How to lead a successful incentive compensation program

In today’s ever-changing sales environment, incentive compensation (IC) leaders must account for volatility, uncertainty, complexity and ambiguity (VUCA) in their business plans. For example, they must contend with volatile industry ecosystem changes, uncertainty of reps retuning to field, complex IC plans due to local factors, and ambiguous near-term market conditions. Long gone are the days when incentive plans stayed the same over multiple quarters. While IC leaders spend a lot of energy designing plans, their efforts may go unappreciated if the same are not effectively implemented. Hence, it is imperative that leaders must establish IC operations best practices in place to ensure smooth and effective design implementation.

In general, a successful IC operations program should embody the following seven characteristics: Accuracy, timeliness, flexibility, meaningful insights, effective communication, reasonable costs and innovation.

While a successful IC program should incorporate all of these elements, it can be challenging to manage them all at once. For example, it can be tough to balance:

• Meeting 100% of quality expectations—99.9% is not good enough—with reasonable cost;
• Being timely without fail, while also accommodating ever-changing requirements due to dynamic markets and business scenarios; and
• Consistently and promptly providing detailed incentive plan explanations and business insights, while also not overloading IC stakeholders with information.

It is important to build a strong foundation of project management, quality, change management and stakeholder communication to realize these goals.

For leaders to drive effective project management, they must focus on project planning. The detailed and complex nature of IC projects warrants strong end-to-end organization. Leaders should ask themselves the following:

• Am I anticipating the unanticipated?
• Have I planned all hand-offs and dependencies?
• Have I regularly met with various stakeholders, and do all team members understand their roles and responsibilities?

There are a variety of critical elements of project management. While risk management is multifaceted, we can boil down IC risk management to the following steps:

• Risk identification: Are teams evaluating risk? Do all team members understand the types of risks they may encounter in an IC operations program, such as those related to quality, people, processes, or timeline?
• Risk mitigation: Have teams planned risk mitigation strategies and communicated them to key stakeholders?

Maintaining documentation: While document creation is easy, regularly updating them can be challenging. Leaders must maintain working documents in coordination with key stakeholders to ensure documents are up to date and are reviewed or audited. Updating the documentation should be part of the operations’ standard operating procedure.

Key performance indicator tracking: What matters should be measured. There should be a regular cadence of key performance reports around metrics such as timeliness, delays, errors, number of field inquiries and adjustment requests. Leaders should use regular meetings or quarterly business reviews to discuss these metrics in detail with key stakeholders.

Continuous improvement: Process improvements and enhancements provide value for all stakeholders. Regular value-stream mapping and process audits will help leaders identify opportunities to remove waste and pinpoint process re-engineering ideas. Each IC operations project should always have a parallel workstream focusing on:

• Automation opportunities: If it is repetitive and manual, it could be automated.
• Reporting enhancements: If it can be made more intuitive, it should be improved upon with additional insights and value.

Real quality is achieved through culture. But cultivating that environment of quality—and living it every day—takes immense effort. These three steps can go a long way toward building it: 

Quality planning: It is critical to have a quality process in place, and everyone should be made aware of it. As you plan quality efforts, consider:

• The Project RACI matrix, which stands for Responsible, Accountable, Consulted and Informed, drives clarity in work ownership. Often, a lack of clarity leads to no one taking ownership of critical work.
• Implementing multiple quality control layers, otherwise known as “makers” and “checkers,” for critical deliverables. Determine the right rigor for the right kind of deliverable.
• Testing changes, exceptions and implementing an effective sign-off process.

Managing quality: Once leaders have defined their quality processes, all members must adhere to them. They should:

• Follow a comprehensive quality checkpoint framework and ask questions to define validations at every step.
• Create robust, detailed, and well-documented checklists.
• Periodically assess and update checks and validations.

Thinking for long-term quality: Having a quality focused mindset is key for long-term success. 

• The quality management process will ensure robust quality control, but planning and a quality assurance mindset, or a proactive process design to maintain quality, will provide strong quality in the long run.
• Communication is also key to driving quality. The leader should create a culture of open communication where team members feel comfortable sharing and discussing any potential red flags. Creating a culture of transparency will help to mitigate risk and drive a substantial quality process.
• Team members should document internal or external issues in an error tracker, perform detailed root cause analysis (RCA) and implement outcomes. This will help team members to analyze all issues and implement both short-and long-term solutions. It will establish a culture of learning from past mistakes and will help teams avoid repeat issues.

Change is the only constant and having a robust change management framework is key for success. Most quality errors originate from poorly implemented change. Leaders should, as a first step, question if a change is even required by asking:

• What are the expected outcomes, or ROI, and do they outweigh the effort, or the cost required to make changes? For example, some field enquiries may require analysis and updates, which may outweigh the benefits of correction.
• If the effort is high, are there other creative ways to fulfill stakeholder requirements without undergoing a change process?
• If the change governance model is already in place, leaders must challenge it.

If change is required, leaders should work with the requestor to validate it. Change implementation and related impact should be communicated to all relevant stakeholders. Leaders should maintain an ongoing change tracker. Key stakeholders should be able to access the tracker to validate, approve and monitor any change requests. Ensure your reporting tools use the best implementation practices so that any parametrized change can be updated and deployed smoothly.

George Bernard Shaw famously said that “The single biggest problem in communication is the illusion that it has taken place.” Confusion is often evident in IC programs, where there are large gaps between the leaders’ intent and the sales force’s understanding of the plan. To ensure that communication is compelling and relevant to stakeholders, leaders should:

• Identify all stakeholders and their requirements.
• Tailor content and communication channels to fulfill these stakeholders’ varied needs and objectives.
• Challenge your team to go beyond traditional communication. Can you have more impactful field insights reporting? Are you using interactive artifacts, videos, and playbooks to drive interest? What is the simplification strategy for complex communication and how are you tracking stakeholder understanding and engagement?
• Create and administer both quarterly and yearly communication road maps by using effective modes of communication.

To summarize, incentive compensation has always been a sensitive process, and the pandemic has increased its criticality. IC operations can be complex, and expectations are always very high. But with a strong foundation of project management, quality, change management and stakeholder communication, leaders can account for VUCA and successfully balance competing business goals.