Sales Incentive Compensation: Dos and Don’ts

Incentive compensation plans are designed to motivate and reward sales representatives for their efforts and contributions toward the growth of the business. However, designing and implementing an effective sales incentive compensation plan can be challenging, and there are several dos and don’ts to consider to ensure the success of the program. In this article, we will explore some of the most important dos and don’ts of sales incentive compensation plan.


Align incentives with business objectives: The sales incentive compensation plan should be designed to align with the overall business goals and objectives. The incentive plan should motivate the sales representatives to focus on the priorities of the business.

Continuously Monitor and Evaluate the Plan: An incentive compensation plan is not a one-time event. It should be continuously monitored and evaluated to ensure that it is effective and aligned with the business goals. This involves gathering feedback from sales representatives, analyzing the data, and making adjustments as needed. 

Regular evaluation of the plan can help identify any areas of improvement and ensure that the plan remains relevant and motivating.

Keep the Plan Simple and Transparent: When creating an incentive compensation plan, it is important to keep it simple and transparent. Complex plans can confuse sales representatives and lead to a lack of motivation. A straightforward plan that outlines the goals, incentives, and expectations is much more effective. 

Additionally, transparency is key. Sales reps should have a clear understanding of how their compensation is calculated, so they can trust the system and feel motivated to achieve their goals.

Keep it simple: The incentive compensation plan should be easy to understand and communicate. A complicated plan can lead to confusion and misunderstandings, which can reduce the effectiveness of the program.

Provide regular feedback: Providing regular feedback to the sales representatives is crucial for the success of the incentive compensation plan. The feedback should be timely, specific, and focused on areas of improvement.

Use data to inform decisions: Data should be used to inform decisions regarding the incentive compensation plan. This includes data on the sales performance platform, customer feedback, and market trends.

Provide training and development opportunities: Sales representatives should be provided with training and development opportunities to help them improve their skills and knowledge. This can include product training, sales techniques, and customer service training.

Communicate Effectively: Effective communication is essential for the success of an incentive compensation plan. Sales representatives should be provided with clear information about the plan, including the goals, incentives, and expectations. 

Communication should be ongoing and two-way, with sales representatives allowed to provide feedback and ask questions. Clear and consistent communication can help build trust and ensure that sales reps feel motivated and engaged in the plan.


Don’t rely solely on commission-based compensation: Commission-based compensation can be effective, but it should not be the only form of incentive compensation. Including other forms of compensation, such as bonuses or stock options, can provide additional motivation and increase retention.

Don’t create an unfair compensation plan: The compensation plan should be designed to be fair and equitable to all sales representatives. The plan should not favor certain individuals or sales regions over others.

Don’t set unrealistic goals: Setting unrealistic goals can lead to frustration and demotivation among sales representatives. Goals should be challenging but achievable.

Don’t neglect communication: Communication is crucial for the success of the incentive compensation plan. The plan should be communicated to all sales representatives, and updates should be provided regularly.

Don’t forget to measure and adjust: The incentive compensation plan should be regularly measured and adjusted as needed. This includes tracking sales performance and making changes to the plan as necessary to ensure its effectiveness.

Don’t: Ignore Compliance Requirements: Incentive compensation plans must comply with federal and state laws, including those related to minimum wage, overtime, and equal pay. Failure to comply with these requirements can result in legal issues and damage the reputation of the company. It is important to work with legal and HR experts to ensure that the incentive compensation plan is compliant with all applicable laws and regulations.

Don’t: Rely Solely on Financial Incentives: While financial incentives can be a powerful motivator, they are not the only factor that drives sales performance. Recognition, career growth opportunities, and work-life balance are also important considerations. 

A sales incentive compensation plan that incorporates a variety of incentives can be more effective in motivating and retaining top performers. It is important to take a holistic approach to incentives and consider the various factors that drive sales performance.

Don’t: Set Unrealistic Goals: Setting unrealistic goals can be demotivating for sales representatives and lead to poor performance. It is important to set achievable goals that are aligned with the overall business objectives. Goals should be challenging, but not so difficult that they seem impossible to achieve. Additionally, goals should be specific, measurable, and time-bound, so that progress can be tracked and celebrated.


Sales incentive compensation is an important tool for motivating and rewarding sales representatives. By following these dos and don’ts, businesses can design and implement effective incentive compensation plans that align with their objectives and drive sales performance. It is important to regularly review and adjust the plan as needed to ensure its continued success.