Getting the Commission and Incentives Program Just Right
Let’s face it, most sales compensation and incentive programs are stuck in the dark ages. They certainly reward the winners, but do very little to help B and C-players develop into A-players. Most programs take a sink or swim approach. “When you close, we pay.” “Sell this shiny new widget we just released, and we’ll give you a nice spiff.” Not bad if you’re closing enough business, but what if you’re a future star getting off to a slow start. Not very motivating.
The truth is, there are much better ways to incentivize and motivate sales reps, not to mention promote teamwork. Lots of psychological studies have shown the traditional approach is just not optimal. With rep turnover in B2B sales hovering around 30%, and intense pressure to increase sales rep productivity, it’s time to explore better ways to compensate and incentivize.
The psychology behind incentives
The “You do this, I’ll give you that” approach to motivation is dangerous. Dangerous because it often promotes behavior not intended by those offering the reward. I once sat on a runway for more than 2 and a half hours waiting to take off. We weren’t exactly waiting on the runway, but pulled away from the gate. Passengers were restless, asking “why can’t we go back to the terminal and wait?” At some point, a frustrated flight attendant blurted out “It’s because the flight crew is graded on our on-time departures. If we go back to the gate, we’ll be marked as a late departure.” Great, punish the customers for an internal reward system. I am not sure that’s what management intended. Nevertheless, it’s what they got. In the end, simple “do this, then that” reward and incentive programs are easily “gamed” by the employees. It’s not malicious or negative behavior, but pragmatic decision making on the part of the employees. They are trying to maximize their wealth situation by focusing on the things the organization is rewarding them to do.
A better approach to rewards and incentives is to make the reward system complex enough to prevent easy “gaming” by sales reps. Players in the NFL are rewarded using a fairly complex, multidimensional schema. They get a mix of individual goals for each game and for the overall season. They have internal team goals for offense, defense and special teams. And they have overall team performance goals like points scored, points given up, conference wins, overall wins, and playoff wins. For players, the reward system is simply too comprehensive to game, and they end up just trying to be the best individual and team player they can be. Good.
The big problem preventing change
So why doesn’t every sales team just copy the NFL’s approach? Simple. They don’t have the data. They can’t measure all the activities sales reps execute because it’s not easily accessible. There are no cameras watching sales engagement meetings, no statisticians measuring every yard gained, or first down achieved. It’s a lack of visibility. Visibility into sales activities executed, objectives accomplished, and milestones reached.
So, currently, sales teams compensate and reward reps on the only real data they have. The results. “Did the deal close or not?” Can you imagine NFL Patriots coach Bill Belichick in a team meeting, “OK, from now on, I’m only paying for wins.” A little ridiculous? Maybe. But sales teams are stuck with this approach… for now. Stuck with seeing only the results of all the sales rep activity that goes into closing a deal. Stuck with reps focused on delivering the one outcome they are rewarded to bring—sales wins. And, stuck with the myopic vision and lack of teamwork this type of “if this, then that” reward system brings.
But… things are changing. And quickly.
The future of sales compensation
Sales teams are beginning to realize that without activity data, it’s very difficult to manage reps to optimal performance, let alone compensate on all the activities and intermediate objectives that lead to success. Reps hate entering data into CRM—and trying to change that behavior is a losing battle. Activity data entry automation will save the day—allowing reps to go about their business of selling, meanwhile their activities are automatically logged in CRM. And once we know what reps are actually doing, we can begin to compensate and incentivize in more effective and rewarding ways.
Instead of just rewarding for wins, we will begin rewarding all the little behaviors that go into being a great sales rep. Are activity levels where they should be? If so, a bonus for that. Are the rep’s core activities converting into meetings and conference calls? If so, another bonus. How well is the rep engaging the buyer personas most likely to result in success? Bonus. How fast is the rep responding to buyer questions and inquiries? Another bonus. Product knowledge good? Another bonus. Is the rep using subject matter experts in the sales process? Another bonus. How is the rep rated by team members who need occasional help? Another bonus. How well is the rep qualifying opportunities and managing their pipeline? Bonus again. And, of course, is the rep bringing the results—the sales wins? Bigger bonus.
The benefits of this impending compensation transition are enormous. Instead of the “sink or swim approach,” reps will be rewarded for all the positive behaviors that lead to success—motivating new, average, or even low performing reps to follow a healthy development path—increasing productivity and reducing turnover. And, not only that, teamwork among reps will be greatly improved. B2B selling is a team sport by nature, and aligning the reward system to support cooperative behavior will only further enhance productivity.
It will be great for sales teams… and their buyers too.
– Pete McChrystal, CEO & President of Accent Technologies, Inc.