What is considered "best practice" in how we would recognize and reward sales managers for covering open districts?

I think the question of appropriate arrangements for sales managers with open positions (/territories) needs to be handled differently in different situations:

For sales managers who are expected to keep their territories fully covered, maintaining a pipeline of candidates and connections, it makes sense to expect them to continue to produce sales out of an open territory, which would mean no quota adjustment, extra credit, etc. Their ability to meet their quota would almost certainly be impaired by an open territory, but then they haven't maintained a full staff - so some penalty is appropriate.

For sales managers who are not expected (or allowed) to hire staff to support an open territory, and who expect to fill the open position within a few months (3-12 perhaps), they could either cover the open territory using others from their team, or cover the open territory themselves.

If they cover the open territory using others from their team, then their team members should receive credit and compensation for the sales to the assigned opportunities (or zip codes) outside their territory, and the manager may or may not need to have a quota adjustment (depends on how long the condition is expected to persist).

If they cover the open territory themselves, then the manager could receive individual contributor type compensation for sales into that territory, but probably at a reduced rate (50% of that generally paid to individual contributors?), and perhaps a somewhat reduced total team quota (again depending on how long the no-hire situation is expected to continue).

For sales managers who are expected to downsize their staff until market conditions change (a year or more), reassigning territories among their team members to "absorb" the open territory is probably the right approach. The quota should be adjusted as needed to reflect the market conditions that led to this change and reasonable productivity expectations for the newly reduced team size.

Do sales incentives actually motivate people for the long run?

Regarding whether or not incentives actually help at all, the best piece I've read on the subject is Rewards and Intrinsic Motivation by Cameron and Pierce. It's dense and academic in tone, but I've read the whole thing and found that the key points relevant to sales compensation design from the book are the characteristics of effective rewards. According to Cameron's and Pierce's research, incentives and rewards are most effective when…

1) Used for the benefit of the employee (not just to create benefits for the employer)

2) Focused on challenging activities (not on activities that employee sales people already like to do)

3) Tied to specific reasonable, objective, and attainable standards of performance

4) Accompanied by celebration of significant successes by the organization.

In addition they note that, "Reward systems that are discretionary, subjective, or based on pleasing the people in charge are often seen as unfair and coercive. What is 'good' today may not be good enough to earn a reward tomorrow."

There is substantial written work questioning the effectiveness of incentives in creating sustainable healthy motivation. This book takes this question on, focusing mostly on the education and compensation application of the principles.