“SPIFFs are dangerous,” says Joseph DiMisa, a senior VP with Sibson Consulting. “There’s a need for them, but they’re dangerous.”

Dangerous? SPIFFs? The sales performance incentive funds that light a fire under salespeople so they move extra inventory, boost new products, or even spend some quality time with the CRM?  Those SPIFFs?

Yes, those SPIFFs, says DiMisa. At Xactly’s CompCloud user conference last month in San Francisco, he and other panelists elaborated on the downside of special incentives. The danger he sees is twofold:

1. SPIFFs invite “whale watching.” Someone spots a whale on the left side of the boat, so the passengers all run to that side, but the whale is gone. Then it’s spotted on the right, and they all run to the right. The result? The boat – or incentive-compensation plan – lurches all over the place, directionless.If your sales team is constantly chasing SPIFFs, DiMisa says, “then your comp plan is off course.” The core incentive-compensation plan should drive your sales organization’s behavior and results.
2. SPIFFs are like a drug!  They’re addictive: the more you get, the more you want.  If SPIFFs are too frequent or run too long, it’s difficult to pull them back. Reps start to think of them as a given. Companies typically spend 6–10 percent of their incentive budgets on SPIFFs, but DiMisa has seen them spiral as high as 18 percent.

Shawn Rossi of Mercer warns that SPIFFs can easily become a distraction and the ROI is fuzzy at best. When you figure in the cost and effort of getting the word out and running the programs, “It becomes a question of whether it’s worth it,” he said.

Yet another issue, says SalesGlobe’s Mark Donnolo, is that over-reliance on SPIFFs creates behaviors you don’t want. He likens it to Macy’s One Day Sales: everyone knows they’re coming sooner or later, so they plan around them to get the biggest payoff.

Clearly, there are plenty of pitfalls to watch out for when considering SPIFFs. But remember the other half of DiMisa’s statement: there’s a need for them. Pitfalls aside, SPIFFs do have their place and can be effective when implemented with care.

Here are some best practices to keep in mind for successful SPIFFs:

• Make sure they’re programmatic and well thought-out. Know your expected ROI.
• Use them judiciously. SPIFFs are effective when you’re launching a new product, for example, or if you have excess inventory or want to bundle products. Stick to specific scenarios. You don’t want to create a menu of incentives so that sales reps choose how they’re compensated.
• Keep them short term, three months max.
• Keep them infrequent. Two per year is plenty.
• Make them unpredictable. This is the best way to avoid the “One Day Sale” syndrome.
• Limit the cost to about 5 percent of your incentive budget.

Chad Albrecht of ZS Associates says following these guidelines will allow SPIFFs “to serve their purpose, which is a short-term gain or win based on a particular focus that you want to drive. Don’t overwhelm your sales-incentive plan.”