Frank Aubuchon of Aubuchon Associates, an HR Consulting Firm, wrote an article about Compensation to incent salespeople. With his permission, I have taken an excerpt from his article to share with you.
Adopt the philosophy that "the more sales my people bring in the more money the company makes. Everyone wins! Arbitrary earning caps are killers for your very best people and demotivating. Naturally the plan must direct sales efforts to the most profitable products and services and perhaps the plan should more richly reward new sales verses repeat business. Also, be careful of monthly or quarterly targets that may encourage salespeople to hold off on writing a sale. "If it doesn't help me now, I might as well wait until next month or next quarter" so an incentive can be earned. Finally, avoid setting unrealistic targets which breed the "why even try?" attitude.
The bottom line is that the plan should be easily understood; how incentives are earned, what are the qualifiers, when they are paid. The type of sales that are more important to the company's strategic direction should be clear and those should be highly incentivized. The plan should also have some legs. Year to year tweaks are expected. Wholesale scrapping and rework sends the wrong message and causes confusion and mistrust.
As stated above, scheduled dates for incentive payments should be part of the plan and must be strictly followed. In a very real sense it is the salesperson's pay check and pay checks should never be late. It also helps to explain how the payment was calculated so that discrepancies can be readily addressed. A salesperson should never be asked to just trust the system. Your best people know exactly how much money they are making and if your figure is different they shouldn't have to ask why.