TREX Sales Incentive Plan Design 3 — Questions and Answers
Question 1: What is the main purpose of a 'draw against commission' in a sales compensation plan?
- To cap total commissions at a predetermined maximum
- To provide reps a guaranteed income advance that is later offset by earned commissions (Correct answer)
- To fund a team bonus pool from individual commissions
- To penalize reps who miss quota two consecutive periods
Correct answer: To provide reps a guaranteed income advance that is later offset by earned commissions
A draw provides cash flow stability for reps by advancing money that is reconciled against future commissions earned.
Question 2: Which metric is most appropriate as the primary measure for a sales rep in a transactional, short-cycle B2C environment?
- Customer satisfaction score (CSAT)
- Total contract value (TCV)
- Revenue booked in the period (Correct answer)
- Pipeline coverage ratio
Correct answer: Revenue booked in the period
In short-cycle transactional environments, revenue booked is the most direct and controllable performance measure for the rep.
Question 3: A 'matrix plan' in sales incentive design ties payout to:
- Two or more performance dimensions simultaneously, such as revenue and margin (Correct answer)
- Geographic territory size multiplied by headcount
- Base salary multiplied by years of service
- Customer renewal rate divided by new logo count
Correct answer: Two or more performance dimensions simultaneously, such as revenue and margin
A matrix plan creates a grid where payout is determined by the intersection of two performance metrics, balancing competing objectives like growth and profitability.
Question 4: When designing a new sales incentive plan, which step should occur BEFORE finalizing payout curves?
- Communicating the plan to the sales force
- Defining the performance measures and weighting them (Correct answer)
- Calculating year-one incentive accruals
- Establishing the sales rep headcount budget
Correct answer: Defining the performance measures and weighting them
Performance measures and their weights must be defined first because the payout curve is built to reward attainment of those specific measures.
Question 5: What does 'target total cash' (TTC) represent in sales compensation design?
- The maximum possible earnings including all accelerators
- Base salary plus target incentive assuming 100% quota attainment (Correct answer)
- The average actual earnings of the sales force in the prior year
- Total payroll cost including benefits and employer taxes
Correct answer: Base salary plus target incentive assuming 100% quota attainment
TTC is the sum of base salary and the target incentive at exactly 100% quota performance, representing the plan's benchmark compensation level.
Question 6: Which situation most warrants a team-based rather than individual sales incentive plan?
- When individual contributions are easily measured and differentiated
- When territory boundaries are clearly defined with no overlap
- When complex deals require sustained collaboration across multiple roles (Correct answer)
- When the sales cycle is short and transactional in nature
Correct answer: When complex deals require sustained collaboration across multiple roles
Team-based plans work best when no single individual can be credited with a sale and sustained cross-functional collaboration drives the outcome.
Question 7: In sales plan design, 'excellence level' typically refers to:
- The quota level at which reps become eligible for promotion
- The performance level above target at which maximum or uncapped accelerators apply (Correct answer)
- The minimum threshold required to receive any incentive payment
- The average attainment of the top quartile of the sales force
Correct answer: The performance level above target at which maximum or uncapped accelerators apply
Excellence level is the upper anchor of the pay curve, representing the high performance point where maximum (or highest accelerated) payouts are achieved.
TREX Sales Incentive Plan Design 3
What is the main purpose of a 'draw against commission' in a sales compensation plan?