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Mar
26

Motivational Sales Incentives and How to Screw them Up

Incentives differ from rewards in that they are known up front.  While a reward is granted to recognize an action or achievement that has already taken place, the goal of an incentive is to induce behavior that results in such an action or achievement.  In this way, an incentive works like a carrot, motivating an individual or a group to achieve a desired objective.  That is, if it’s done right.

Sales as a function and sales people as individuals tend to be driven by ego and, therefore, competition and recognition.  Not that people in other corporate roles aren’t competitive or don’t like to be recognized; it’s just that for sales people, competition and blatant recognition is implicit and somewhat necessary in their jobs and, likely, a big part of their psyche.  In this way, incentives which both create competition and recognize achievement, are great tools to drive a sales force in a particular direction.  If you can find that thing that everyone wants, sales people will compete for it and move in the desired direction.  Winning drives ego, which further drives competition.

Sometimes, a great incentive is as simple as bragging rights.  In one of my companies that had a larger direct sales force (many territories throughout the world with hierarchy within each territory), we gave a trophy to the territory that had the most bookings each year and one to the territory most over quota.  Very simple, but hugely motivating.  It was a blast to see the winning team encircle the trophy for a group picture AND see how many of the sales people in the winning territory hung that picture on their office walls.  In a sense, it was even better seeing the losing territories vow to win the trophy in the next year.

Sales clubs (often called President’s Clubs or Chairman’s Clubs or similar), a junket to recognize the top sales performers each year, are more complex and expensive, but are huge.  Those who go get their egos stroked and truly feel rewarded.  They commit to themselves (and their spouses who also enjoy the lavish reward) that they will earn the reward again the following year.  Those that don’t make the cut usually have their competitive juices boil over and recommit themselves to earning a seat at the table in the next go-around.

Like any apparently good thing, you can take this type of structure too far.  I did this a few years back when my company at the time, Viewlogic Systems, was doing very well.  We were routinely ahead of plan, the stock price was moving northward, we had several industry-leading products and everyone was happy.  In our exuberance to motivate the sales team even further, we put in place an additional incentive – the number one sales person, in terms of software bookings for the year, would drive away with a new Porsche.  We had pictures of a Carrera on everything.  On sales training materials, on compensation plans, at sales meetings and, of course, all over the internal sales web site.  Sales people bought Matchbox Porsches to keep on their desks.  The incentive did everything it was put in place to do – it motivated the people and gave them another big rallying point in competing to be number one.

There was just one little problem.  We put a small failsafe into the deal.  To win, you had to not only have the highest bookings in the world, but you had to be a certain percentage over your quota.  At the beginning, this seemed like a no-brainer.  Come the end of the period though, this was the undoing of similar incentives current and future.

The problem was that no one achieved the percentage over quota required to win.  So, I was stuck.  Should I give the car to the person with the highest bookings even though they didn’t meet the other criteria, or should I stick by the book and not give the car to anyone.  As amazingly stupid as it seems to me today, I chose to do the latter – no one got the car.  I squirm in my seat thinking about what a moron I was.  By not rewarding someone with the car, I killed most of the motivational potential of such an incentive for years to come.  I likely took with it the motivational component of many other incentives in place as well.  I stuck a rusty nail into the balloon and it exploded.  I’m such an idiot.

The real mistake was setting up the incentive wrong.  here’s what I learned:

  1. Make sure someone’s going to get the incentive – set it up so that there is nothing that can ever prevent the awarding of the incentive put in place.  That means all criteria for the award need to be relative, not absolute.  Once it’s in place, you’re committed to awarding it to someone, otherwise the incentive won’t work the next time around.
  2. If you’re uncomfortable with the cost, size or significance of the incentive, don’t do it – incentives, sales incentives in particular, are playing into the hands of people who are already naturally competitive and are desirous of any public recognition.  They don’t have to be big.  Sure, it’s nice when they can be, but you just don’t need to go overboard to get the desired effect.
  3. Make sure that the metrics that are used to measure achievement are really, really clear and easy to understand – if every eligible sales person for an incentive needs to build a spreadsheet to calculate where they stand, you have a problem.  Not only should the metrics be clear and simple, but every person should be able to figure out where they stand in comparison to their “competition” on a fairly regular basis.  This simplicity and comparison is what keeps the motivation effect going.

I’m sure that I’ve missed a few hundred other potential mistakes in implementing this basic management tool.  Please tell me you’ve seen someone who’s made an even more moronic move than me.  Do you have other stories?  Lessons?  Here’s your place to vent, reveal, blame or even confess . . .

