Accelerated Comp Plans -- Sometimes the Rich SHOULD Get Richer
Jul 1, 2009
NOTE: This piece was originally posted on the 121 Silicon Valley, Inc. Website on July 1, 2009
Accelerated compensation plans are those where the commission rate increases as the recipient’s performance against quota increases. They are a powerful motivational and sales management tool, especially for earlier-stage companies where a relatively small number of big deals can make a huge difference.
How do accelerated plans work? Well, in an example where the rep’s target commissions are $100,000 for delivering quota results of $1,000,000, commissions under various performance scenarios might look like this:
There is also typically a “decelerator” on underperformance, so that a rep who only delivered $700,000 (i.e., 70% of quota) might earn only, say, $60,000 (i.e., 60% of target comp).
Accelerated comp plans have these important benefits:
At the same time, accelerated plans need to be crafted carefully because of the larger dollar amounts involved, so plan design flaws can be especially costly. Also, corporate directors, managers, and administrators need to understand them well enough to ensure that the incentive benefits such plans offer are maximized, and that may take extra effort because the math in these plans is a little more complex.
Finally, communicating accelerated comp plans to the participants is just as important as designing a good plan. There’s no point to having expensive plans like this unless the plans themselves help to drive the desired behavior in the first place, and that’s only going to happen when the sales people and other participants know exactly how the plans work. That requires not just communicating, but selling the participants on their value.
Accelerated compensation plans are those where the commission rate increases as the recipient’s performance against quota increases. They are a powerful motivational and sales management tool, especially for earlier-stage companies where a relatively small number of big deals can make a huge difference.
How do accelerated plans work? Well, in an example where the rep’s target commissions are $100,000 for delivering quota results of $1,000,000, commissions under various performance scenarios might look like this:
There is also typically a “decelerator” on underperformance, so that a rep who only delivered $700,000 (i.e., 70% of quota) might earn only, say, $60,000 (i.e., 60% of target comp).
Accelerated comp plans have these important benefits:
- They’re a great recruiting tool, because big producers can see big income potential.
- They’re a great retention tool, for the same reason.
- A sales rep in the middle of a great year is motivated to keep pouring it on because of the accelerated commission rates, rather than coasting for the rest of the year.
- The extra commission dollars are often less than the additional base salary, benefits, office, travel & entertainment, and other costs incurred by having several average or below-average producers instead of one big producer.
- Underperforming sales reps “get the message” in their paychecks.
At the same time, accelerated plans need to be crafted carefully because of the larger dollar amounts involved, so plan design flaws can be especially costly. Also, corporate directors, managers, and administrators need to understand them well enough to ensure that the incentive benefits such plans offer are maximized, and that may take extra effort because the math in these plans is a little more complex.
Finally, communicating accelerated comp plans to the participants is just as important as designing a good plan. There’s no point to having expensive plans like this unless the plans themselves help to drive the desired behavior in the first place, and that’s only going to happen when the sales people and other participants know exactly how the plans work. That requires not just communicating, but selling the participants on their value.
Related Blogs
Other Topics
Other Topics