Sales Incentive Program: Types, Design and Examples

Sales incentive program: the short answer

A sales incentive program is the overall plan for rewarding salespeople on top of base pay: commission, bonuses, SPIFs, sales contests and non-cash rewards. A good program has one clear goal, few metrics, written rules before it starts and a modelled budget. In Denmark, changes that leave reps worse off require notice.

Many companies have an incentive program without calling it one. There is last year's commission plan, a bonus management agreed in January and a contest the sales manager launched in September. The problem is that the pieces pull in different directions. This guide brings them together: the types of incentive, when each works, how to design and budget the program, and which Danish rules apply when you introduce or change it.

Five types of sales incentive

Type	What it rewards	Time frame	Best for	Common pitfall
Commission	Each deal, often as a percentage of revenue or gross margin	Ongoing, usually paid monthly	The core of a rep's variable pay	Rewards volume over profit if the basis is wrong
Bonus	A target for the period, such as a quarter or year	Quarter or year	Goals that cannot be tied to a single deal, such as retention or team results	Vague targets and discretion reps cannot check
SPIF	A specific action, such as selling a new product	Weeks to a quarter	Shifting focus quickly	Reps hold deals back until the next SPIF
Sales contest	A ranking or a shared goal	Days to a quarter	Energy and focus for a campaign	Only the same few people can win
Non-cash rewards	Results or effort, with trips, experiences or recognition	Varies	Celebration and retention	Taxable, and the value is perceived differently

Commission

Commission is the most direct link between sales and pay: the rep earns a share of each deal. That makes it a good fit for roles where the rep controls how much gets closed. The basis matters. Commission on revenue rewards large orders; commission on gross margin rewards profitable ones.

Bonus

A bonus is paid when a target for the period is met. It suits goals that cannot be tied to one deal, such as renewal rate, activity targets or the team's overall result. See our guide to sales bonus programs for structures and payout scales, and read about the difference in commission vs bonus.

SPIF

A SPIF (Sales Performance Incentive Fund) is a short, extra reward for a specific action, for example DKK 1,000 per licence sold of a new module during a quarter. SPIFs work because they are simple and short. They stop working when they become permanent. Read more in our guide to SPIF programs.

Sales contests

A contest has a ranking, a threshold or a team goal, and the prize depends on the result. Contests create energy but can also demotivate if the same people always win. Use several winners or a threshold everyone can reach. You will find formats in our list of sales contest ideas.

Non-cash rewards

Trips, dinners, extra days off and public recognition can be more memorable than cash. Remember the tax: in Denmark, a benefit given as a reward is taxed in full, according to the Danish Tax Agency. A DKK 15,000 trip costs the rep the same tax as DKK 15,000 in salary.

How to design a sales incentive program

Start with the business goal. Write it in one sentence, such as "more new customers with 20-100 employees" or "higher gross margin". If it does not fit in one sentence, reps will not remember it.
Identify the behaviour that drives it. New customers need new meetings and new pipeline. Higher margin needs less discounting. That behaviour is what you reward.
Pick the instrument. Commission for the ongoing core, bonus for period targets, SPIFs for short-term shifts and contests for campaigns. Do not use three instruments for the same goal.
Keep the metrics few. Two or three per role is enough. Reps should be able to calculate their own pay.
Model the budget. Work out the cost at 80%, 100% and 120% attainment before the plan goes out. See the example below.
Write the rules down. Basis, rates, periods, what happens with cancelled deals, absence and leaving, and how the program can be changed.
Make it visible. Reps who can see their earnings as they go can act on them. A program that only shows up on the payslip motivates less.
Review every quarter. Are you seeing the behaviour you pay for? Who earns the most, and are they the ones creating the most value?

The criteria must also be objective. Under the EU Pay Transparency Directive, employers must make the criteria used to set pay, pay levels and pay progression easily accessible to employees, and those criteria must be objective and gender-neutral (Directive 2023/970, Article 6). Commission and bonuses count as pay (Article 3). See our guide to the EU Pay Transparency Directive and commission.

Worked example: budgeting an incentive program

Example: A team of eight reps each has target commission of DKK 120,000 a year at 100% attainment. Above 100%, commission is paid at 1.5 times the rate (an accelerator). The company also runs a first-quarter SPIF of DKK 1,000 per new customer on a new product, expecting 40 new customers, and two sales contests a year with prizes of DKK 10,000, 5,000 and 3,000.

