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Should you include discretionary pay in your bonus compensation program?

iStock 000020028269SmallDiscretionary payments have been around for some time, but they are often a late-design throw-in for many compensation programs.  Discretionary payments are fully dependent on the sales management’s choice, and are not on any schedule or based on pre-defined requirements.  Typically, these payments are made when a sales rep displays exceptional performance or the company hits a milestone.

Should you consider adding and/or continuing discretionary payments in your company’s bonus compensation program?  Let’s look at a few reasons in favor of adding discretionary pay:

• Field managers typically enjoy the freedom associated with discretionary pay.  Discretionary pay can help with a number of unique situations in the field, especially those too varied and numerous to build into a base compensation plan.

• With the amount of time it often takes to complete a sales cycle or for sales to hit the books, discretionary pay can be an excellent way to provide more timely rewards.

• If you already have a points program in place for contests, using those points for discretionary pay can be a logical next step.

There are really only two steps to follow to set up a discretionary payment program. Following these steps will help avoid program overdesign:

1. Set a discretionary budget.  I have seen estimates of 5% of the total bonus budget, or no more than $1,000 per sales rep per year.  Whichever level you choose, the budget should be a small portion of a rep’s total compensation because of its 100% reliance on manager perceptions.

2. Create some level-setting among the management team for distributing discretionary pay.  This can be done by providing examples and limits on payouts that individual reps can receive each quarter.  Of course, there is a tricky balance when adding restrictions if you want to keep it truly “discretionary.”

Hopefully, this is helpful if your company is considering discretionary payments.  What other advice would you add?

Lessons Monkeys Teach You about Sales Compensation

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I have been reading several books on the topic of behavioral economics in preparation for an upcoming conference presentation on behavioral economics and its relationship to sales compensation. I found many fascinating studies showing how humans respond to economic incentives in certain environments—results that may have parallels to your sales incentive program.

The topics and studies that most interest me are the ones validated not only with human studies but also primate studies.  When the primate studies show the same finding as the human finding, it shows that there are some elements to our behavior that are innate to our very being and cannot be explained by a local culture or any other phenomenon – it is in our DNA. 

Product Launch Not Going Well? Three Ideas to Consider Before Changing your Sales Compensation Plan

Product Launch

If your company launched a new product that has not lived up to expectations, chances are that the bonus plan has not lived up to the rep’s expectations, either.  What should you do, if anything?

Add a little March Madness to your sales compensation plan

March Madness and Sales Compensation

I have to admit, I’m not a huge basketball fan. As a Canadian, I grew up watching and playing hockey (yes, the stereotype is true for me!). While growing up in Canada, I noticed college sports also don’t achieve the popularity or business-like marketing appeal you see with college sports in the United States.

Eight steps to incorporate social selling into your SPM framework


Social selling is the use of social networks to drive revenue through external customer engagement and internal collaboration. As new selling models, such as social selling, change buying and selling behaviors, it is imperative for organizations to determine how they should react. 

Paying for Performance? When to Just Say “No”


For most decisions in life, it’s usually easier to say “yes” than “no.” But often you have to say “no” to something in the interest of saying “yes” to something else. For example, to spend more time with your family, you might have to say “no” to more volunteer work.

Rank Plan Revisited: Can Internal Competition Lead to a Chain of Success?

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About a year ago, I wrote a blog post – “Why Rank Plans Can Bring Out the Best – and Worst – in Your Sales Force” – about the risks of internal competition that can result from a rank plan.  I still believe that risk exists, especially with smaller sales forces where helping a handful of people could have a significant impact on your rank spot.  However, from my recent conversations with sales leaders, I have heard some compelling arguments for “selective competition.”

Already considering a change in your 2014 plans? Four things to think about before you make the switch.


Well, we are one month into the 2014 calendar year, and undoubtedly some of us are already considering changes to our sales compensation plans.

I have worked with some companies that have taken a “set-it-and-forget-it” approach to their sales compensation plans. However, that approach requires a certain culture and focus when the going gets tough. In my experience, most companies evaluate plans and tweak them for atypical or extreme situations with some regularity.

The Rise of Inside Sales: Three Must Have Elements to Incent, Motivate and Reward your Inside Sales Team

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Inside Sales is truly becoming a formidable force.  In the last 10 years, the number of inside salespeople has grown at a double digit compound annual growth rate (CAGR).  While most companies agree about how inside sales can be a cost effective, highly efficient way to increase sales, they do not universally agree on how to incent them. 

What’s Your Sales Compensation New Year’s Resolution?

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This year, my wife and I made a New Year’s resolution to eliminate the clutter in our house. I do not consider us to be messy people. I think we just have too many little things and no place to put them.

I find a similar feeling occurs with some companies as they kickoff their 2014 incentive plan.

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