KPIs in Incentive Plans

Do KPIs belong in your incentive plan?

A key question we get asked all the time is “should KPIs be rewarded within the sales incentive plan”?

To answer this question, you need to get clear on a few points.

Firstly, you need to know your “KPIs”

People tend to be loose with what they class as “KSOs”, “MBOs,” “KPIs” etc

I think it helps to think about sales performance measurement in terms of things that measure performance “pre-sale” and things that measure performance at or after the sale is closed: “post-sale”

Then you can slice and dice the measure by whether it is quantitative (aka hard measures) or qualitative (aka soft measures).

Based on the diagram above – you might recognize all quadrants as “KPIs” except for the top right-hand corner.

That is, these measures are “indicators” of overall sales performance now and in the future (eg “revenue is up but proposals are down” – “proposals” indicate that revenue may fall in future)

Secondly, you need to know what is “key” to measuring performance

All measures are in fact Performance Indicators. Presumably what makes them “Key” is whether they are important enough as indicators of how well your sales team is performing. So the fundamental point is what is an important measure in your sales process? Unless you can answer that question the rest is academic. Then that boils down to your hierarchy of sales process. Do you have one? Do you know what best practice looks like?

So unless you spend time figuring out your sales process, it’s pointless to set up KPI scorecards and reward systems for your sales force

Thirdly, you need to weight compensation towards financial performance

Let’s assume you do have a well-designed sales process. Which KPIs should be rewarded with financial compensation? I believe the right answer is that payments should be heavily aligned with the top right-hand quadrant. At the same time, you need to manage a sales performance program that provides a balanced view across all four quadrants

In my experience, attempts to align pay to the three quadrants usually results in socialized payment outcomes – that is, everyone tends to score at 100% on these despite the best intentions of management. So, don’t pollute the quality of your KPIs by weighing them down with commission and incentive payments.

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