Tag Archives: Incentive eligibility

Incentive plans for inside sales can be complex, depending on the situation, what should I be on the lookout for?

Before diving into a plan design for inside sales, you must first answer several questions:

What type of inside sales are they doing?

Do they qualify for the 7i exemption or are they non exempt employee?

These questions must be answered because, if they are non-exempt, any incentive earned must be included in their hourly rate. If they are exempt, it would make it much easier to implement an incentive with less administrative costs. Assuming you conclude they are either exempt, or that the administrative burden if they aren’t is “worth it,” then here are a few tips for designing their incentive plans:

  1. Incentives are a great way to support an initiative to change behavior, but the rest of the initiative needs to be in place as well. This may include training, systems enhancements, coaching and mentoring, etc.
  2. If you really want to use incentives to motivate and excite, then you need “carrots and sticks” to be part of them. Over time you will want to migrate base salaries down as a percent of target total compensation so that the target incentive must be earned in order for the employees to maintain market-competitive pay.
  3. The amount of pay at risk depends a great deal on the nature of their inside sales roles. Although it can be more complex than this, one simple division is between jobs that are primarily “inbound” and those that involve more aggressive “outbound” calling. If an inside seller mostly reacts to requests from customers and is primarily doing an order management function (perhaps with some ability to cross-sell or up-sell), then a relatively smaller percent of pay at risk (in the incentive) is appropriate. For outbound inside sales people who more strongly influence a prospect’s decision to buy through their own creativity and initiative, more pay at risk (and more associated upside) would be a good idea.

What is considered “best practice” with regard to payout eligibility and employment status re: incentives and contests/SPIFFs?

My answer is different for contests and SPIFFs than for core incentive components.

Let’s start with the core incentive component (part of the official compensation package, documented in a signed plan document or employment agreement, representing a portion of the official compensation package, with on-target payout needed to provide market-competitive total compensation). For core components, give some thought to what you’re trying to accomplish with your eligibility requirements. Some companies feel that requiring people to be currently employed at the time the payment is made improves retention and is more fair to the company. Consider the possibility, however, that you will have people who have already decided to leave staying in the role, collecting their base, cementing personal relationships with important customers or prospects, and delaying your hiring of a more committed resource while they are waiting for their incentive payout.

In addition, it is true that payment in this category must be paid regardless of employment status at the time of payment in certain states and industries. The criteria here have to do with the nature of the job (selling, not delivering services or managing sales people), relationship with the company (employee, not a contractor or outside rep), and the mechanics of the comp plan (communicated as a percent of sales, not a bonus). My counsel on the core components is generally to pay them regardless of whether the employee is currently employed at the time of the payment.

There can be some protection here by noting that payments (made following order intake, for example) are an advance against earnings, and that the commission is not earned until the cash is collected. So if the cash is not collected until after the employee has left, the commission has not technically been earned.

Regarding contests and SPIFFs, you are probably safer in not paying unless employed, legally (but check with real lawyers). And you are also probably not risking any unproductive lingering by disengaged employees if you do require people to be present to be paid – mostly because contests and SPIFFs are generally shorter in duration between announcement and payout, and the stakes aren’t as high. It is a very common (and in my view reasonable) practice to only pay for these incentives if the employee is still employed when the payment is made. A good practice in these cases is to make that intention clear in the contest/SPIFF documentation – fine print at the bottom of the flyer/email works fine.

As always, while we can provide some general guidance on this topic, we strongly encourage you to seek additional legal counsel and review of your official sales compensation plan document to ensure it is compliant with local laws, specific to your company and the location of your sales representatives.