Learning Methods
A traditional classroom couples on-site learning with the added value of face-to-face interaction with instructors and peers. With courses and exams scheduled worldwide, you will be sure to find a class near you.
Highly Interactive
On-going interaction with instructor throughout the entire classroom event
Interaction with peers/professionals via face-to-face
Components (May Include)
On-site instructor-led delivery of course modules, discussions, exercises, case studies, and application opportunities
Supplemental learning elements such as: audio/video files, tools and templates, articles and/or white papers
E-course materials available two weeks prior to the course start date; printed course materials ship directly to the event location
One + Days
Varies by course ranging from one to multiple days
Technical Needs
Specific requirements are clearly noted on the course page
Virtual Classroom
Ideal for those who appreciate live education instruction, but looking to save on travel. A virtual classroom affords you many of the same learning benefits as traditional–all from the convenience of your office.
Highly Interactive
On-going interaction with instructor throughout the entire virtual classroom event
Interaction with peers/professionals via online environment
Components (May Include)
Live online instructor-led delivery of course modules, discussions, exercises, case studies, and application opportunities
Supplemental learning elements such as: audio/video files, tools and templates, articles and/or white papers
E-course materials available up to one week prior to the course start date. Recorded playback and supplemental materials available up to seven days after the live event.
Varies by course ranging from one to multiple sessions
Technical Needs
Adobe Flash Player
Acrobat Reader
Computer with sound capability and high-speed internet access
Phone line access
A self-paced, online learning experience that allows you to study any time of day. Course material is pre-recorded by an instructor and you have the flexibility to view content modules as desired.
Independent Learning
Components (May Include)
Pre-recorded course modules
Supplemental learning elements such as: audio/video files, online quizzes
E-course materials are available online within one business day of purchase
Optional purchased print material ships within 7 business days
120 Days - Anytime
120-day access to e-course materials available online within one business day from the date of purchase
Direct access to all components
Technical Needs
Adobe Flash Player
Acrobat Reader
Computer with sound capability and high-speed internet access
Contact Sponsor
Paul Thompson
Phone: 1 44 01614322584
Contact by Email | Website
Sorry, you can't add this item to the cart.
You have reached the maximum allowed quantity for purchase in your cart or the item isn't available anymore.
Product successfully added to your cart!
View your cart
Continue shopping
Please note our website will be down this Friday, November 5 from 9pm ET – 11pm ET for routine maintenance. We apologize for any inconvenience.

Linked Formula Design: Proceed with Care


At the core of a sales compensation plan is a formula. A sales compensation formula converts sales performance into pay. A simple sales compensation formula rewards one measure: sales results. 


But sales compensation designers often need to build incentive plans with multiple components rewarding different business objectives. For example, one component would reward total sales performance, while a second component might reward product mix, profit or new account sales. While each component is valuable, sellers could achieve high performance on one measure and less than sterling performance on a second measure.  

Unfortunately, this outcome does not reflect desired “balance” performance. This is when sales compensation designers should consider linked formula design — but do so in a careful manner. 

Sales Compensation Formulas 

Popular formula types include commission, bonus, individual commission rate, scorecard and bonus flip to a commission. Does this sound like gobbledygook? Don’t be alarmed. It’s hard to keep track of all the options considering there are more than 40 formula types.  

In practical terms, you do not need to consider all these formulas. Revenue management’s objectives and the selling roles help identify the best incentive formulas. For example, a B2B startup sales team might use a commission formula paying incentives on all sales from dollar one. The more sold, the more paid. The incentive payouts are exactly proportional to sales production. The “market makers” among the sellers will be highly rewarded for securing much needed revenue. 

In another situation, sales leaders might want to reward sellers the same pay for achieving 100% of quota even though the actual revenue opportunity/production varies by territory. Account managers overseeing an existing book of business would be such an example.  

Sales management configures territory size to balance sales efforts, however, actual territory revenue might vary substantially. In this instance, sales management would use a bonus formula— incentive payments tied to percent quota achievement. A seller with a quota of $2.5M would be paid the same as a seller with a $3M quota if both achieved 100% of their assigned objective.  

This formula approach ensures management rewards comparable efforts and outcomes alike, even if the base of business is substantially different.  

Multiple Objectives 

What occurs when sales management seeks to reward different and sometimes competing objectives? Consider the incentive plan with two components: one for sales volume and the second for sales profitability. The first measure rewards total sales. The second measure rewards profitability for sustaining better prices. In this case, what should the seller do? Secure lots of volume by allowing prices to drift lower? Or secure more profit dollars by keeping prices high, but potentially suppressing sales volume?  

An unlinked incentive design featuring two standalone components would leave sales personnel with a conundrum: discount to sell more or sustain pricing and sell less. Management will state, “We want higher volume without discounting.” However, the incentive plan with its two unlinked components does not make this clear.  

As now designed with two unlinked components, the incentive plan allows sellers to potentially achieve substantial earnings on one measure at the expense of the second measure.  

Hurdles/Gates, Multipliers, Matrices: What Are Linked Design Formulas? 

As suggested, a linked formula design mathematically connects two measures rewarding balance performance. Success on one measure alone does not provide exceptional incentive earnings, which success on both measures provides. In fact, linked formula designs often feature a penalty for only achieving one measure and performing poorly on a second measure. This makes the linked design more powerful than two standalone measures.  

