Incentive Program Design

Your reps probably don't love your accelerator. They might tolerate it...like you'd tolerate a bad Hinge date who won't shut up about crypto. Critical to remember that well designed accelerators do more than reward great salespeople...they are built to actually shape great sales behavior consistently. But lots of times accelerators create the wrong incentives - pushing reps to sandbag, discount like there's no tomorrow, or chase the wrong targets. Here’s how to design accelerators that actually work: 1. Rolling accelerators: Most plans reset accelerators at the start of every quarter. The problem? That encourages sandbagging. Instead, use a rolling 6-month or YTD accelerator so reps stay motivated to close deals as soon as they’re ready. 2. Tiered payouts at every level: A binary accelerator (0-99% = nothing, 100%+ = big reward) kills motivation below the line. Instead, reward progressive achievement. Example: - 75% quota = 1.05x multiplier. - 90% quota = 1.2x. - 110% quota = 1.5x. - 150%+ = a kicker for true outliers. 3. Backloaded kickers: Reps who consistently exceed quota should earn more without destroying the budget. Instead of giving away huge multipliers at 100%, reserve the biggest rewards for true outperformance (e.g., 150%+). 4. Performance-based bonuses: Not all revenue is equal. Want fewer discounts? Want multi-year deals? Then bake that into accelerators. - Full-price deals = higher payout. - Multi-year contracts = higher payout. - Expansion revenue = higher payout. 5. Absolute transparency: A rep should know exactly what they’ll earn on every deal, at every attainment level. If they have to ask finance to “run the numbers” on their commish, your plan is too complex. Keep in mind that a great accelerator doesn’t just pay top reps, but it should also go a long way towards keeping them engaged all year. The right plan should: - Keep motivation high, from 50% to 150% of quota. - Reward behavior that benefits the business. - Create consistent revenue growth, not boom-bust cycles. If your plan doesn’t do that, it's probably overpaying mediocre reps and underpaying great ones.

Line of Sight: The Missing Link in Incentive Plan Design When incentive plans fall flat, it’s often not the mechanics that are broken. It is the line of sight. Line of sight is the clear connection between an individual’s day-to-day actions and the outcomes that drive incentive payouts. Without it, even well-funded bonus and commission programs struggle to motivate or retain. Why? Because employees don’t see how their efforts influence results. Whether you're designing management bonus plans or sales commission structures, line of sight must be prioritized. Here's how it should guide your design: 1 - Set metrics employees can directly influence – A regional sales manager can drive revenue but not profit margin. A warehouse supervisor can manage labor costs, not stock price. 2 - Create time-aligned goals – Annual bonuses tied to long-term metrics creates disconnection. Match the measurement period to the job’s decision-making window. What can the role accomplish within a year to impact their annual bonus payout? 3 - Ensure visibility of performance – Employees should be able to track progress toward goals throughout the performance period. If they can’t, then something needs to be done to fix this disconnect. 4 - Reinforce the connection – Leaders must continuously tie employee contributions to business outcomes. The best incentive plans are underpinned by effective communication, not just easy to understand calculations. And effective communication is repetitive. The same key messages shared repeatedly with the leader’s willingness to listen and respond to questions from employees is powerful. When you ignore line of sight, here's what you get: • Low employee engagement and confusion around goals • Perceived unfairness or randomness in incentive payouts • Leaders spend more time explaining than inspiring goal aligned performance • Missed business results despite payout dollars being spent Incentives should focus behavior, not just reward outcomes. Line of sight is how you create that focus. Is your incentive plan clear enough that every participant can answer: “What do I need to do to earn this?” And even better, “What do I need to do today and next week to maximize the payout?” If you're unsure, it's time to take a closer look. Start with one plan. One role. One business goal. One metric. Then build from there. #TotalRewards #IncentiveDesign #Compensation #SalesComp #ExecutiveCompensation #LineOfSight #HR #PayForPerformance #CompensationConsultant #FairPay #Incentives #Bonus #Commissions

