Incentive Pay: Incentive examples, and strategic tips to motivate sellers

The phrase “the harder you work, the more you’ll earn” has long been a guiding principle in the world of sales.

Financially driven, ambitious sales reps want to join companies that incentivize them to exceed targets—especially if those earnings are uncapped.

Incentive pay is a performance-based reward that sellers earn when they hit or exceed targets. Also known as pay for performance (P4P) or variable compensation (variable compensation plans)—it’s not just variable commission or cash bonuses that incentive pay packets encompass.  

Reward points, gift cards, trips, and personalized experiences like presidents club all contribute to the $176 billion that businesses spend on incentives annually.

However, the administration and ongoing management of incentive-based pay can quickly become overwhelming as your business scales. It's highly likely your organization incentivizes different behaviors depending on individual roles or teams, plus many combine cash and non-financial rewards, so there's the complexity of factoring all the the compensatable factors into payroll with accurate calculations. Further, most companies don’t have all their data in one source of truth to track sales and deliver the incentives promised.  

It's no wonder companies aren't yet optimizing every dollar of incentive pay, even though it represents such a massive expenditure.

Assuming you’ve already got your feet wet with a basic incentive pay strategy, below we're exploring insights from experts in the sales compensation industry—so you can iterate on what you’ve started and motivate reps, boost performance, and keep a handle on budgets within your incentive pay plan. All within the broader scheme of a sound sales performance management strategy.

But first, let's explore the significance of optimizing incentive pay in the first place.

The benefits of offering and refining incentive pay

Incentive pay adds variability to monthly earnings, yes, but the advantages of the model for sales organizations can far surpass any perceived uncertainty or hesitations. Success for most businesses lies in how skillfully sales incentives are managed and optimized.

1. Enhances employee motivation and productivity

Firstly, behavioral science research proves that the closer you can tie rewards to a specific sales activity, the more you build a positive feedback loop for sellers. This plays a huge role in driving motivation and output.

In fact, performance-based incentives can significantly enhance sales productivity. A study by the Incentive Research Foundation found that properly structured incentive programs can increase individual performance by up to 44%. Moreover, McKinsey & Company found top-performing sales organizations that align incentives with specific targets, see improved seller productivity.

Overall, the advantages of strong rep motivation are endless: not only are sellers happier in their roles and you risk less costly attrition, but you can maximize resources and bring in more revenue without proportionately increasing the size of your workforce.

2. Helps attract and retain top-tier talent

The average tenure of a sales rep is around 1.8 years, which is shorter than other roles. These high turnover rates cost you—not just in recruitment costs, but also on onboarding and training. It’s much more cost effective to retain top reps you’ve already spent money on.  

Incentive plays a major role in how likely someone is to stay at your company. Per one report, 64% of sales professionals would leave if offered a similar job elsewhere with better pay.

‍3. Drives exceptional performance and measurable results

When incentivized behaviors tie back to underlying business goals, it gives reps a financial reason to push forth and condense their priority list. Tasks contributing to the business’ objective communicated at SKO instantly rise and become the most important when the incentive plan is structured well.

It's been found that top-performing companies are more likely to design incentive programs that align closely with corporate objectives. An IRF 2020 study revealed that such companies reported a 54% increase in alignment to corporate goals through their incentive programs. Further, 78% of companies considered their incentive programs successful, with large businesses reporting even higher success rates at 85%.

4. Cultivates a culture of excellenceWe're nothing in not social creatures, and a culture of excellence (one that rewards top performers) helps others aspire to be better. An incentive pay strategy achieves this with tiered and motivational incentives. This, combined with transparency around pay, means top sellers often inspire others to unlock the same incentives for outstanding performance. It's the psychology behind sales leaderboards.

Incentive pay examples

When it comes to motivating sales reps, cash bonuses are just the tip of the iceberg. Many organizations go beyond the basics, experimenting with diverse incentives to align motivation with performance.  

To find the right mix for your sales team, consider gathering feedback from your reps and evaluating the cost-benefit ratio of various options.

Here are some of the most common and effective incentive pay options to consider:

• Sales commission: The classic performance-based pay structure that rewards reps directly for hitting and exceeding sales targets.

• Cash bonuses (Spiffs): Short-term financial incentives designed to drive specific behaviors, like promoting a new product or closing deals faster.