Formula linkage encourages balanced performance: “You must perform well on both measures to earn the best payout. Poor performance on the second measure will negatively affect the earnings of the first measure.” 

The three most prominent linked formula designs are hurdles/gates, multipliers and matrices. Let’s keep it simple for explanation purposes. We will feature two measures: revenue (sales) and profit. Typical profit measures include gross margin percent, gross margin dollars and price realization. For our examples, we will use gross margin percent and simplified formulas to better illustrate the concepts. 

Hurdles/Gates. As the name implies, hurdles/gates set up a performance requirement that affects incentive payments. Let’s apply a hurdle/gate for profitability. Here is a formula example using a hurdle/gate: gross profit margin percent. 


This profit hurdle requires the year-to-date gross margin percent on all revenue to be at or above 12.5% to receive the 5% commission rate on over monthly quota volume. If the year-to-date profit percent remains below 12.5%, the commission rate remains at 3% for over quota sales outcomes for that month, not the higher 5% commission rate. 

The advantage to a hurdle/gate formula is success on two measures ensures the highest payout. Instead of gross profit percent, hurdles/gates can also be used for other second measures such as existing account growth, cross-selling and new accounts. The plan is simple to understand and apply. The disadvantage to hurdles/gates is they are binary; either you pass the gate, or you do not. The next two linked approaches solve this shortcoming: multipliers and matrices.  

Multipliers. Multipliers provide different levels of elevated or reduced rewards depending on performance of the second measure. In this example, the monthly commission earnings increase or decrease based on year-to-date gross margin performance. In the first formula schedule below, the commission rate is applied to the sales volume for the month. But the monthly payout amount is either increased or decreased depending on the year-to-date profit performance.  

For example, if the year-to-date percent profit performance is 16%, then the monthly commission earnings are increased by 130% making the monthly payout higher. On the other hand, if the year-to-date profit percent is a low 9%, then the monthly payout is reduced to 90% of the expected commission earnings for the month — a takeaway for year-to-date low gross margin performance. 


Another version of a multiplier is to provide different monthly commission rates by profit level. The outcomes are the same as the previous table. 


Both multiplier examples provide increasing commission payments as the profit level improves. Both charts provide the same payout; however, the second example does not show the multiplier as a “takeaway,” just different commission rates available for different year-to-date gross profit performance. The first formula schedule imposes a “takeaway,” a compelling rebuke to discounting. The second example does not feature an overt “takeaway.” 

The advantages of a multiplier linked design allow for variable commission rates tied to the profit performance. As the profit performance (the second measure) improves, so does the commission payouts for sales volume production. The disadvantage is it requires year-to-date profit calculation accuracy. Tenths of a percent make a significant difference in monthly payouts.  

Our illustrations use year-to-date profit performance. As an alternative, the formula could use monthly gross profit performance. This would make the monthly payout neutral to year-to-date gross profit performance. 


Matrices take variable commission rates to the next level. They provide higher pay as performance on two measures improve. Yes, a matrix seems a bit daunting, but sellers quickly understand they need to balance both measures to improve payouts.  

A correctly designed matrix rewards for exceptional performance on both measures. Success on one measure cannot offset poor performance on the other measure. In the following example, both measures are of equal value, both accounting for 50% of incentive payout. The matrix designer can adjust the matrix to increase the value of one measure greater than the other measure. For example, sales can be weighted 60% and profit weighted 40% in the matrix.  

Additionally, the “penalty” for poor performance on either measure can be regulated depending on how much the commission declines in the opposing corners: upper left and lower right. 

For illustration purposes, we present a 7 by 7 matrix. Normally, these matrices are 9 by 9 or 11 by 11. (Why odd number rows and columns? So, the target commission rate is in the middle cell.) 


To calculate the monthly commission payout, identify the year-to-date gross margin percent and identify the monthly sales volume quota performance. The intersect provides the commission rate applied to actual sales for the month. 

The advantages of a matrix provide a full palette of commission rates, thus payouts. A matrix is ideally suited to say to the salesperson, “Balance your revenue and profit performance to secure the highest commission rate for the month.” Again, the year-to-date margin percent could be replaced with monthly gross profit. Likewise, the monthly quota could be replaced with year-to-date quota performance. Year-to-date measures ensure a long-view accountability of total performance, whereas monthly measures reward short-term results. 

The challenge of using a matrix is to ensure cost modeling can project all possible payout scenarios. And, yes, viewing a matrix for the first time can be daunting.  

Consider with Care  

We suggested at the start of this article to consider linked designs carefully. Why? They can be confusing, hard to model and challenging to communicate.  

However, they offer a superior approach to standalone component measures. If you need to balance two measures in the incentive plan, consider using a linked design: hurdles/gates, multipliers and matrices. 

About the Author  


David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn

About WorldatWork

WorldatWork is a professional nonprofit association that sets the agenda and standard of excellence in the field of Total Rewards. Our membership, signature certifications, data, content, and conferences are designed to advance our members’ leadership, and to help them influence great outcomes for their own organizations.

About Membership

Membership provides access to practical resources, research, emerging trends, a professional network, and career-building education and certification. Learn more and join today.