Why base it on rankings?

Surely traffic or sales would be a better measure?

Good question -- for the last year, I paid healthy incentives based on traffic alone and our Seo rankings went downhill. Not only that, but it is relatively easy to build off topic traffic.

Tying the incentive to sales or conversions is a nice idea in theory and many have suggested it, but I think it is difficult to tie directly to our content. I can never really be sure where the visitor originated considering our various marketing activities.

Furthermore, SCO rankings seem to have some relative permanency -- I want to pay a bonus for achieving top ranking once instead of paying forever for the results of the high-ranking.

And after years of promoting seo knowledge in my company, I have little to show. Lots of effort, little return.

I always think it is somewhat awkward to base incentives off of pure rank. I think it might be a better solution to start looking into a more cohesive analysis of the keywords your traffic is comming from and then the origin of the sales. You can use any analytics tool to quickly see if the sale is from an organic search or from PPC (much of your organic traffic could be comming from long-tail keywords that you don't even know you are ranking well for). Besides, if you achieve top rank, then the sales that originate from organic traffic would increase drastically anyway.

Also, is your content manager actually in charge of SEO or is it a group effort. If the latter is true, then you may want to look into having one person really concentrate on SEO for six months and see if your rankings improve.