Every year, insurance companies adjust their sales strategies and then add new components to their incentives accordingly. But sometimes, these changes are just “Band-Aids” and they don’t address fundamental issues. And as new components are added and incremental changes are made each year, sales incentive plans can become quite complex. Eventually, they can reach a tipping point when the incentive plans become too difficult for reps to understand—and therefore less capable of motivating reps to achieve the sales strategy’s stated objectives.
Of course, sales incentive plans need to adapt to suit evolving sales objectives, so here are four tips to ensure that the adaptations are on target:
- Approach it as a sales strategy exercise, not a sales comp project. Start with in-depth interviews spanning your sales, product and operations teams. Through these interviews, leaders can translate the company strategy into a set of incentive-guiding principles and establish the characteristics of an effective incentive program.
- Develop a compensation plan that supports the strategy. Working from the guiding principles, you can then develop a new incentive program. The refinement of this program should be highly collaborative, involving several working sessions with senior leadership.
- Model the new plan. With the structure in place, the team should use historical data and forecast projections to model the incentive program in detail. It’s important to finalize the key metrics and calculate actual payout curves and sales commission rates. This lets you provide financial modeling results on historical data to sales, HR and compliance leadership to ensure the plan works as expected.
- Implement the plan. If your previous incentive plan really was too complicated, then the new plan may be well received by all teams across your organization. However, even in that case, it’s critical to devote a whole team to the rollout and communication process. Through the communication, it should be made clear to all group reps and wholesalers that company leadership defined and fully supports the new incentive program.
Here’s an example of how this can all come together: One of the top four insurance carriers in Canada faced a maturing market with slowing sales growth. Its business plan was gradually shifting from a premium-driven focus to a profit-driven focus. Initiatives were being undertaken to improve pricing, sometimes at the expense of new business acquisition. However, the company’s incentive programs were firmly rooted in an acquisition mindset. The majority of incentives were paid as sales commissions on new sales premiums and, in general, the plan was seen as too inflexible to support the company’s evolving strategy.
The company embarked on an effort to adapt its incentive programs, using the more collaborative approach and in-depth interviews outlined above. The compensation redesign took longer than the company typically spent on plan adjustments (15 weeks vs. four to 10 weeks), but the longer timeline paid off in the end.
Three years after the redesign was completed, the head of sales called it a “very worthwhile endeavor.” The company’s sales strategy requires incremental adjustments to the sales incentive plans each year and the new structure has given them the flexibility that they need to refocus incentives easily, without requiring a major overhaul—or any sticky, short-term fixes.