The Most Common Sales Compensation Governance Failures (And How to Prevent Them Before They Become Expensive)

On Sunday, April 17, 2016, I was having lunch with some friends, a few of whom were in the process of purchasing homes. I asked whether they planned to get flood insurance. They both said they didn’t need it and the homes weren’t in flood zones.

I pushed back and shared what I had seen time and again in Houston was that major flood events rarely stay confined to designated flood zones, and that many of the hardest-hit homes are outside them. I remember saying, “You don’t know you need it until you need it.”

The very next morning, by 8:00 a.m., I had 16 inches of water in my home. I was in a flood zone and had coverage.

Sales compensation governance is much the same kind of insurance. You don’t realize how critical it is until something goes wrong and by then, it’s often too late.

Sales compensation governance isn’t glamorous. No one gets excited about rules of engagement, documentation dispute processes or approval workflows. It doesn’t show up in the annual sales kick off or get celebrated when deals close. Yet governance is one of the most critical components of a sales compensation program that actually works.

When governance is strong, everything runs smoothly in the background and much like having flood insurance you hope you never need it. But when governance is weak or nonexistent, the cracks eventually show, often at the worst possible time, just like discovering you’re uninsured when the water is already rising.

The problem is that most governance failures don’t fail loudly. They fail quietly, a one-off exception, a “temporary” SPIFF that never goes away, or a manual workaround that becomes the norm. Each decision feels harmless in isolation. Over time, they compound driving up cost, creating confusion, and eroding trust between sales, finance, and leadership.

By the time the issue becomes visible, the damage has already been done. In this article, I’ll walk through three of the most common governance failures and how to create governance process that prevent them.

Verbal Commitments Without Documentation

Over the course of my career, I’ve taken more than a few calls from sales professionals trying to understand why a bonus showed up or why it didn’t appear at all. Often, the root cause was the same: someone had been verbally promised a bonus for completing a task or pushing a deal across the finish line.

While the intent was good, the execution rarely was. The commitment was never reviewed or approved by the compensation committee, and the team responsible for administering the plan had no visibility into it. What was meant to be a quick motivator turns into a fire drill after the fact.

Verbal exceptions, even when positioned as a “one-time payout,” create precedent the moment they’re honored. They introduce downstream risk, administrative complexity, inconsistent payouts, and in some cases legal exposure especially when similar situations arise and can’t be treated the same way.

The mitigation isn’t complicated, but it does require discipline: formal approval paths, written documentation for any exception, and clear communication to the teams responsible for payout execution. If it isn’t documented, approved, and visible, it isn’t a promise, instead it’s a liability.

Exception Creep

Throughout my career, I’ve seen organizations create exception plans because they’re worried about losing a client or a top salesperson. It usually starts with a well-intentioned problem: “We’ll lose the deal otherwise” or “They’re going to leave for a competitor.”  While the intentions may be good, again it is the execution which is lacking.

Just like floodwaters slowly creep into a house, exceptions quietly turn into the norm. What begins as a one-time adjustment to solve a short-term problem becomes a permanent and costly reality. Over time, exceptions effectively rewrite the incentive plan increasing administrative complexity, destroying internal equity, and making costs unpredictable.

Organizations can mitigate this risk by establishing clear rules for when exceptions are permitted, who must approve them, how they are documented, and most importantly how and when they expire. Governance documentation should require formal approval, define clear sunset provisions, and ensure exceptions remain exactly what they are intended to be: a temporary fix, not a permanent solution to a one-time problem.

Poor Plan Communication

Often, people assume that if they have homeowners’ insurance, they’re automatically covered if there’s a flood. What many don’t realize is that homeowners’ policies typically cover water damage from things like burst pipes but not flooding caused by heavy rain or hurricanes. Incentive plans are just as confusing.

I can’t tell you the number of times I’ve received calls from upset salespeople who believed they were paid incorrectly, only to discover that while the payout was accurate, their understanding of the plan was not, which is just as frustrating to the salesperson.

Some may argue that incentive planning communication isn’t part of governance. I would argue the opposite: it’s one of its most critical controls. Poor or unclear plan communication drives disputes, leads to misaligned selling behavior, and erodes the credibility of leadership and compensation teams.

Strong governance requires more than distributing a plan document. It requires clear, unambiguous plan language, formal communication of key rules and edge cases, documented plan changes, and employee acknowledgment. Without those controls, organizations lose consistency, defensibility, and trust. When sellers can’t clearly explain how they earn and when they’re paid, they don’t just lose confidence in the plan, they become shadow administrators, spending time recalculating, questioning, and escalating instead of selling. It also wastes a lot of time across the board that could be spent more productively.

In summary, flood insurance is often overlooked because it feels expensive until the cost of not having it becomes far greater. Sales compensation governance works the same way. Exceptions, poor plan communication, and informal workarounds may seem manageable in the moment, but over time they create far more costly problems in disputes, inequity, lost trust, and administrative chaos.

While my friends didn’t flood during the Tax Day storm, they went on to purchase flood insurance so they would be protected on the off chance it was needed. Sales organizations should take the same approach. Good governance may require time, discipline, and investment but the cost of not having a governance framework in place is almost always far higher.

SalesGlobe is a leading sales effectiveness and data-driven creative problem-solving firm. We specialize in helping Global 1000 companies solve their toughest growth challenges and helping them think in new ways to develop more effective solutions in the areas of sales strategy, sales organization, sales process, sales compensation, and quotas. We wrote the books on sales innovation with The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Quotas! Design Thinking to Solve Your Biggest Sales Challenge.