Sales incentives need to be motivating, easy for the sales employees to understand, and provide the company with a return. Too often they are boring and uninspired, or complex and potentially misleading. Making sales incentives engaging needs the right balance of operational vision and financial management – something that is difficult if you are worried about breaking away from a spreadsheet.
When I started out in sales I didn’t have a clue about my sales incentive - I was happy enough to walk out of education and straight into a job that paid well and gave me a company car. My plan was to start paying off my student loan and start saving to go traveling.
One day my manager told me I was doing well with my sales, that my MTD was growing faster than my YTD, my YTD was growing faster than my MAT, I had an index of 234, and that I was amassing points for the incentive scheme. I had no idea what she was talking about.
The sales incentive plan back then was a non-cash points-based system. At the end of the quarter, you’d be given points based on a variety of objectives. You could save and carry-over your points, or spend them. To spend your points, you’d browse through a printed catalog, turning each page until you spotted something appealing. Then you’d see how many points were needed and save them for another day, wishing you could have the cash instead.
After a couple of years of points saving, I left my job to travel for a year. When I returned to work, I took another sales job. This time the sales incentive plan was cash-based. For me, now saving for a house, cash would do nicely.
The company employed a top-down approach to setting sales targets, and centrally managing the sales incentive plan, making it clear that all the territories were based on an equal sales potential. This would have been fine if it were true – we all knew that certain reps could call favor with a wholesaler or distributor on their territory to pull off a last-minute win on the leader-board each year. And why did my sales get credited at the point of distribution, and not at point of sale? I didn’t have a distributor I could call on. It didn’t seem right.
The answer to the point of credit was simple. At the time – the mid-1990’s - accurate point of sale data was not possible as it had to be aggregated. The most accurate data came from what the company delivered directly to a distributor. When my colleague called a favor, the distributor would stock-pile, and the additional order would be credited to that specific territory even though the stock would be used to fulfill off territory sales. Fair play to my colleague as he was playing the game, but it was frustrating for everyone else.
The good news for me was that the company wanted to address it and they did this by allowing the local managers to make local adjustments to targets which, in theory, was fine. In practice, it was a nightmare. Hundreds of spreadsheets would be flying this way and that, version control was impossible…as was trying to prove that a local adjustment was necessary on one territory because of an usual buying pattern on another.
Put simply, the technology to manage this situation simply wasn’t available to ensure fairness. The company went back to a top-down, volume-driven, cash-based incentive plan. Better than nothing but not very motivational…and it’s still the go-to model used today in the industry I worked in.
Around the same time, I got a new manager, considered by some to be a “bit of a maverick." He loved his company car and had the full body-kit added to it. He loved being known as a bit of a wheeler-dealer, although it probably wasn’t the right image to go for in the (even at the time) highly-regulated industry we were in. He was also the first person to state that his job as my manager was to make himself redundant. This was going to be interesting.
The company also re-organized the sales team, and so it was that we started working as pairs per territory. The incentive plan was further modified: earnings from the territory incentive scheme would be split equally within the team, but nothing would be paid unless the company achieved its national sales target.
The modified plan was a total disaster – my partner and I worked fantastically together and smashed our targets but still got nothing because the national target was missed. Competitor companies started to circle ready to poach the dissatisfied sales team.
My “maverick” manager moved to calm the situation.
The first thing he suggested was for me and my team partner to start taking every Wednesday afternoon off together to go and do something away from work. We both enjoyed climbing so we’d head off to the local climbing wall after lunch.
This had a double-whammy effect on motivation. Not only were we getting paid time-off but because our territory was in a part of the UK were customers traditionally closed for Wednesday afternoon we would no longer have to chase our tails. Additionally, this time together allowed us to talk shop and plan our tactics for the coming week.
The second thing he did was to tell us not to worry about the incentive scheme objectives and to focus on our inputs, our behaviors. We already had a performance management system in the company, but he wanted to go deeper into specific sales behaviors, stating that if the inputs were right then the results would come.
Unknown to my team-mate and I, our manager was negotiating with his management to pilot his vision for the incentive plan. This, he hoped, would do away with sales targets and focus on inputs, rewarding the right behavior. Additionally, he argued that there needed to be flexibility in how his team was rewarded – one size did not fit everyone, and he wanted to legitimize the paid time-off we were taking. He also wanted the national target to be used as a multiplier.
In fairness to the company, they were willing to run the pilot, although the national target was dropped altogether.
For the next 18 months, we had a ball. The regional team was super motivated and happy. Everyone was highly engaged, focusing on the right behaviors and going the extra mile for our bespoke incentives. The reality was that there were only three variations of the same plan – some of us wanted a mix of cash and paid time-off, others cash only, and one person wanted a grant for a marketing diploma. The objectives were essentially the same, with a few tweaks here and there for specific needs.
Our manager had clearly got it right. By using the incentive plan to drive the right behaviors we won the Region of the Year award back-to-back, and the rest of the sales organization looked to us as the team to beat.
Could it last? Of course, it couldn’t. Given the flexible nature of our local incentive plan and the potential variations across the country, it was impossible to scale if it were to be managed centrally. Head Office did not want to de-centralize control of the scheme either, so the pilot ended. To echo an earlier paragraph - the technology to manage this situation simply wasn’t available, and the company went back to a top-down, volume-driven, cash-based reward. Better than nothing but not very motivational…and it’s still the model used today in the industry I worked in…even though we now have sound evidence that a plan benefits from including both intrinsic and extrinsic incentives1.
Fast forward to today and technology is no longer the issue. My manager had been thwarted by the lack of technology, but now with the right software you can have the plan your sales team needs – points based, cash-based, individualized, capped, uncapped, lag measures, lead measures, centralized, localized, gamified, linked to performance, succession and talent management, even as part of a total compensation approach – you name it. The challenge now is to challenge traditional thinking and the status quo – one size does not fit everyone anymore. The tailored approach should not be considered maverick, and SPM should focus on inputs to change or reinforce behavior, to drive a return, and not simply to compensate to the sales team. To do that optimally we must take a more tailored approach to inputs and payment where individual exceptions become the norm.
1. The Future of Sales Compensation (2016): Chad Albrecht & Steve Marley - Published by ZS Associates Inc.
Drive: The surprising truth about what motivates us (2010): Daniel Pink - Published by Canongate Books Ltd
Bringing Out The Best In People: How to apply the astonishing power of positive reinforcement, 3rd Edition (2016): Aubrey C. Daniels – Published by McGraw-Hill Education