Item	Calculation	At 100% attainment
Commission	8 × DKK 120,000	DKK 960,000
SPIF	40 × DKK 1,000	DKK 40,000
Sales contests	2 × (DKK 10,000 + 5,000 + 3,000)	DKK 36,000
Total		DKK 1,036,000

SPIFs and contests account for DKK 76,000, or 7.3% of the budget. Commission is by far the largest item, so that is where scenarios matter:

Attainment	Commission per rep	Commission for the team
80%	0.8 × DKK 120,000 = DKK 96,000	DKK 768,000
100%	DKK 120,000	DKK 960,000
120%	DKK 120,000 × (1 + 0.2 × 1.5) = DKK 156,000	DKK 1,248,000

In a strong year, commission rises DKK 288,000 above budget. That is a good cost if revenue rises with it, but it belongs in the budget from the start. Add payroll costs such as holiday pay and pension on variable pay where they apply.

Danish rules when you introduce or change the program

Put it in writing

Pay and other pay elements must appear in the written statement of employment terms, and changes must be notified in writing as soon as possible and no later than the date the change takes effect (Danish Act on Employment Statements, sections 3(2) and 5). That also applies when a new incentive becomes part of pay.

Changes that leave reps worse off

A material change to employment terms must be given with the employee's individual notice period, and a pay cut is always material, according to the Danish union ASE. The employers' organisation Dansk Erhverv writes that a change to a commission or bonus scheme that significantly affects the employee's earning opportunities must be notified the same way and be objectively justified. If the employee does not accept a material change, they can treat themselves as dismissed.

Not everything needs notice. New annual bonus targets generally need not be notified unless they differ significantly from previous ones, according to Dansk Erhverv. But a fixed-term scheme that has been extended several times can give the employee a justified expectation that it will continue, in which case ending it requires notice and a valid reason.

Bonus when an employee leaves

If a salaried employee (funktionær) leaves during a financial year, they are entitled to a pro rata share of profit shares, bonuses and similar payments they receive by agreement or custom (Salaried Employees Act, section 17 a). Spell out in the program how bonuses and contest prizes are handled when someone leaves.

Tax on prizes

Cash incentives are taxed as salary. Prizes such as trips, gifts and other benefits are also taxable when given as a reward, according to the Danish Tax Agency. Tell reps in advance so the prize does not turn into a disappointment on the payslip.

Common mistakes in sales incentive programs

Too many goals at once. Five metrics means five half-priorities.
Incentives that work against each other. A volume SPIF running alongside margin-based commission sends two signals.
No budget ceiling and no scenario above 100%. A great year then becomes an unpleasant surprise for finance.
Rules changed mid-period. It costs trust and may require notice.
Payouts without a statement. If reps cannot see how an amount was calculated, the incentive turns into an argument.

Prowi and sales incentive programs

Prowi calculates commission continuously from CRM data, so reps can follow their earnings in a mobile app. Splits and corrections are calculated by rule, an admin approves statements, and one approved file goes to payroll. Book a demo to see how your program could be set up.

FAQ

What is a sales incentive program?

It is the overall plan for how salespeople are rewarded on top of base pay. It usually combines commission, bonuses, SPIFs, sales contests and non-cash rewards with shared goals and written rules.

What are the best incentives for salespeople?

It depends on the goal. Commission works for ongoing sales, bonuses for period targets, and SPIFs and contests for short campaigns. Most important is that reps understand the rules and can follow their earnings.

What is the difference between a SPIF and a bonus?

A SPIF is a short, extra reward for a specific action, such as selling a new product during a quarter. A bonus is paid for reaching a target over a whole period, usually a quarter or a year.

Can an employer in Denmark change a sales incentive program?

Yes, but a material change that leaves the rep worse off must be given with the rep's individual notice period and be objectively justified. New annual targets generally do not require notice unless they differ significantly from previous ones.

Are sales contest prizes taxable in Denmark?

Yes. Cash prizes are taxed as salary, and benefits given as a reward are taxed in full, according to the Danish Tax Agency.

Sources

This article is general information, not legal advice. Check your collective agreement and employment contract.