Should you include discretionary pay in your bonus compensation program?

Posted by Mike Martin on Tue, Apr 22, 2014

Discretionary payments have been around for some time, but they are often a late-design throw-in for many compensation programs.  Discretionary payments are fully dependent on the sales management’s choice, and are not on any schedule or based on pre-defined requirements.  Typically, these payments are made when a sales rep displays exceptional performance or the company hits a milestone.

Should you consider adding and/or continuing discretionary payments in your company’s bonus compensation program?  Let’s look at a few reasons in favor of adding discretionary pay:

• Field managers typically enjoy the freedom associated with discretionary pay.  Discretionary pay can help with a number of unique situations in the field, especially those too varied and numerous to build into a base compensation plan.

• With the amount of time it often takes to complete a sales cycle or for sales to hit the books, discretionary pay can be an excellent way to provide more timely rewards.

• If you already have a points program in place for contests, using those points for discretionary pay can be a logical next step.

There are really only two steps to follow to set up a discretionary payment program. Following these steps will help avoid program overdesign:

1. Set a discretionary budget.  I have seen estimates of 5% of the total bonus budget, or no more than $1,000 per sales rep per year.  Whichever level you choose, the budget should be a small portion of a rep’s total compensation because of its 100% reliance on manager perceptions.

2. Create some level-setting among the management team for distributing discretionary pay.  This can be done by providing examples and limits on payouts that individual reps can receive each quarter.  Of course, there is a tricky balance when adding restrictions if you want to keep it truly “discretionary.”

Hopefully, this is helpful if your company is considering discretionary payments.  What other advice would you add?

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Product Launch Not Going Well? Three Ideas to Consider Before Changing your Sales Compensation Plan

Posted by Mike Martin on Tue, Apr 01, 2014

If your company launched a new product that has not lived up to expectations, chances are that the bonus plan has not lived up to the rep’s expectations, either.  What should you do, if anything?

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Rank Plan Revisited: Can Internal Competition Lead to a Chain of Success?

Posted by Mike Martin on Wed, Feb 19, 2014

About a year ago, I wrote a blog post – “Why Rank Plans Can Bring Out the Best – and Worst – in Your Sales Force” – about the risks of internal competition that can result from a rank plan.  I still believe that risk exists, especially with smaller sales forces where helping a handful of people could have a significant impact on your rank spot.  However, from my recent conversations with sales leaders, I have heard some compelling arguments for “selective competition.”

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What’s Your Sales Compensation New Year’s Resolution?

Posted by Mike Martin on Fri, Jan 17, 2014

This year, my wife and I made a New Year’s resolution to eliminate the clutter in our house. I do not consider us to be messy people. I think we just have too many little things and no place to put them.

I find a similar feeling occurs with some companies as they kickoff their 2014 incentive plan.

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For Sales Comp Plans, Fairness Is in the Eye of the Beholder

Posted by Mike Martin on Mon, Dec 16, 2013

I have been having many conversations recently with sales ops teams getting ready for 2014 about "mathematical fairness" and "perceived fairness."

I consider the standard checks teams perform on their sales compensation plans to be measures of mathematical fairness, which checks for quantitative inequalities. It ensures, for example, that both large-volume and small-volume territories have the same opportunity to earn, or that different geographies, such as Manhattan and Texas, have the same opportunity to earn. These checks are often shown through scatter plots or bar graphs. They are very useful and provide confidence to the home office and sales leadership that the proposed incentive plan is fair.

However, they do not always translate as well to the sales force.

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