Sales Incentive Plan Design Flashcards

Which factor most directly determines the appropriate 'pay mix' for a sales role?

Answer: The degree to which the individual rep influences the sale outcome

Pay mix should reflect the rep's ability to influence outcomes — higher influence justifies more pay at risk in the incentive component.

A 'ramp plan' for new sales hires typically provides:

Answer: Reduced quotas and/or draws during the initial period as the rep builds a territory

Ramp plans acknowledge that new reps need time to build relationships and pipeline, so quotas and income guarantees are adjusted for the initial months.

What does 'mix' refer to when a company says a sales rep's pay mix is 60/40?

Answer: 60% base salary and 40% target incentive

Convention in sales compensation states base first: 60/40 means 60% base salary and 40% target incentive at 100% quota attainment.

Which of the following is the best indicator that a sales incentive plan requires redesign?

Answer: The median attainment of the sales force is consistently above 100%

If median attainment consistently exceeds 100%, quotas are likely set too low, signaling the plan is not accurately measuring or stretching performance.

In a 'MBO (Management by Objectives)' sales incentive component, payout is typically determined by:

Answer: Manager judgment of goal achievement against pre-set qualitative or quantitative objectives

MBO components require manager evaluation of whether specific pre-agreed objectives were met, introducing subjectivity not present in formula-based plans.

Which plan design feature best protects company profitability while still rewarding high revenue performance?

Answer: Adding a margin or profitability gate before commission rates activate

A profitability gate ties incentive activation to achieving a minimum margin, ensuring reps don't win revenue at the expense of deal economics.

What is the primary purpose of a 'recovery' or 'negative draw' provision in a commission plan?

Answer: To require reps to repay draws when earned commissions fall short of amounts advanced

A recovery provision ensures that draws advanced against future commissions must be repaid if sufficient commissions are not subsequently earned.