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How Variable Pay Pays for Itself

Winning companies today are recognizing the power behind shifting sales performance goals away from purely volume-based targets. The new focus is on a blend of measures which balance other corporate goals, such as customer satisfaction and loyalty.

Winning companies today are recognizing the power behind shifting sales performance goals away from purely volume-based targets. The new focus is on a blend of measures which balance other corporate goals, such as customer satisfaction and loyalty.

In today's highly competitive environment, in which even the smallest business edge can have a big financial impact, a company must be able to respond quickly to fluctuations in the marketplace, from modifying product offerings and promotions to amending product bundles. Those organizations that can effectively align their workforces and their business goals in the midst of a constantly fluctuating marketplace, are the ones that can both attain and sustain market leadership.

Shifting Economy, Shifting Pay

To increase rep productivity, retain top talent and boost motivation, companies must adopt new and innovative pay and incentive structures. Incentive Compensation Management (ICM)—incentivizing and rewarding the workforce for the attainment of goals and targets—embraces all aspects of performance and reward by providing a single strategic platform for implementing and measuring all forms of variable pay. Giving organizations the means to easily develop, model and manage variable compensation, ICM is a strategic lever that enables companies to achieve business targets by focusing and properly compensating sales forces.

Value-based pay is a dramatic step forward from the traditional simplistic commission-based reward systems, as it closely measures productivity and satisfaction against a specific set of targets. This is fundamental to linking rewards directly with individual productivity, as well as effectiveness. For instance, if a company is focused on a certain product promotion that will allow it to more effectively compete, it must develop a front-line incentives strategy around the specific product mix that best helps the company reach its goals.

According to recent research by Mercer Human Resource Consulting, just one in three companies believes that its rewards program is effective in driving performance toward strategic objectives. While it's common knowledge that incentivizing "star performers" can boost productivity quickly, if companies are able to incentivize specific behaviors that are closely aligned with business goals, "core" performers—those in the middle 60%—can help the company reap up to a 70% increase in revenue!

To this end, ICM software is highly flexible and customizable, which means new incentives can be quickly tried and tested prior to implementation in order to accurately determine their impact on the organization. ICM enables organizations to introduce new incentives within hours, allowing companies to capitalize on marketplace fluctuations well before their competitors. This agility allows an organization to quickly influence sales and customer service behavior. Organizations can also affect the activities of their external partners, using defined targets and achievement measures to promote specific areas of the business.

And finally, an organization's sensitivity and responsiveness to changes in the market equates to a better customer experience. When customers know a particular organization is competitive in price and product offering, and committed to retaining their business, the customer knows he or she is being treated fairly and is more likely to continue to engage with the company. For each arm of the business, this creates a win-win situation.

Strategic incentives are a powerful tool for any management team. When performance measurement is directly aligned with reward structures, it drives improved behavior and productivity, delivers growth, and enhances enterprise value—all essential to achieve success in today's fast-paced, global economy.


Mark Selcow is president of Merced Systems, Inc.
(www.mercedsystems.com).