5 Tips for Eliminating Unexpected Risk from Incentive Compensation Plans

To understand how your incentive compensation plan will work before it’s rolled out to the sales force—it is important to model the plan under a range of different scenarios. Yet, most companies are unable to design and build meaningful plan models, analyze and interpret model results, and use model results to design plans and plan changes. Failure to model, validate, and analyze the impact of new plans or plan changes before they are rolled out to the sales force exposes companies to unknown budget risks, unanticipated commission costs, and excessive mid-cycle plan modifications. The following tips are derived from a long-term study of the incentive compensation management practices at 100 large companies and reflect the best cross-industry practices to leverage modeling to confidently launch plans and understand the impact of plan changes prior to roll-out, while eliminating financial and human risks.