 

[Note 1: Rewards can have a subtle incentive effect when given publicly.  People generally assume that similar actions or efforts will be recognized in the future if they perform or deliver in a similar fashion.  In this way, rewards work as a carrot as well in some cases.]

[Note 2: Be careful when applying incentives like those mentioned here to groups other than Sales.  Sales people become sales people because of their unique skills and, more importantly, the way they think and handle the emotional roller coaster that is part and parcel to selling.  Not all people are the same and, as such, incentives like these may backfire if applied to them.]

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 March 26th, 2007  
 Will  
 Management, Selling  
   
 9 Comments

9 Responses to Motivational Sales Incentives and How to Screw them Up

  1. I have two examples just to make you feel better, both from former employers and both at least as dumb, possibly worse…

    1) Stupid commission plan. Quotas were given for both direct sales and sales through resellers. Commissions were only paid on direct sales if they exceeded a certain dollar amount each month. Net result? If any of the 3 sales guys had ANY doubt about reaching their direct quota, all their direct sales would miraculously disappear and re-appear as reseller sales. Commission paid on direct sales 2-4%. Discount to resellers 30-35% plus sales guy commission. Net loss to company 32-39% on every possible direct sale. That system was in place for at least a year before it got fixed…

    2) Inflexible management plan. I once worked on a contract basis in Technical Support/Customer Service. The department had (typically) high staff turnover. Genius incentive: bonus tied to low staff turnover. Stupid mistake: including promoted staff in turnover numbers. Net result: manager hired people who were poor performers with no ambition over well qualified and proven contract staff. Net loss to company 3 strong contractors within 3 months, all of whom had previously planned on staying with the company for the foreseeable future. Not to mention general resentment from permanent staff now stuck with lazy bozos in their team…

    Feeling better now???

  2. I have two examples just to make you feel better, both from former employers and both at least as dumb, possibly worse…

    1) Stupid commission plan. Quotas were given for both direct sales and sales through resellers. Commissions were only paid on direct sales if they exceeded a certain dollar amount each month. Net result? If any of the 3 sales guys had ANY doubt about reaching their direct quota, all their direct sales would miraculously disappear and re-appear as reseller sales. Commission paid on direct sales 2-4%. Discount to resellers 30-35% plus sales guy commission. Net loss to company 32-39% on every possible direct sale. That system was in place for at least a year before it got fixed…

    2) Inflexible management plan. I once worked on a contract basis in Technical Support/Customer Service. The department had (typically) high staff turnover. Genius incentive: bonus tied to low staff turnover. Stupid mistake: including promoted staff in turnover numbers. Net result: manager hired people who were poor performers with no ambition over well qualified and proven contract staff. Net loss to company 3 strong contractors within 3 months, all of whom had previously planned on staying with the company for the foreseeable future. Not to mention general resentment from permanent staff now stuck with lazy bozos in their team…

    Feeling better now???

  3. Yikes, fewquid!

    Thanks so much, I’m feeling much better. I’m slowly working on a post on sales compensation. I think that you’ve already beaten every story I could come up with. Net loss to the company . . . sorry, I had to laugh. And the fact that it didn’t get changed for a year. How typical is that part.

    Love the management plan debacle, too. Ya gotta wonder what people are thinking.

  4. Yikes, fewquid!

    Thanks so much, I’m feeling much better. I’m slowly working on a post on sales compensation. I think that you’ve already beaten every story I could come up with. Net loss to the company . . . sorry, I had to laugh. And the fact that it didn’t get changed for a year. How typical is that part.

    Love the management plan debacle, too. Ya gotta wonder what people are thinking.

  5. Ah, beware the duality of awards!

    Two of our sales people had the same green glass do-hickey on their desk. When asked, they explained that they had each made President’s Club in their prior employer. The year before they made it, that had included a week’s vacation at a European golf resort. The year they made it, the company didn’t do as well, and canceled the trip, giving them the do-hickey instead.

    Did I mention it was their immediately _prior_ employer?

  6. Ah, beware the duality of awards!

    Two of our sales people had the same green glass do-hickey on their desk. When asked, they explained that they had each made President’s Club in their prior employer. The year before they made it, that had included a week’s vacation at a European golf resort. The year they made it, the company didn’t do as well, and canceled the trip, giving them the do-hickey instead.

    Did I mention it was their immediately _prior_ employer?

  7. It’s interesting that they still kept the thing on their desks. I wonder if they kept it to remind them that they made club or just how screwed up the *last* job was? Maybe is was motivational in the sense that it reminded them of what a good choice they made in leaving . . .

  8. It’s interesting that they still kept the thing on their desks. I wonder if they kept it to remind them that they made club or just how screwed up the *last* job was? Maybe is was motivational in the sense that it reminded them of what a good choice they made in leaving . . .

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