Bianca Ferreira· Benefits Analyst, Larkspur Manufacturing
Posted in Sales Compensation ·
I defended caps for years. I work for an industrial equipment manufacturer in the north of England with 75 sellers, and we capped incentive at 200% of target for as long as anyone can remember. The reasoning was cost control and a worry about paying a salesperson more than a director.
Then I looked at order dates for the eight sellers who reached the cap over three years. In every case their orders dropped sharply in the weeks after they hit it and jumped in the first month of the next year. We were paying people to stop.
We removed the cap this year and replaced it with a large-order rule and a lower rate above 250%. Cost rose by under 1% of sales compensation spend. What is the case for keeping one? I can no longer make it.
3 helpful · 4 insightful · 3 agree · 6 replies · 298 views · 7 following
Total Rewards Manager, Steinbach Industrie
The case for a cap is weak quotas. If you cannot set targets with any accuracy, because the business is new, the market is volatile or the data is poor, a cap is an honest admission that some overachievement will be luck. I would sooner have a cap at 300% in year one of a new product and remove it once we know what good looks like.
Benefits Analyst, Lumen Biosciences
In regulated financial services we do not really have the choice. Our variable pay sits under a remuneration policy that expects a maximum ratio to fixed pay for certain roles, and conduct risk is part of the reasoning. An uncapped plan for people selling to retail customers would not get past our risk committee.
Wren ZhangCRP, CEP
Job Architecture Lead, Silverline Media
Decelerators are caps with better manners. A lower rate above 250% still tells the seller that the next order is worth less to them than the last, and you will see the same deferral, only milder. If the order is profitable, pay for it.
Jonas QuinteroGRS, CRP
Head of Reward, Meridian Health Systems
HR Business Partner, Beacon Retail Group
The director pay argument deserves a direct answer and not an apology. In a good year our best seller earns more than her vice-president. We tell both of them that at the start. The vice-president's package has equity and far less volatility. Nobody has resigned over it.
Head of Reward, Fairlead Shipping
Useful challenge, thank you. The point about caps being reasonable where quotas are known to be poor is the one I had not given enough weight to. I would still say that is an argument for fixing the quota within a year or two and not for a permanent cap, which is what ours had become.
