I spend a lot of time talking about employee programs here. Mostly because employee engagement, satisfaction, dare I say it, motivation – is everywhere in the news. But that is only one of the many ways incentive programs are used in corporate America.
A close second (and a big first in many industries) is using incentives for sales people and for channel partners. And in my experience, many are doing it wrong.
Mistake #1 – Annual Programs
The big kahuna of sales incentive mistakes – focusing on annual award programs.
If you’re a sales manager or a marketing manager I’m sure you run your programs to coincide with your annual financial reporting. I’m also sure it is pretty much an overlay on your annual compensation program. And I’ll even guess that it was simply a bonus in non-cash compensation over and above the bonuses you already pay when a sales person hits their goal.
I will tell you now – you’re not getting the impact you could from that incentive budget.
Time and rewards have a dysfunctional relationship. Awards in the future (and not the real far away kind of future) have considerably less value in people’s minds than awards in the very near future. You can award someone 1/10th of an annual award in 30 days and get a much bigger bang for your buck than the full (10 times) the award in 12 months. Our brains discount the value of the award as it moves into the future (temporal discounting) and therefore it takes much more award value to get the same results.
Make it Monthly
If you spend $5,000 per year in annual non-cash awards – run a program with ½ that amount but award it monthly. In other words – run short, one-month programs that give your participants $250 and you’ll see an increase in attention, participation and results. It’s human nature. That $250 in 30 days seems more desirable than the $5,000 in 12 months. Intellectually it doesn’t make sense – logically it doesn’t compute. But we’re not always logical.
Mistake #2 – Results VS. Activities
Hand-in-hand with your annual program mistake is the fact that most programs use “results” as their yardstick. I know – you have to – your boss is telling you to pay for results not intentions. But I’m telling you it’s bad program design.
There is only one thing people can control in an incentive program – WHAT THEY DO. They cannot control their client’s budget cuts. They cannot control their competitor’s price discounts. They cannot control you company’s product recall. They shouldn’t have their reward program tied to things they cannot control.
Any program that pays based solely on results is basically a program that rewards those that have better luck. Over time – those programs get ignored by most participants.
Design your program to reward the activities you’ve identified as critical to success in the sales function for your company. Is it the number of calls? Is it the number of demos? Is it the number of golf-outings? Every company and industry is different but there are usually some pretty well-known activities that if done regularly lead to more conversations, more contracts and more sales. Those are the activities that drive your business and those are the things your incentive program should drive.
It’s Not Compensation
And just ‘cuz I like to under-promise and over-deliver here’s Bonus - Mistake #3…
Too often incentive programs for sales people are simply little brother programs to the main compensation system. They take similar goals and time frames, repackage them in crazy and fun themes (with much less desirable awards) and then launch them in hopes they do something the base compensation system won’t.
That’s a compensation issue. Fix that first. Make sure you have great compensation program and then worry about you incentive activities.
Incentive programs should be designed to drive specific behaviors in a specific time frame that will impact overall results. They are not extensions of compensation systems.
Two different tools.
Two different outcomes.
Two different design criteria.
Go check your non-cash award program for your sales people. I’m sure it is an annual program tied to financial results and… it is not getting you the results you should be getting.
Good call in identifying that the incentive program is NOT the same as the compensation program. But why do you feel that they aim to achieve two different outcomes?
Posted by: Michael | April 14, 2011 at 08:00 PM