• Gift cards: A versatile reward option that offers reps flexibility while remaining budget-friendly.

• Stock options: Providing employees with a stake in the company encourages long-term commitment and aligns their success with the business’s growth.

• Profit-sharing plans: A share in the company’s profits fosters a sense of ownership and team spirit.

• Company cars: Particularly attractive in roles that require extensive travel, this perk offers practicality and prestige.

• Flexible working hours: A modern, highly-valued incentive that gives reps control over their schedules, boosting work-life balance.

• Extra PTO (Paid Time Off): Rewarding top performers with additional vacation days can enhance job satisfaction and loyalty.

• Tuition reimbursement: Supporting ongoing education not only incentivizes employees but also strengthens their skills, benefiting the organization.

By tailoring your incentive strategy to the needs and preferences of your team, you can create a more engaged, high-performing team.

The 5 primary types of incentive pay plans

If your organization has already implemented incentive pay plans, you'll ideally be optimizing them to drive even greater results. Understanding the five primary types of incentive pay plans—and how to fine-tune them for alignment with your goals—can help you maximize ROI.

Here’s a breakdown of the five primary types, each catering to different objectives and team dynamics:

1. Individual incentive plans

Incentive plans work best when they tap into what drives each individua on a personal level, but that doesn’t mean creating a bespoke plan for every rep. The key is striking a balance between personalization and simplicity—offering enough flexibility to meet diverse needs without overcomplicating administration.

Consider this: what motivates a new parent returning from leave may be entirely different from what inspires a Gen Z rep saving for a house deposit. The former might value gift cards for baby essentials, while the latter might prioritize variable commission or bonuses that help achieve long-term financial goals.

Research backs this up too: younger workers place a particularly high value on frequent, authentic recognition. They’re also more likely to be motivated by incentive group travel, which fosters camaraderie and shared experiences. These preferences highlight the importance of creating a pay mix that incorporates both cash-based rewards and non-monetary incentives.

For sales compensation professionals tasked with optimizing incentive plans, this insight is a call to action:

• Analyze your team’s demographics and preferences. Use surveys or feedback loops to understand what motivates different groups within your organization.

• Offer a blend of rewards. Design plans with a mix of variable pay, tangible rewards (e.g., gift cards or experiences), and intangible perks like recognition programs.

• Keep administration scalable. Instead of unique plans for every individual, establish a menu of rewards or tiered plans that offer customization without complexity.

By tailoring your individual incentive strategy to align with both the company’s goals and the diverse motivations of your sales team, you can create a plan that inspires every rep to bring their best without creating unnecessary operational overhead.  

2. Group incentive plans

A group incentive plan rewards a specific team for their collective performance rather than on individual achievements. This approach is most effective when paired with equitable sales territory design—the strategic allocation of resources to address customer segments, regions, or accounts. Fair territory assignments ensure that team efforts are evaluated and rewarded on a level playing field, minimizing the risk of inequity in compensation.

For example, let’s say your sales team is split into two territories: one targeting prospects in New York and the other in Colorado. In New York, existing market share and strong brand recognition make closing deals easier, while the state’s higher population density offers more opportunities. Conversely, in Colorado, fewer opportunities and less brand presence require more effort to achieve comparable results.

If both teams are on a uniform incentive plan, such as a 5% commission on all sales, New York reps are likely to drastically outearn their Colorado counterparts—not because of superior performance or effort, but due to structural advantages. This discrepancy can lead to demotivation and frustration among the Colorado team. Instead, tailoring incentive plans to account for these differences ensures fairness and maintains team morale.

Similarly, group incentive plans can be tailored to different types of territories. For instance, a team targeting enterprise clients typically works on larger deals with longer sales cycles. In this case, activity-based incentives—rewarding progress at key milestones in the sales process—may be more motivating. For example, a team could earn a 1% commission at each stage of the sales cycle, encouraging persistence and focus on advancing deals. Meanwhile, teams targeting startups with shorter sales cycles might receive the full 5% commission upon closing deals, reflecting the faster pace of their work.

As Rick Butler, VP of Global Sales Compensation at ServiceNow explains, the success of activity-based plans hinges on ensuring each incentivized activity contributes meaningfully to the larger sales process.

