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Incentive Plans, Employee Performance and Increasing Company Profits

In 250 words or more please explain the following

58% of managers indicated their sales incentive plans encourage choices that reduce company profits. Often the performance measures motivate the wrong behaviors. What measures (sale incentives) would you suggest to motivate the right behavior to increase company profits?

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This is an interesting concept in that profitability is a virtually unknown entity until AFTER the fact. That is to say, a firm really does not know its profitability status until after the operational cycle is complete. As a result, sales transactions are completed and not to be changed.

The option to this is measuring the cash flow which sales activity creates. This results in a higher level of "real time" measuring of the effects of sales activity because it deals directly with the level of cash flow expected to be received by the firm as a direct result of its operational activity (including making sales).

As a long time sales executive, the sales plans received by the field personnel dealt directly with growing revenue --- none dealt with the costs associated with this activity. So sales people would receive a QUOTA which they had to meet in order to maintain or grow their employment prospects. It was a mystery (usually) as to how the quotas were established and what calculations were made to insure that the realization of these quotas would result in a higher level of profit. Thus, sales personnel would aggressively pursue the quota, possibly(probably) at the expense of profitability because making profits was not a consideration --- they were told that to keep their job, they had to perform at a minimum level in terms of new and/or renewal of revenue in order to not only be paid appropriately, but also to maintain their employment, and possibly be considered for promotion with outstanding results. The actual level of expense management associated with these calculations was never presented to the sales force. The end result was that it was ASSUMED that revenue attainment resulted in financial health, exhibited through increased profits, (essentially that the products and services were priced appropriately in order to insure profits).

But in order to gain these sales, many times exemptions, or options, or alternatives were presented in order to finally close a number of sales. The one thing to keep in mind is that there is normally aggressive competition which will ...

Solution Summary

This solution discusses whether or not incentive plans are profitable for a company.