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Incentive Compensation & Business Alignment

Incentive Compensation & Business Alignment

“I like to say that the compensation plan is the caboose, not the engine,” says the director of human resources and compensation of a Fortune 500 company. 

“Compensation should never be driving the strategy. The strategy drives the compensation. All very cliché, but it’s incredible – especially in times of stress – how that message can kind of get lost.”

Compensation is often a symptom, and it’s the easiest, most tangible thing to look at, he says. The challenge is to examine all the essential elements of a successful sales organization around compensation. Do we have the right job designs? Do we have the right people? Do we know what our competitors are doing in the market? Are we using the right channels to go to market? Do we want better pricing or do we want better volume? Those are harder conversations to have, and instead, too often people pull out their calculators and start crunching numbers: weighting products and adding performance measures until the plan is so complex everyone is confused.

“People confuse incentives with alignment,” says the CSO of another Fortune 500 company. “And they jump to incentives as the answer, as opposed to the hard work of alignment, if that makes sense. In my experience, when you talk sales compensation everybody wants to just take big business objectives and assign incentives as if the salespeople will go after anything where there’s a buck.

“In reality, anybody who’s ever worked on this stuff knows it doesn’t work like that. The alignment work – getting the correct insight, aligning it to the sales strategy – the last thing you do at the end of the day is work on the incentive plan. So for me, confusing incentives for alignment happens all the time. People just go right to the ideas; if I incentivize the three things I want without understanding do they have a foothold in what I’ve already told them to do? I think this idea of alignment becomes really important as part of the whole piece.”

Does your company do the hard work of alignment or just jump to compensation, calculators at the ready?

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