This insight highlights the importance of designing group incentive plans with a clear connection between activities and outcomes. It’s not enough to reward effort; the incentives must align with tangible results that contribute to team and organizational goals. When structured thoughtfully, group incentive plans can drive both collaboration and sustained performance, ensuring that every team member is motivated to advance toward shared objectives.

Job roles come into consideration here because the behaviors you need to incentivize differ by position.

In a recent Sales Planning Masterclass on sales compensation best practices, Leo Rocha, Sr. Director of Compensation at CHG Healthcare, said the pay mix ratio should be adjusted accordingly. Hunter roles are generally incentivized to find new business, while customer success teams are typically weighted toward a higher base pay to encourage relationship-building.

3. Company-wide incentive plans

Company-wide incentives reward all employees when they collaborate to reach a specific business objective. The most common example is profit sharing: if your business hits its $500K target by year-end, you might distribute 10% of profits to the team.

The benefit of company-wide incentives is that you set the standard for behaviors that you want to incentivize to meet larger scale objectives. It also encourages employees to collaborate; team work is crucial to meet the goal.

That said, company-wide incentives aren’t as simplistic as they might appear. Awarding the same incentive to each individual can be unfair.  

Companies like Kit have openly shared how company-wide profit sharing incentives are calculated. Some 40% of the eligible profit goes to owners, and up to 8% is awarded to the leadership team based on their own performance targets. Employees who’ve been with the company longer are also eligible for a higher share.  

Its employee handbook also says: “Your profit sharing is calculated by taking your days in the work period period and dividing by the total days in the work period to get the percentage of time you worked during the profit sharing period. That’s the percentage of your profit sharing you will receive.”

4. Long-term incentive plans

A long-term incentive (LTIP) solves a major problem that sales organizations face: high staff turnover rates. Employees are rewarded with financial incentives, such as stock options or shares, when they stay with your company and meet longer-term business goals.  

These LTIP plans give employees ownership in the company. This helps with motivation on a daily basis because everyone’s working towards the same goal. The better the company performs, the higher their share value.

Despite their effectiveness at reducing turnover, there’s a lot more red tape around long-term incentives. Giving away stock in your company isn’t a straightward process: there are tax regulations, as well as difficult conversations you might need to have with existing stakeholders around stock dilution.

5. Variable pay plans

Variable pay plans mean that a seller’s income fluctuates. There is no “set” commission rate—incentives can diff depending on your short-term goals or business objectives.

Variable pay plans present the need for full-stack sales performance management (SPM) software that offer real-time visibility into sales and on-target earnings.

Implementing incentive pay at your organization

1. First, identify the right incentive pay plan

There is no optimal incentive pay plan that’s applicable to every sales organization—it depends on the goal you’re trying to achieve, the behaviors you’re incentivizing, and how each individual rep is motivated.

As we discussed earlier: some reps might prefer a higher base salary, while others prefer non-cash or long-term incentives like gift cards and stock options. It’s important to take these preferences into consideration to build a pay plan that meets its objective: to drive incentivized behaviors.

Simply involving reps in the process can have a positive effect on sales performance. As one research study concluded, “Sales employees' performance increased substantially under the self-selected incentive scheme. [...]. The effects of the self-selected incentive scheme not only are durable when offered again but also persist after the scheme is discontinued.”

The issue, however, is that “most organizations are too myopic about performance,” according to Paul Reiman, Founder and Managing Partner at Novo Insights:

“They want to pay reps for the sales they make in each quarter. But what if a representative that consistently exceeds OTE has a slow quarter? Should they not still be compensated? How can your top performers win under this plan?”  

Paul continues:

“Sales organizations need to be looking at the bigger picture. Your top performers should be rewarded with promotions when they’ve shown consistent results beyond a single sales cycle.”  

Combine individual rep feedback and performance data with the company-wide objectives you outlined earlier. Which key behaviors or activities will help you get there? Those are the things that your incentive scheme should tie back to.

2. Budget for incentive pay

We know that incentives drive performance, but you don’t have an unlimited budget to spend on them. Full-stack SPM solutions like Forma.ai help you model financial performance based on incentive plans to ensure you’re not blowing your budget on extravagant incentives that cost more than they return.

