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I’m doing a preso on HR.com’s “Rewards and Recognition Virtual Workshops” at 12:30 pm EDT today. Listen in. It will be fun.
But, prepping for that presentation made me think of the whole incentive program goal setting process.
Typically it goes like this...
ACME Widgets determines its sales goal for the year. Say it is 120% of last years’ sales. They go to the Sales VP and tell him/her the goal. The Sales VP calls the incentive supplier and tells them they need an incentive program to drive a 20% increase in sales. The incentive company comes back with a program design that:
A) Sets a sales target of 90% of the 120% goal (approximately 108% of last years’ sales) and awards points for each sale from 90% of the 120% and then doubles the points after that level (btw - from a design standpoint – the company actually gets an 8% increase before awarding a single point;) or
B) Rewards everyone in the sales force that hits 120% of last year with a trip to Hawaii.
Those are the two basic options. Reward incremental sales in points driving folks to the 120% number or reward everyone who achieves this years’ goal (20% more than last year.) There are variations on the theme but the net-net is the program is designed to get the sales person to strive for the +20% figure.
Paying a Premium for Your Goals
The thing that no one seems to recognize in this scenario is that what the company is really doing is paying a premium to get the sales people to focus on the “company” goals. The 20% increase is not the goal of the sales person. Nowhere in the example did the sales person articulate what they wanted. The entire program is designed around the company needs, wants, desires and goals.
This is a lazy way to do the program. In effect, what you’re saying is...
"Here’s what I want – you go look in the catalog and decide what you want. If we’re lucky – what you want will add up to a 20% increase I want. If not, too bad.”
This is a lose-lose scenario. The company didn’t get their 20% increase and the sales person didn’t get what they really wanted either.
Because the company didn’t find out what their sales people wanted they are actually (IMHO) paying a premium through higher point rewards for sales effort in order for the sales person to shift their attention away from what the individual sales person wants, to what the company wants.
What If It Was About Them?
What if we worked backward on this (and I won’t take credit for this idea... it came from someone I worked with about 5 years ago)...
Ask each sales person what they wanted to accomplish this year. It could be to take a vacation with the fam to Disney, could be a new Harley. Based on their desires, goals, dreams – the Sales VP and the sales person worked together to determine what they would have to sell/produce to get that award. If it adds up to 20% great. If not – what’s the next thing on the sales person’s “to-want” list? Add that to the mix and put that under the first thing. Between the sales person and the VP, they will come up with a personalized list of goals (not the % kind – the personal kind) that, when taken in total across the sales force, will net the company their stated 20% growth figure.
Not each sales person needs to hit 20%. Some may hit 25% growth – based on their needs/wants/desires that year. Others, may only be in the 10% range. I won’t be so Pollyanna as to say you should reward folks for below 100% (unless there is some mitigating factor – like the economy!)
But here’s the kicker... I’ll bet my reputation and my fees on this...(if someone wants to take me up on it) the overall cost of the “wish list” will be lower than the cost of points and/or trips would be from a program designed from the goal “number” backwards. Why?
- It has been my experience that people will set higher goals than the company normally does (remember – a lot of the time the number they hit last year wasn’t them at 100% effort – more likely 70% - and they know it.)
- When the focus of the sales person’s goal is personal (not some company derived number) it is more desirable.
- When someone has a say in the goal development they are more committed – it’s their reputation – not some no-name in Sales Planning or Finance’s reputation on the line.
It’s easy to test this theory. If you have a “points” program or other program in place, go to a few sales people, ask them what they really want, work together to see what they need to do to get that and compare the cost of that to the cost of the points/trip that would (will) be rewarded if they hit that number. Go do it – I think you’ll be surprised.
Does this process eliminate a catalog solution? Nope. The process simply translates a company goal in to a personal one BEFORE you start the program. That is the key influence technique. When the program is announced, the individual is given their list of “desires” – and you track against that list. At any time during the program, the sales person can adjust and manage their “wish list.” Remember – it’s THEIR list now - not yours. That makes all the difference in the world.
Being Impersonal Is Costing You Money
So ask yourself – are you paying a premium on your reward program just so you don’t have to talk to your sales people? If you’re running a program that requires sales people to determine their goals after you’ve determined yours, you probably are.
So how do you work the program in a commission environment? For example, last year, I sold $1,000,000 and was paid out at 3% for a commission total of $30,000. My performance was good enough to get me on the President's Club trip to Paris (let's assume a value of $10,00).
This year, you want me to sell $1,200,000 and you will pay me the $30,000 again and are you now replacing the trip to Paris with something tangible that I want (and betting it will be less than the $10,000 trip to Paris)?
Colin, Toronto.
Posted by: Colin Jarvis | March 31, 2011 at 01:25 PM
Thanks for engaging here Colin.
Don't start with the $1,200,000 - start with what you want and work backwards to the goal. What you want may require you to sell 1.5 million - and you'd be happier going after it if you and your manager agreed on it up front.
What I'm suggesting is that if you manager had sat down with you and asked - what do you want to do this year? What would be a "wish list" of things - could be a trip to Paris - could be a new deck on the house. Doesn't matter. Don't but a dollar value on it. Your goals/needs/wants are the starting point. The manager says - great, what/how much (if it is dollars) would you think that would be worth in additional sales. You give him a figure and the two of you work out what the final deal is. You now have a specific and desired goal in mind and a performance metric you agreed to - and they (probably) will have a much less expensive payout overall. Maybe (but I'm pretty sure I'm right.)
Too often we start with the dollars and not the goal. And remember - I can send you to Paris cheaper than a company can put together a trip for 100 people. If you had said Paris - I'd probably be able to do that for about $5,000 for two for a week not the $10K.
It's not about ripping you off - you're really not seeing the $10K anyway ('cept in your w-2 or 1099) - this way you and your manager are in alignment on the effort and the reward from the get-go.
Make sense?
Also - big difference between and incentive and recognition award... .what you described is a recognition program - not an incentive.
Posted by: Paul Hebert | March 31, 2011 at 01:37 PM
Hey Paul,
I agree that impersonal incentives rarely, if ever, gain the buy-in that is required to meet the goals that are set. How do you reconcile differing incentives to differing people? Let's take the idea that someone thinks that if they can do 25% better this year than last, and for that they want a european vacation for a week. Now you have another employee who is excited to do the same 25% work, but you only have to give them the new deck to their house. How does one reconcile these two different incentive amounts when it comes to cross-talk between the individuals? Obviously, one will find about the other and demand more incentive that they originally want.
Just a thought :)
Posted by: Christian Fey | April 03, 2011 at 07:36 PM