Designing Sales Incentives

Your comp plan is paying reps to be selfish. You say you want collaboration, team selling, flawless handoffs, and happy customers. But your comp plan tells a different story: - AEs hoarding accounts to squeeze one more renewal. - CS carrying the churn risk from overpromised deals. - SDRs passing junk just to hit demo goals. - SEs dropped from deals because they slow it down. - Partners ignored because they dilute the split. That’s not bad behavior. That’s just math. Sales comp is a system. And systems do exactly what they’re designed to do. If your comp plan only rewards individual heroics, you’ll never get team plays. If it only pays on closed revenue, you’ll never get qualified pipeline. If it ignores post-sale impact, you’ll never get long-term growth. And the worst part? We try to fix this misalignment with culture, not compensation. Cue the all-hands speeches of “We win together and we're all one team!” Buuuttttt then you flash a leaderboard that pits everyone against each other and wonder why nobody collaborates. Incentives don’t need fixing. They need realignment. Here’s how: 1. Add a handoff bonus to every AE/CS transition. Make reps prove they did a real warm intro, mapped the buying committee, and reviewed renewal risk factors. 2. Pay SDRs on qualified pipeline held to AE acceptance criteria. Not on booked meetings. Not on attendance. On quality accepted pipeline. Anything else is activity theater. 3. Carve out a multi-threading bonus inside opp scoring. Reward reps for early ID of finance, legal, and technical stakeholders. If your reps are flying solo, so is your forecast. 4. Protect SE and Partner involvement with minimum revenue share guarantees. Stop shaving 10% off their payout every time someone gets nervous about the split. Real collaboration costs money. 5. Tie CS comp to expansion readiness, not just retention. Involve CS in the expansion forecast. Bonus them on commercial influence — not just support ticket close time. It's not really fair to blame your reps for doing what they’re paid to do. If you want reps to act like owners, you have to pay them like co-owners. That starts with a comp plan that rewards shared wins, not solo ones. Your GTM engine isn’t one superstar away from greatness. It’s just one well-designed incentive model away from finally working as a team.

Designing sales incentives might be the most consequential chess game finance leaders play. No matter how carefully crafted, even the best plans trigger unintended consequences. I've witnessed this repeatedly: Cap commissions → Sales reps push deals to the next quarter New logo bonuses → Reps sacrifice deal size and profitability for quantity Quarterly targets → End-of-quarter discounting frenzies Salespeople are masters at playing the game; no matter how you set the rules, they'll find a way to win. Here's a powerful technique I've developed to identify these blind spots before they become costly mistakes. Upload your draft incentive plan to an AI assistant with this specific prompt: "Review this sales incentive plan as both a behavioral economist and an experienced sales leader. Identify potential unintended consequences this structure might encourage. Specifically: - How might reps optimize for maximum compensation in ways that harm the business? - How might this affect which customers reps prioritize and how they position offerings to them? - How might this affect deal timing, pricing, and product mix? - What team dynamics might emerge (competition vs. collaboration)? - What specific metrics might be manipulated?" For deeper insight, engage in a back-and-forth discussion about predicted behaviors and potential safeguards. Challenge the assumptions and push for concrete examples. This approach has repeatedly revealed critical blind spots in incentive design, the kind that don't become apparent until they've already impacted your bottom line. Every incentive is a signal. Make sure yours isn't signaling in unexpected directions. Happy to discuss over DMs all things that helped us create a solid sales incentive design :) #cfo #fpna #salesincentiveplanning