What does the actual scientific research say about how you should structure your performance bonus program for employees? So much of what most people I talk to know about compensation is based on some combination of intuition and referencing what their peers do. There's good reason for that: employees compare compensation to what they see at other companies, so everything is viewed through a relative lens. Plus, recreating a real work environment in study is a challenge. But does actual academic research have a place too? I'm spending some time reviewing the research and sharing the most relevant takeaways in a few posts. First up - A 2024 incentive bonus experiment run by Harvard and NBER: 𝗧𝗵𝗲 𝗦𝗲𝘁𝘂𝗽: Researchers ran a controlled experiment, testing three incentive payout models for teams: • Equal sharing (everyone paid the same if team hits a goal) • Piece rate (pay for individual output) • Winner takes all (top performer gets everything) The conventional wisdom would favor the piece rate or winner take all (essentially complete focus on individual pay for performance). 𝗪𝗵𝗮𝘁 𝗔𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗛𝗮𝗽𝗽𝗲𝗻𝗲𝗱: Equal sharing produced the HIGHEST team output, significantly outperforming winner take all and achieving the same or better than piece rate. Interestingly, lower ability workers drove 100% of this advantage for equal sharing. They dramatically increased their effort under equal sharing, likely not wanting to let their teammates down or feel they're taking more than they deserve. Some potential takeaways for bonus design from the research: • 𝗖𝗼𝗻𝘀𝗶𝗱𝗲𝗿 𝗮 𝘁𝗲𝗮𝗺 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗰𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁 𝘁𝗼 𝘆𝗼𝘂𝗿 𝗯𝗼𝗻𝘂𝘀: When team bonuses require collective success, what the researchers called "guilt aversion" can be a powerful motivator for everyone to step up • 𝗖𝗿𝗲𝗮𝘁𝗲 𝘁𝗿𝗮𝗻𝘀𝗽𝗮𝗿𝗲𝗻𝘁 𝗺𝗲𝘁𝗿𝗶𝗰𝘀: whether it's features delivered, deals closed, customers renewed, etc., the research showed the motivating effect was more powerful if it was clear how everyone on the team performed • 𝗖𝗼𝗻𝘀𝗶𝗱𝗲𝗿 𝗮 𝘁𝗲𝗮𝗺 𝗴𝗼𝗮𝗹 𝘁𝗵𝗿𝗲𝘀𝗵𝗼𝗹𝗱: when there was a minimum number the team had to hit to unlock any of the bonus, the researchers saw a significant increase in team communication and collaboration Do you have a team performance component to your bonus calculation? If you're interested in more compensation research, stay tuned: I'll be posting about a number of other interesting papers in the next couple weeks!

Many companies are designing their incentive/bonus plans as they start preparing for 2025. Here are some principles for designing an effective compensation incentive plan: 1.    Aligned: align the incentives of each individual with the thing that matters most for the company. Avoid a situation where someone’s earning a bonus (e.g. on volume) but cashflow or margin is actually what matters most to you. 2.    Consistent: as much as possible, try to align the incentive goals across everyone in the company. The more consistent the incentive goals, the more everyone will work together as a team to meet the goal. Ideally, make everyone’s bonus based on the same drivers. 3.    Simple: limit the incentive drivers to a maximum of 1 to 3 factors. 4.    Measurable: the incentive calculation should be objective, black-and-white, and easily measurable (by the person earning the bonus, and the person doing the calculation/payout). Try to avoid vague discretionary bonuses. 5.    Controllable: the person earning the incentive should have direct (or at least partially direct) impact on the thing(s) being measured. 6.    Transparent: the person earning the incentive should have full visibility to the numbers they’re being measured against. 7.    Realistic: set ambitious goals but make sure they’re achievable. I like to have a Tier 1 and Tier 2 goal built into the plan. 8.    Enticing: the payout number should be large enough that people are motivated to hit it (but not so high that you will resent the payout). If the incentive amount is too small, it won’t change behavior and you’ll just land up paying more for no change in results. 9.    Frequent: monthly or quarterly incentives are way more motivating than annual goals/payouts. The further away the incentive is from the action, the less likely people will believe the incentive is real. It’s extremely motivating to get an incentive bonus each month. After designing the incentive plan, take a step back and ask yourself the following questions: -      Will this plan motivate each person to drive the metrics that matter most to the business? -      Will each person be able to track the metrics and know what the company still needs to achieve to hit the goal? -      Will everyone on the team feel rewarded when the goal is met? -      Will you be happy with the payouts when the goal is met? Incentive plans are hard to design well. Ideally the plan should stay in place for many years; so be really thoughtful about the plan and how it will scale with the business. Roll it out with care; you should always take people’s compensation very seriously, and treat it with respect.

