Sales Blog for Sales and Sales Management

In February's issues of Fast Company magazine, there was an article by Dan and Chip Heath about incentives:  what works and what doesn't work.  I immediately started thinking sales, sales compensation, sales results, incentive trips and all those things that have worked and not worked with our clients over the years.  Here is what I know about incentives and compensation:  incentivize and compensate the activity and results that you want.

• One of our client companies wanted to drive new business at 25% a clip per year. The compensation program was 35% comp on new business and 35% on current revenue flow. Question: Where is the incentive to drive new business for someone with a million dollar book of business? Answer: there isn't any. Someone making $350,000 a year without selling new business is usually pretty happy

The magazine sites a professional football team that put an incentive clause in the quarterback's contract that he would earn bonus money if he decreased his number of interceptions.  He stopped throwing the ball, met the objective of throwing fewer interceptions, got paid a bonus and the team had a losing record.

• You just can't incentivize activity. You must manage activity, coach behaviors and lead for results. Your leadership must include how you incent what you are trying to do. If it is profit, then your comp program must focus on those sales that generate the best profit not just a program that incents all revenue regardless of profit.
• You have to use formulas to drive the right activity and then make sure your compensation for revenue and sales is consistent with your objectives. Here is an example of activity based and results based formula that ties compensation to success in both:

As you can see, the successful execution of activity and results can be tied to compensation.  This is another version of a "success formula" that we use in our training and development program.  We also integrate this type of methodology in our "sales management environment" program.  As a sales person, you may not like this. But sales people never like compensation programs.  It's never enough.  That isn't the idea.  The idea or question is:  Would this incentive compensation formula prompt you to do what you need to do consistently so that you hit your personal objectives more consistently and predictably?  If the answer is "yes" then don't worry about liking it.

If you don't think so, why not? Is it...

• Too much accountability
• Pay at risk tied to actually doing sales activity versus hoping
• The wrong metrics and measures
• Record collection - "it's all about results"

Whatever  your reasons, they are your reasons and I'll leave it at that.  I don't claim to have all the answers relative to systems, processes, measuring and incenting.  Here is another resource (sales 2.0) that will help you find what works best for you and your company.  Until next time, have a perfect day