Stop Chasing Targets! The Cobra Effect The Real Story- During the British Raj in Delhi, officials offered a bounty for every dead cobra to reduce the venomous snake population. \ At first, the policy seemed successful. But then, human ingenuity kicked in: locals began breeding cobras to claim the reward. When the government realized the loophole and scrapped the program, the breeders released their now-worthless snakes. The result? The cobra population surged to higher levels than before. The policy created the exact opposite of the intended outcome. The Management Takeaway- +The Cobra Effect is a powerful reminder that in governance, business, or personal systems: Incentives create behaviors. Most strategists focus on the WHAT (the desired target: reduce cobras, increase sales, finish projects). +The Cobra Effect forces us to focus on the HOW (the incentive mechanism: the bounty, the commission structure, the bonus system). A strategy failure occurs when you reward a flawed outcome without accounting for the ingenious ways people will find a shortcut. Where the Cobra Hides in Your Business We see this backfire every day in the corporate world: ❌ The Metric: Rewarding a customer service team solely on Shortest Call Time. The Cobra: Agents rush customers, provide incomplete answers, or hang up prematurely \rightarrow Lower Customer Satisfaction (CSAT). ❌ The Metric: Rewarding a procurement team solely on Lowest Supplier Price. The Cobra: Suppliers cut corners on quality, use cheaper materials, or delay shipments \rightarrow Higher long-term defect rates and production risks. ❌ The Metric: Rewarding a sales team solely on Number of New Client Meetings. The Cobra: Salespeople book low-quality, unqualified meetings that waste time and resources for the entire organization \Low Conversion Rate and High Cost of Sales. 🛡️ How to Design Cobra-Proof Incentives For learners in strategy and management, here are three steps to avoid perverse incentives: 1-Incentivize the Process, Not Just the Result: Instead of rewarding just the final sale, reward high-quality customer qualification, successful product demonstrations, or high post-implementation feedback. 2-Stress-Test the System: Before implementation, ask yourself (or better yet, a "devil's advocate" team): "If I were trying to game this system, what is the easiest, fastest way to get the reward without doing the real work?" 3-Use Balanced Metrics: Never rely on a single metric. Pair your desired metric with a counter-metric that measures quality or long-term health. (e.g., Reward Sales Volume AND Customer Churn Rate). The lesson is clear: Designing incentives matters more than setting targets. Don't let your well-meaning policy breed more cobras!

Most companies design incentives to improve performance. 🏅 But some times, they do the opposite. Not because people lack intent but because the system subtly steers behavior. 👉 People may begin to: • focus on short-term wins • protect their own KPIs instead of helping others • avoid calculated risks because bonuses feel too fragile • prioritize visibility over meaningful work • hitting numbers while unknowingly damaging culture It usually doesn’t happen overnight. It happens when incentives reward outcomes, but ignore how those outcomes were achieved. That’s why the design of incentives matters as much as the targets themselves. 🌟 A few thoughtful shifts can completely change how teams behave: 1. Reward behaviour and results- Use practical, observable indicators such as cross-functional delivery, peer feedback quality, on-time compliance closure and improvements in team engagement. This keeps incentives anchored in both performance and culture. 2. Cap the number of KPIs- If a high performer cannot explain their incentive structure in 60 seconds, it is too complex. Clarity helps people prioritise better and reduces unproductive pressure. 3. Balance individual rewards with enterprise value- A simple mix such as Individual goals (60%), Team outcomes (20%), and Company/Client metrics (20%)- ensures people don’t optimise in silos. 4. Avoid unintentionally rewarding “heroics”- When firefighting, late-night work or crisis management gets celebrated more than prevention, these behaviours multiply. The goal is not to discourage effort, but to reward sustainable execution. 5. Audit your incentive model regularly- Look for patterns: • Did the right people get rewarded? • Did anyone with poor feedback or recurring customer issues receive high payouts? Such reviews help refine the system continuously. 🌟 At the end of the day, incentives shape how people experience fairness, recognition and effort. And fairness remains one of the strongest drivers of performance. 👉 Have you seen incentive structures influence behaviour- positively or negatively? What has worked in your experience? 👉 In my next post, I’ll share what this means for individuals and how to navigate incentive structures ethically and intentionally.

Incentives shape behavior more than intent People respond to incentives, not instructions. Research in organizational economics shows that behavior aligns with how people are measured, rewarded, and penalized—often regardless of stated goals or values. When incentives conflict with intent, incentives win. What research shows Studies consistently find that misaligned incentives lead to predictable but unintended behavior. Employees optimize for what affects compensation, promotion, or status, even when it undermines stated objectives. Research also shows that poorly designed incentives create short-term gains at the expense of long-term performance. Study-based situations Situation 1: Sales performance Research found that sales teams rewarded purely on volume increased revenue but reduced margins and customer quality. When incentives were adjusted to include retention or profitability, behavior changed immediately. Situation 2: Cross-functional friction Studies on internal coordination show that teams optimized for local metrics created bottlenecks for other functions. Overall performance improved only after incentives were aligned across functions. Situation 3: Risk-taking behavior Research on executive compensation shows that incentives tied only to upside increased excessive risk-taking. Balanced incentives reduced volatility without eliminating performance. How effective leaders design incentives They tie rewards to outcomes, not activity They test incentives for unintended consequences They align individual metrics with system results They revisit incentives as conditions change Culture follows incentives. Intent follows structure.

