Mar 8, 2012

Compensation Is for Closers: Motivate Your Sales Team

[caption id="attachment_393" align="alignright" width="425" caption="The Small Business Authority"]

[/caption] Managers are at a crossroads when it comes to figuring out how to motivate sales professionals. The old givens, that rewards motivate and that more money motivates more, are being challenged by new studies that show extrinsic motivation to be less important than intrinsic rewards like pride, satisfaction, mastery, and recognition.¹ Another reason to doubt the old ways is that the attitudes of a new generation of workers diverge from those of older workers.² The most talked-about book on the topic of intrinsic motivation is Daniel Pink’s “Drive: The Surprising Truth About What Motivates Us.”³ Even those who think salespeople are primarily motivated by money admire it. In this latter camp is Glen Hellman, who, in an entertaining blog post, describes “sales folk” (and he is one) as “show-me-the-money, greedy pirates” after “the old motivators of doubloons and treasure.”⁴ With some exceptions, experts on designing sales compensation packages tend to think more like Hellman than the new breed of motivation experts (Pink and his followers). They start with the idea that salespeople will respond to cash incentives, and they advise companies on how to structure packages by aligning pay package designs to business goals. The fact is, even if you are not persuaded that the chance to make a good amount of money is the major motivator of the individuals on your sales staff, putting forth a plan where they can make enough money to put their kids through college or to buy a vacation house is an important part of helping them perform at top levels.

Planning for Your Plan

According to David J. Cichelli, senior vice president of The Alexander Group, specializing in sales effectiveness consulting, the people constructing sales compensation plans often miss the mark and motivate the wrong behavior or provide unintended inequities. “What seems like such a simple idea—pay salespeople according to their sales contributions—can often produce less than effective incentive programs,” he wrote in an article, “The Science of Sales Compensation,” available on his website.⁵ “[P]oorly constructed plans are often plagued by complex rules, unworkable formulas, and poorly executed quota programs.” So your job as you design a program is to keep it simple, to keep the focus on business goals so you are incenting people to help the company reach those goals, and to reward your best sellers. According to another Cichelli article, the “best-practice companies always have their sales compensation plans expire at the end of each fiscal year.”⁶ This gives them the opportunity to rejigger the plan, as business goals change from year to year.

Keep It Fair

Management consultants Jerry Colletti and Mary S. Fiss, of Colletti-Fiss LLC, wrote in an article⁷ that setting up a compensation program that is fair may well help you retain your best salespeople. Ask yourself:

“Are the highest paid reps the best performers?”
“Are tenured/experienced reps rewarded proportionately more than other reps? Is this the intent or an unintended consequence?”

Also, make sure you know what your industry is paying for sales jobs. Cichelli said to purchase sales compensation survey data “from at least two different data sources.” This is “not the place to ‘save’ money by avoiding these purchases,” he wrote. How will reps get credit for their sales? You need “clear crediting practices,” wrote Cichelli. “Make crediting rules stark and unchanging.”

Motivate Desired Behaviors

Hellman wrote in his pirate blog post, “From the moment your compensation plan is released, your sales force will study the plan, like pirates studying a treasure map. Remember the mortgage meltdown, caused by misaligned compensation plans? These plans incented the sale of new mortgages no matter the credit-worthiness of the mortgagee and rewarded harmful behavior. … Bad incentive plans and greed lead to disaster.” His point is that when you design your plan, you want to play on reps’ greed (a good thing in salespeople) in ways that lead to good behavior, not exploitation of victims or the company. He suggested laying out your plan and then running through some “what-ifs” to make sure that you “haven’t created the next major downturn in the economy.” Hellman sets forth a number of questions that can help managers determine the strategic goals that they might want to motivate sales staff to help them achieve. For instance:

Do you have a list of “company-making accounts you want to penetrate? If you were a manufacturer of pirate eye patches, would it make your brand if Captain Kidd or Blackbeard bought your product?”
Do you want to give reps larger commissions for products that are of strategic importance or that are more profitable?

Hellman provides an in-depth example that shows how a company might structure a program to motivate these various behaviors. Go to the blog post to find it.⁸ Along the way to designing your own sales compensation program, you will undoubtedly find that you’ll make some mistakes. Don’t be tempted to fix them by adding more measures. The simpler programs with three or fewer measures work best. That’s according to Cichelli. For more information, visit: 1. “Money-Motivated Salespeople a Dying Breed” 2. “Y-Size Your Business” 3. “Drive: The Surprising Truth About What Motivates Us” 4. “Sales Compensation Design” 5. “Compensating the Sales Force” 6. “7 Sales Compensation ‘Tips’ for HR/Compensation Managers” 7. “Sales Compensation ‘Shorts’” 8. “Sales Compensation Design”