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Incentive Compensation Plan Failures

Incentive Conmpensation PlanWhat are common incentive compensation plan components that you would characterize as demotivating measures?


This question was asked by an attendee during the Proformative webinar “Seven Deadly Sins of Incentive Compensation” which took place on October 30, 2013. Join the discussion and add your insights below.



Topic Expert
Keith Perry
Title: Director of Global Accounting
Company: Agrinos, Inc.
(Director of Global Accounting, Agrinos, Inc.) |

For me this falls under the aegis of (to quote one of my sales people) the coin-operated theory of sales. Basically that people will do what you pay them to do, when you pay them.
1) A mis-match between the sales cycle and the comp cycle is deadly. It forces the sales people to either act in potentially destructive ways, or causes them to suffer economic hardship for doing the right thing.
2) Over-emphasis on certain targets. For example, over-comping for new business can distract from the current business that you don't want to lose. Or, pushing a product that the customers may not actually want.
3) Draws and claw-backs. These can work wonderfully, but if you're setting the sales person up to owe you money, plan on losing that person and the accounts they've been working on.
4) Year-end / Month-end drives. I have seen horrible things happen here that could have taken companies down (none listed on my resume....just for clarity). Simply put, never offer a period-end deal, ever. A funny contra example is a senior sales person came to me with a large deal that was going to execute in February. The customer asked for a discount to accelerate to December. That we said "no" actually reassured the customer that we were financially stable *and* that we were firm on pricing. A yes may well have resulted in an annual dance-for-the-discount.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |


Your number 4 example is not without merit.

As a CFO, I've been on the other side of the incentive situation on several occasions. Other execs often proudly boast about some pre or early payment deal with a discount that a vendor has offered them. This makes me skeptical. Why would the vendor shave 1% or 1.5% off their gross? Is this strictly a cash flow issue or, are they getting wobbly on us? Are they going to be around to deliver or complete the project? Did we really get the best deal or, is there so much margin to the vendor that shaving a bit off the top isn't going to hurt them?

See how that works? ;-)

Your #1 is interesting too. I reported to a CFO at a sales/distribution company that was incredibly seasonal. The CFO was regularly advancing comp or loaning funds to top sales people. He went as far as providing them mortgages for their home purchases. I was very wary of this. But the CFO saw it as "keeping them hungry" and on the hook so they'd have to keep selling for us and they'd have to sell big to pay us off and make a living at the same time.

I never liked that and still don't. Too much mixing of business and personal. Too much "connection" when it comes time to make a break. When the topic came up, I'd always think of Tennessee Earnie Ford singing, "I owe my soul to the company store".

I also had the experience, when representing my employer in an unemployment comp claim of having the judge tell me, despite our offering of proof the employee quit and wasn't entitled to unemployment benefits, "So, you want to prevent this man from earning a living? Did you also expect him to work for free?"

Those comments as justification for awarding a bogus claim have always stuck in my head. Judges are willing to provide charity at your expense.


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