If you work in the performance improvement industry (incentives) it is inevitable you will have a conversation with a client that focuses on the difference between compensation and incentives. Many clients will say that they pay commissions so they don't need incentives or reward programs. It's the old "I already pay them to do that." I agree. Incentives and compensation are two different tools focused on two different goals. This article in Business Week on-line is a good example of the "normal" approach to commission plans. I've taken each point and put a counter point with it to explain the reason that having a well-designed incentive (reward) program layered on top of a good commission plan is the best approach to managing and influencing the behavior of a sales force. The list items are in blue - my response in black below each one.
If you want your reps to sell more of a particular or new product line, consider adding a bonus or increased commission. However, be careful not to make it so attractive that they stop selling your established, bread-and-butter lines.
Counterpoint: Unfortunately, business and markets are changing at an increasing rate. Updating your commission plan as often as the market changes not only confuses the sales people but pisses off HR folks. Installing a short-term promotion that uses non-cash awards provides focus and flexibility. You don't have to review anything with HR and don't have to change a good comp plan just because the competitor has a new line you want to sell against this month.
If you pay your sales force too much, they may get complacent and not go after new business. If you pay them too little, you'll have high turnover and high training expenses. If you pay the top performers too little and the low performers too much, you'll lose your profit-generators and keep your expense-generators.
Counterpoint: A well-designed non-cash incentive program can help "even out" disparities in a poor plan and give you some freedom to adjust the overall compensation (commission + incentives) without again hitting up HR for a change.
If you determine your commission percentage based only on volume, you may encourage your sales reps to discount more than necessary, resulting in lower profitability.
Counterpoint: None. No program should be designed to allow participants to hurt the company. The only time this makes sense is in a market-share grab. Again, however, incentives can provide a way to focus on volume growth without sending the message that the entire compensation system is moving that way.
If you pay bonuses based on customer-service scores, customer service will improve. However, you must guard against sales reps seeking customer satisfaction at the expense of additional sales.
Counterpoint: Again, focus the compensation on the long-term goals of a company and use the incentives to focus on specific tactical targets. One of the goals of an incentive program is to break behavioral inertia without committing to a long-term strategy. Many times simply giving people a reason to change behavior for a short period of time simply allows them to see it can be done. Then they continue to exhibit the behavior as part of their normal routine.
If you want your reps to sell new products or a new product line, you might want to offer a reward per demonstration, even if they don't make a sale right away.
Counterpoint: This is EXACTLY where non-cash incentives make the most sense. Short-term, new behavior - don't want a long-term commitment.
If you offer a monthly overachievement bonus, salespeople might be motivated to sell more every other month. When I sold on monthly quota, if an order came in at the end of a low sales month, we sometimes held it for the next month, hoping it would be better and put us over our monthly goal. We called this "putting an order in the drawer."
Counterpoint: In the old days of paper-based reporting this was more of an issue. Today, many organizations use electronic submissions that track dates so the reps don't really have control over when the order is submitted.
If you let the sales manager decide how much bonus will be paid each month, sales reps will spend more time trying to please their managers than they spend trying to sell to their customers.
Counterpoint: Manager determined incentive awards have the benefit of being short-term so the reps don't get into the habit of brown-nosing and it doesn't affect their overall income - just the reward value for that program.
If you make the plan too complex, your salespeople will ignore it. My stockbroker recently told me his pay plan was so convoluted that he just did what he thought was best and waited to see how much they paid him.
Counterpoint: None - just good sense.
If you're going to change the sales-compensation plan, compute how it will affect your top 20 sales producers. If a proposed plan hurts them, find another plan.
Counterpoint: Provide opportunities for the top performers to receive recognition. These are typically the folks in the organization that are less motivated (at that point in time) by the money and would respond to recognition much more positively.
If you have only a meager budget for bonuses, you can make a big deal out of the presentation, offer a humorous and symbolic award (one company I know gives a fake stuffed beaver, because the beaver is the hardest working animal in the forest), or provide a lasting memory, like putting their name on a prominent plaque.
Counterpoint: Let's not cheapen the award. Budget isn't the issue - public acknowledgment is the point. Never a bad idea.
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