I've got a dirty little secret for you... One that can help drive more revenue! Use your compensation plans to actually drive behavior. Sounds simple, but so few companies/leaders do this right. Very few companies actually design their plans intentionally. This causes all sorts of problems. BDR compensation plans that pay on booked (versus held) doesn't encourage meeting quality - I once saw a BDR having their friends book meetings... well within "policy." Plans that pay the same for subscription revenue versus services revenue despite margins encourage discounting of the recurring portion. Plans that pay too high of commissions can drive the wrong type of revenue. Yet time after time, I see companies just copy what others do without thinking it through. They end up with misaligned incentives that send their team in the wrong direction. This causes so many headaches: - Piss poor meetings being booked - Churning accounts instead of growing them   - Pursuing every lead even bad ones - Ignoring small accounts that could scale - And more... The dirty secret is that most compensation plans are designed by finance to hit a cost target, not by leaders to drive strategic behaviors. So what should you do? First, identify 3-5 key goals and behaviors you want to drive - e.g. new logos, retention, cross-sell. Then design variable pay around those goals. Make it significant enough to get attention. And pay it quickly after the behavior to reinforce it. Finally, communicate constantly on what you're rewarding, and check-in regularly to ensure it's working. A little focus and intention in comp design goes a long way. Take the time to get it right.

Why are we surprised when people follow the money? Incentives work exactly as designed. In a fascinating study by Harvard Business School, researchers examined over 200 companies that implemented targeted sales incentives. The findings were striking yet predictable: organizations achieved precisely the behaviors they rewarded, often at the expense of unintended consequences. You get the outcomes that you build the incentive structure for. It's remarkable how many leaders express surprise when sales of specific items surge after implementing incentives for those exact products. The research revealed three critical patterns: • Companies that rewarded volume saw dramatic increases in transactions but declining profit margins • Organizations focusing on specific product categories witnessed 40% higher sales in those areas while other products languished • Teams with balanced incentive structures maintained steady performance across all metrics The lesson is clear: incentives are powerful behavioral architects. They don't just influence what people do - they fundamentally reshape how entire organizations operate. Design your incentive structure with the same precision you'd use to engineer a bridge. Every reward creates a pathway, and people will inevitably follow where you've built the road.

When it comes to incentives, the solution isn’t necessarily more money, it’s about better tapping into motivation for sustained enthusiasm and better long-term results. If money was the way to win, then those with the most would have surely won by now. The ROI on human-centric, considerately-designed incentives greater than the $150 check that comes from an incentive program dreamt up 40 years ago. It’s time to audit your motivation strategy. Here's a common, tired sales incentive 𝘢𝘯𝘥 a high-impact alternative: Instead of... 𝗧𝗵𝗲 𝗙𝗹𝗮𝘁 𝗙𝗲𝗲 𝗣𝗹𝗮𝗰𝗲𝗺𝗲𝗻𝘁 𝗕𝗼𝗻𝘂𝘀 🪙  • 𝗪𝗵𝗮𝘁 𝗜𝘁 𝗟𝗼𝗼𝗸𝘀 𝗟𝗶𝗸𝗲: A simple, one-time $X bonus for any new bottle placement, regardless of brand, account quality, or future reorders.  • 🛑 𝗜𝘁𝘀 𝗙𝗹𝗮𝘄: This incentive focuses solely on the low-value transaction (the initial sale) and fails to reward the high-value relationship or the long-term work required to secure repeat business. Reps are incentivized to move on to the next easy placement rather than nurture the account for profit-driving cocktail placements and sustained reorders. Try... 𝗧𝗵𝗲 𝗩𝗮𝗹𝘂𝗲 𝗠𝘂𝗹𝘁𝗶𝗽𝗹𝗶𝗲𝗿 ✨  • 𝗪𝗵𝗮𝘁 𝗜𝘁 𝗟𝗼𝗼𝗸𝘀 𝗟𝗶𝗸𝗲: A tiered incentive that builds value over time and rewards quality activity: Tier 1 (Placement): $X for the initial placement. Tier 2 (Adoption): $X * 2 for securing a cocktail or signature pour placement using that product. Tier 3 (Sustainment): $X * 3 for a qualifying reorder of the product 60–90 days later, paid to the selling rep.  • ✅ 𝗪𝗵𝘆 𝗜𝘁 𝗪𝗼𝗿𝗸𝘀: This system rewards the rep for demonstrating mastery of the sales cycle—from introduction to menu adoption to long-term sustainment. It changes the rep’s focus from “how many bottles can I place?” to “how can I make this bottle successful?” By explicitly rewarding the reorder, it directly aligns the rep’s compensation with the company’s goal of sustainable revenue and deeper account relationships. Want more? Comment "Sales" and I'll sign you up for my free newsletter, Ah So Insights, where I'll be sharing a total of 6 programs from my "The New Incentive Playbook." #Incentives #Sales #SalesIncentive #Motivation #Compensation #Bonus #SpiritsBusiness #BusinessOfDrinks #WineBusiness #BeerBusiness