The vast majority of U.S. sales forces use incentive compensation plans to motivate and encourage salespeople. Incentive plans have a major impact on organizations because they affect the type of person who is attracted to the sales job and they influence the activities and behaviors of salespeople. This chapter presents a framework for understanding the impact of a sales force compensation plan. The chapter provides specific, practical advice on how to make four key decisions regarding sales force compensation:

Compensation     Best Practices Advisory Use both extrinsic rewards, such as money, and intrinsic rewards, such as recognition. Ensure that the compensation plan is compatible with your sales and marketing strategy. Place more emphasis on salary (vs. incentive pay) when performance is hard to measure or when non-sales force factors have a large influence on sales. Invest in a good quota-setting process to avoid over-paying or under-paying salespeople. Use the incentive plan as one item in a portfolio of tools to influence salespeople’s behaviors. Test new incentive plans before implementing them. Keep the incentive plan simple.

• Level of pay: How do labor market forces, company profitability, and job-related factors affect compensation levels?
• Salary versus incentive: What factors determine the right mix?
• Performance measures: Should salespeople be paid on the basis of results or activity? Should they be paid when the order is taken or when money is collected? Should they be paid for high customer satisfaction?
• Performance-payout relationships: How should payment vary with measured performance? Should the plan include goals? Bonuses? Commissions? Should the plan be capped? Should the plan use multiple measures? Should it be based on individual or team performance? How frequently should payment occur?

The chapter concludes with practical advice on how to implement incentive plans in several situations, including changing from one plan to another, dealing with windfalls, and administering successful contests.