With Forma.ai, you can directly model limitless “what if” scenarios and variables on your datasets—without impacting your current incentive pay plan. Before trying out a pilot program you can  use the comp plan modeling capability to predict the outcome of incentive changes on individual rep performance and the business, as a whole. This to improve your decision-making capability based on the data you already have.

Remember to think beyond variable commission and understand the role that short-term incentives and spiffs play in your budget, too.

3. Communicate and launch the plan

Reps don’t take changes to their incentive plan lightly. Before an official rollout, communicate the changes with your team. Be prepared to answer their questions, particularly if tiers change or the reward they’ve worked hard to unlock becomes unavailable post-implementation.

Pilot programs help you identify these issues before a full scale rollout. Docusign, for example, launched two six-month pilot programs to refine their strategy before implementation. “We’ve improved change management and buy-in along the way, and we’ve created a “trainer-the-trainer” [program] for the next fiscal,” Melissa says. “They’ll be champions on the new plan having gone through it.”  

Melissa continues: “Of course, with every pilot, the pre- and post-mortem set-up of deciding what your metrics are for the control group versus the pilot and then reviewing those on a quarterly basis to the highest level of the organization has been critical to help us tweak it.”  

It’s difficult to get buy-in for your sales comp plan if reps are confused—either by how it works, the incentives on offer, or why specific behaviors are being encouraged.

You need to establish clear lines of communication around the topic of incentive pay. Reps should know who to talk to in case of a commission dispute, and a rough roadmap of how the plan might change in future.

Follow these best practices to communicate your incentive plan with clarity and impact:

Provide a clear explanation of the plan

• Break down the plan into its key components—how it works, the specific incentives available, and the behaviors it aims to encourage.

• Use simple, accessible language to describe the metrics, payout structures, and timelines.

• Create visual aids, such as charts or flow diagrams, to help reps understand how their performance translates into rewards.

Establish dedicated channels for questions and disputes

• Assign clear points of contact for questions about the plan, including disputes or discrepancies in commission calculations.

• Provide a quick-reference FAQ or resource hub where reps can find answers to common questions.

• Ensure your communication lines are two-way: actively listen to feedback and address concerns promptly.

Share a roadmap for future changes

• Be transparent about how the plan might evolve. For example, outline any conditions that could lead to adjustments, such as new business objectives or market shifts.

• Build trust by explaining the rationale behind potential changes well in advance and providing opportunities for reps to give input.

Use multiple communication touchpoints

• Roll out the plan with an engaging kickoff meeting or webinar to introduce it in detail.

• Reinforce the message through written documentation, such as emails, slide decks, or a centralized knowledge base.

• Follow up regularly with reminders and updates, particularly around critical milestones or performance reviews.

Frame the plan positively

Donya Rose, Managing Principal at The Cygnal Group, emphasizes the emotional nature of sales compensation. She advises sales leaders to communicate in a way that makes reps feel "strong, confident, and excited." To achieve this:

• Highlight how the plan benefits reps and aligns with their personal and professional goals.

• Use motivational language and celebrate successes—showing how the plan has helped others thrive can inspire buy-in.

Provide ongoing support

• Offer training sessions to ensure reps fully understand the plan, including how to track their progress and maximize their earnings.

• Check in periodically to address any lingering questions or misunderstandings.

• Be approachable and empathetic, recognizing that sales compensation is deeply personal and often tied to emotions.

For more on this topic, see our interview with Leo Rocha on best practices for communicating your sales comp plans.  

4. Enable managers and employees

Incentive commission management (ICM) software is the easiest—and most accurate—way to award incentives. They track sales by rep and automatically calculate the incentives they’re entitled to. Most even integrate with payroll for one-click payouts.

They make life easier for your sellers, too. Sales reps often spend between 4 to 16 hours a month manually working out their commission in spreadsheets. That’s time wasted—they could spend it selling.  

But to use these ICM solutions effectively, the data you’re inputting needs to be accurate. That’s the responsibility of everyone in the sales organization, from individual reps to sales managers.  

Getting buy-in for your new software is much easier if the interface is intuitive and easy to use. Real-time visibility into their earnings through customizable sales compensation dashboards also gives them a reason to maintain data hygiene. They can course-correct their sales approach if they’re falling short on their OTE.