and potential earnings boosts their motivation.

Clear and transparent visibility into plan mechanics and payout details help keep employees who are on a variable comp plan engaged and motivated. Beyond providing that level of detail, here are my top tips for ensuring a successful relationship with your commissionable reps:

• Be specific: Communicate the desired behaviors being incentivized, as well as how they’re intended to support business results. Showcase how differing levels of performance correlate to rewards.
• Listen to and incorporate team feedback: Make incentive compensation a collaborative discussion. You may spend a lot of time designing your plans, but if you don’t take the time to communicate and then actively listen to feedback about those plans from the reps whose pay is directly impacted by them, you risk them falling flat.
• Enable payees to test different outcomes: Provide a what-if calculator so reps can see how various scenarios affect their total compensation. 

Mistake #5: Not Setting the Bar for What High Performance Looks Like

Reps need transparency into all permutations of plan outcomes, and as I mentioned above, it’s clear that visibility and clarity drive motivation. 

Specifically, as it applies to this common challenge, it’s critical to define and clearly communicate what a “high performer” looks like within the context of your business. If reps aren’t aware of what a high performer looks like, they won’t know what to strive for, and even the best laid incentives won’t be as impactful.

It might seem obvious, but many organizations often miss this crucial step – if you want to achieve sustainable success, you must clearly communicate what it means to perform well at your organization before you send reps out into the world to build pipeline, drive revenue, and build rock-solid customer relationships. This should also include shared targets across teams, so everyone within the GTM org is looking at the same KPIs to measure success.

Here are a few steps for setting the bar upfront and then instilling the right habits to cultivate a team of high performers:

• Set clear direction, expectations, and targets: This should include shared targets across teams, so everyone within the GTM org is looking at the same KPIs to measure success.
• Build functional processes and playbooks: Creating playbooks inspired by your best reps will not only get your team into a rhythm that uplevels performance across the board, it will also help you scale GTM processes as your team grows from 1 to 1,000+.
• Foster healthy competition: Offering visibility into how reps performing against their peers can help build team-wide momentum and boost performance across the board. Providing broad visibility into how everyone is performing against attainment goals via a real-time leaderboard can help inspire a “locker room” mentality, pushing reps to perform at their best and offering opportunities to root for other teammates’ success.
• Embrace coaching, feedback, and growth: Not every play results in a win, but that doesn’t mean it’s a total loss. Great players and teams take the opportunity to hold themselves accountable, learn from their mistakes, and grow their strengths and skill sets as they both advance in their careers and drive towards the success of their organizations.

Create a Winning Incentive Compensation Program 

While there’s no question that today’s compensation professionals have a lot on their plates, it’s important they don’t let ICM best practices fall by the wayside. By steering clear of the five common pitfalls outlined above, strategic comp leaders can seamlessly balance their many responsibilities and build a comprehensive compensation program that supports the business and drives results.