#Sales compensation is the largest GTM investment most B2B companies make. Yet we keep repeating mistakes in their design👇 In a recent webinar with my partners over at Qobra, a few comp plan mistakes we discussed live: ❌ 5-6 metrics per comp plan (way too many) ❌ Individual metrics worth <20% of comp (doesn't drive behavior) ❌ Reps building spreadsheets to calculate their own pay ❌ KPIs that individuals can't actually influence The cost? Confused reps, misaligned incentives, and your best performers leaving Here's a framework for better comp designs 1️⃣ Role Design First - comp plans START with nailing the role itself and its influence on the deal lifecycle → Hunter vs farmer? Full cycle vs specialized? → What behaviors drive business goals? → What can this person actually influence? 2️⃣ Maximum 3 Metrics (20% Rule) - keep it simple → Each metric must be worth 20%+ of variable comp → Less than 20%? Reps will ignore it → More than 3? You're creating confusion, not alignment 3️⃣ Simplicity Wins - no PhDs to explain comp plans → If reps can't explain it without RevOps help, it's broken → Complexity doesn't equal sophistication 4️⃣ Curves and Accelerators Matter → 30% attainment shouldn't pay the same rate as 110% (set tiers!) → Reward high performers, pressure underperformers 𝗧𝘄𝗼 𝗗𝗶𝘀𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻 𝗧𝗮𝗿𝗴𝗲𝘁𝘀 𝘁𝗼 𝗠𝗼𝗻𝗶𝘁𝗼𝗿: 📊 Target achievement: 80% of salesforce hitting 80%+ of quota 📊 Comp distribution: Top 10% earning 3x the average rep If you're way off, your plan design or quota setting has issues 𝗧𝗵𝗲 𝗚𝗮𝗺𝗶𝗻𝗴 𝗧𝗿𝗮𝗽: Early-period accelerators sound great in theory. In practice? Reps sandbagged deals at period-end to capture the bonus. Always test for unintended consequences 𝗪𝗵𝗮𝘁 𝗔𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗪𝗼𝗿𝗸𝘀: Annual plans > Monthly (reduces gaming, creates natural incentives) [especially for longer sales cycles and mid-market + enterprise segments] Quarterly reassignments for book changes (easier administration) [particularly for hybrid or farmer roles] Align metrics to actual influence (not corporate vanity metrics) Good luck out there for your comp designs Happy to help and chat about comp plans Go forth and operate 

Most companies design incentives to improve performance. 🏅 But some times, they do the opposite. Not because people lack intent but because the system subtly steers behavior. 👉 People may begin to: • focus on short-term wins • protect their own KPIs instead of helping others • avoid calculated risks because bonuses feel too fragile • prioritize visibility over meaningful work • hitting numbers while unknowingly damaging culture It usually doesn’t happen overnight. It happens when incentives reward outcomes, but ignore how those outcomes were achieved. That’s why the design of incentives matters as much as the targets themselves. 🌟 A few thoughtful shifts can completely change how teams behave: 1. Reward behaviour and results- Use practical, observable indicators such as cross-functional delivery, peer feedback quality, on-time compliance closure and improvements in team engagement. This keeps incentives anchored in both performance and culture. 2. Cap the number of KPIs- If a high performer cannot explain their incentive structure in 60 seconds, it is too complex. Clarity helps people prioritise better and reduces unproductive pressure. 3. Balance individual rewards with enterprise value- A simple mix such as Individual goals (60%), Team outcomes (20%), and Company/Client metrics (20%)- ensures people don’t optimise in silos. 4. Avoid unintentionally rewarding “heroics”- When firefighting, late-night work or crisis management gets celebrated more than prevention, these behaviours multiply. The goal is not to discourage effort, but to reward sustainable execution. 5. Audit your incentive model regularly- Look for patterns: • Did the right people get rewarded? • Did anyone with poor feedback or recurring customer issues receive high payouts? Such reviews help refine the system continuously. 🌟 At the end of the day, incentives shape how people experience fairness, recognition and effort. And fairness remains one of the strongest drivers of performance. 👉 Have you seen incentive structures influence behaviour- positively or negatively? What has worked in your experience? 👉 In my next post, I’ll share what this means for individuals and how to navigate incentive structures ethically and intentionally.

