Sales Incentive Plans: Types, Structure, and Effectiveness
This paper examines the role of incentive plans in sales organizations, analyzing how different plan structures influence both the strength and direction of employee motivation. It compares individual and team-based incentive plans, considering factors such as time orientation, plan administration, equity, team size, and the risk of sales force cannibalization. The paper also explores how the choice of performance metrics — whether revenue, operating profit, or net profit — shapes salesperson behavior and organizational outcomes. The discussion concludes that effective incentive plans must align measurable objectives with desired outputs, and that no single plan type is universally superior.
- Introduction to Sales Incentive Plans: Rationale for incentive plans in sales organizations
- Individual vs. Team-Based Incentive Plans: Comparing plan types, time orientation, and structure
- Plan Administration and Equity: How plans are reviewed and perceived as fair
- Team Dynamics, Monitoring, and Team Size: Peer pressure, cooperation, and scale limitations
- Cannibalization and Choosing the Right Plan Type: Selecting plans based on sales force independence
- Aligning Incentive Metrics with Organizational Objectives: How metric choice shapes salesperson behavior
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What makes this paper effective
- It balances practical considerations (seasonality, team size, administration) with conceptual distinctions (intrinsic vs. extrinsic motivation), giving the analysis depth beyond a simple list of plan types.
- It uses concrete examples — such as the high-profit/low-volume versus high-volume/low-profit product scenario — to illustrate abstract points about how metric choice shapes salesperson behavior.
- The paper maintains a consistently evaluative tone, weighing the trade-offs of each plan type rather than simply describing them.
Key academic technique demonstrated
The paper demonstrates comparative analysis: it systematically evaluates individual and team-based plans against a consistent set of criteria (motivation type, administration, size, cannibalization risk), allowing the reader to understand not just what each plan is but when and why each is appropriate.
Structure breakdown
The paper opens with organizational objectives as the rationale for incentive plans, then distinguishes plan types and their motivational foundations. Middle sections address time orientation, administration, team dynamics, and scale. The final sections tackle plan selection based on sales force characteristics and the critical role of metric alignment. The conclusion synthesizes these threads into a flexible framework for plan design.
Introduction to Sales Incentive Plans
Every sales organization has specific objectives it wants to achieve. These can be measured in sales volume, market share, profit, or other metrics. In order to encourage salespeople to meet these objectives, organizations turn to incentive plans. These plans not only affect the strength of motivation but also its direction. This paper analyzes the role of incentive plans and how they can help or hinder a sales organization in its quest to meet its objectives.
References
Roman, F. (2009). An analysis of changes to a team-based incentive plan and its effects on productivity, product quality and absenteeism. Accounting, Organizations and Society, 34(5), 589–618.
Sunshine, J. (2010). What are the different types of incentive plans? WiseGeek. Retrieved May 7, 2010 from http://www.wisegeek.com/what-are-the-different-types-of-incentive-plans.htm
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