Sales Incentive Plan

A Sales Incentive Plan (SIP) is a business tool used to motivate and compensate a sales professional (or Sales Agent) to meet goals or metrics over a specific period of time, usually broken into a plan for a fiscal quarter or fiscal year. A SIP is very similar to a commission plan, however a SIP can incorporate sales metrics other than goods sold(or value of goods sold), which is traditionally how a commission plan is derived. Sales metrics used in a SIP are typically in the form of sales quotas (sometimes referred to as POS Shipments), new business opportunities and/or MBOs (Management by Objective independent action of the sales professional and is usually used in conjunction with a base salary.

SIPs are used to incentives sales professionals where total dollars sold is not a precise measure of sales productivity. This is usually due to the complexity or length of the sales process or where a sale is completed not by an individual but by a team of people, each contributing unique skills to the sales process. SIPs are used to encourage and compensate each member of the sales team as he/she contributes to the team's ability to sell. It is not uncommon for the members of such teams to be located in different physical locations (often working in different countries) and for the product introduction to happen in one location and the purchase of such a product to occur in another location.

Types Of Share Incentive Plan (SIP) :

Free Shares :

Companies can give up to £1500 of Free Shares to employees in each tax year. A participating employee can normally only take their Free Shares out of the SIP in the 3 year period from the date of award if they leave the company. Income Tax and National Insurance will be payable on the market value of the shares at the date of removal.

If Free Shares are removed between 3 and 5 years from the date of award, then Income Tax and National Insurance will be due on the lower of the value of the Free Shares at the date of award and their market value on the date on which they are withdrawn from the SIP.

If the Free Shares remain in the SIP for more than 5 years, there will be no Income Tax or National Insurance liability when the shares are eventually removed from the SIP. In certain circumstances, prescribed by HMRC, there will be no Income Tax or National Insurance liability when the employee leaves the company, no matter how long the shares have been held in the plan.

Partnership Shares :

Employees can use their pre-tax salary to buy shares up to a maximum of £3,000 or 10% of salary (whichever is the lower) each year. Partnership Shares will be free of Income Tax and National Insurance at the date of purchase.

If an employee takes their Partnership Shares out of the SIP within 3 years of the date of purchase, Income Tax and National Insurance will be payable on the market value of the shares at the date of removal.

If the Partnership Shares are removed between 3 and 5 years from the date of purchase, then Income Tax and National Insurance will be due on the lower of the value of the Partnership Shares at the date of award and their market value on the date on which they are withdrawn from the SIP.

If the Partnership Shares remain in the SIP for more than 5 years no Income Tax or National Insurance is payable when the shares are eventually removed from the SIP.

The purchase of Partnership Shares can be funded in 2 ways; either a single lump sum contribution once a year; or monthly contributions (subject to a maximum of £125 per month or 10% of salary, whichever is the lower, and a minimum of £10 per month). If the employee opts to make a lump sum contribution, the Partnership Shares must be purchased within 30 days of the deduction from salary.

Contributions from salary can be accumulated for a period of up to 12 months. Partnership Shares must be purchased within 30 days of the end of the accumulation period; or contributions from monthly salary can be used to buy Partnership Shares within 30 days of the deduction.


The company can give employees up to 2 Matching Shares for each Partnership Share they buy. These shares will be free of Income Tax and National Insurance at the date of award. To receive their allocation of Matching Shares the employee remain employed with the company for a period of between a minimum of 3 years and a maximum of 5 years. An employee can normally only take their Matching Shares out of the SIP in the 3 year period from the date of award if they leave the company. Income Tax and National Insurance will be payable on the market value of the shares at the date of removal. If the Matching Shares are removed between 3 and 5 years from the date of purchase, then Income Tax and National Insurance will be due on the lower of the value of the Matching Shares at the date of award and their market value on the date on which they are withdrawn from the SIP. If the Matching Shares remain in the SIP for more than 5 years no Income Tax or National Insurance is payable when the shares are eventually removed from the SIP. In certain circumstances, prescribed by HMRC, there can be no Income Tax or National Insurance liability when the employee leaves the company, no matter how long the shares have been held in the plan.


Dividend Shares :

Dividends paid on SIP shares can be re-invested in further shares known as Dividend Shares. Up to a maximum of £1,500 per participant can be used to buy Dividend Shares in each tax year. These shares are free of Income Tax and National Insurance at the date of purchase. An employee can only take their Dividend Shares out of the SIP in the 3 year period from the date of award if they leave the company. Dividend Shares are subject to a 3 year holding period. If the shares are removed after 3 years from the date of award there is no Income Tax or National Insurance liability. In certain circumstances, prescribed by HMRC, there can be no Income Tax or National Insurance liability when the employee leaves the company, no matter how long the shares have been held in the plan.