Designing sales incentives might be the most consequential chess game finance leaders play. No matter how carefully crafted, even the best plans trigger unintended consequences. I've witnessed this repeatedly: Cap commissions → Sales reps push deals to the next quarter New logo bonuses → Reps sacrifice deal size and profitability for quantity Quarterly targets → End-of-quarter discounting frenzies Salespeople are masters at playing the game; no matter how you set the rules, they'll find a way to win. Here's a powerful technique I've developed to identify these blind spots before they become costly mistakes. Upload your draft incentive plan to an AI assistant with this specific prompt: "Review this sales incentive plan as both a behavioral economist and an experienced sales leader. Identify potential unintended consequences this structure might encourage. Specifically: - How might reps optimize for maximum compensation in ways that harm the business? - How might this affect which customers reps prioritize and how they position offerings to them? - How might this affect deal timing, pricing, and product mix? - What team dynamics might emerge (competition vs. collaboration)? - What specific metrics might be manipulated?" For deeper insight, engage in a back-and-forth discussion about predicted behaviors and potential safeguards. Challenge the assumptions and push for concrete examples. This approach has repeatedly revealed critical blind spots in incentive design, the kind that don't become apparent until they've already impacted your bottom line. Every incentive is a signal. Make sure yours isn't signaling in unexpected directions. Happy to discuss over DMs all things that helped us create a solid sales incentive design :) #cfo #fpna #salesincentiveplanning

💡 Can financial incentives shift healthcare from expensive inpatient to cost-effective outpatient settings? New research from the Centre for Health Economics at the University of York provides compelling evidence that they can—when designed correctly. 🔍 Key findings from the study of England's Best Practice Tariff scheme: 📊 IMPACT ON CARE DELIVERY: • Increased outpatient procedures by 36 percentage points for cystoscopy • Shifted 16 percentage points for hysteroscopy • Achieved these results without increasing overall patient volume 💰 FISCAL IMPLICATIONS: • NHS achieved 49% cost savings for cystoscopy (~£102M) • 26% savings for hysteroscopy (~£10M) • Demonstrates that strategic pricing can contain costs while preserving access ✅ QUALITY OUTCOMES (MIXED): • Cystoscopy: Improved quality with fewer repeated procedures and readmissions • Hysteroscopy: Mixed results due to pain management challenges • Critical lesson: Setting matters for patient experience 🎯 POLICY LESSONS: 1️⃣ SIZE MATTERS: The incentive was substantial (up to 370% increase for outpatient tariffs). Small financial nudges rarely change behavior. 2️⃣ DUAL APPROACH WORKS: The scheme both rewarded outpatient care AND reduced inpatient reimbursement—creating strong push-pull dynamics. 3️⃣ SPILLOVER EFFECTS: Positive externalities emerged, with related non-incentivized procedures also shifting to outpatient settings. 4️⃣ DISTRIBUTION CONSIDERATIONS: While the NHS saved significantly, hospital revenues declined—highlighting the importance of understanding provider financial sustainability. ⚠️ Critical consideration: Not all procedures are equally suitable for outpatient settings. Pain management and patient experience must remain central to implementation decisions. As healthcare systems worldwide grapple with rising costs, this research offers valuable insights: targeted, well-designed financial incentives can drive meaningful behavioral change—but success requires careful attention to clinical appropriateness, adequate incentive strength, and quality monitoring. #HealthPolicy #HealthEconomics #PayForPerformance #HealthcareInnovation #CostContainment #NHS #PolicyResearch