A quick and convenient answer would be an affirmative, “yes.”
However, upon closer examination, this common refrain hides some revealing observations. We suggest here that these relevant factors, once considered, will lead compensation designers to craft better sales compensation plans.
What Does ‘Coin-Operated’ Mean?
The expression “coin-operated” suggests that salespeople respond only to pay incentives, offered by sales management to manipulate sales personnel actions. It also implies the sales force is somewhat immune to other forms of managerial oversight. “Unless it’s in the pay plan, it won’t get done.” Further, it suggests a negative view about sales personnel and their professional values. At best, it implies sales personnel are self-absorbed, not concerned with serving the best interests of the company, and will only perform if bribed to do so. This moves incentive compensation into an overrated marquee sales performance role, a dubious location.
Sales Compensation Works, Right?
Yes, it does work. However, the simple phrase “coin-operated” relegates salespeople—their ambitions, their character and their intellect—as subordinate participants in a pay reward program. This represents a painful and flawed view of salespeople.
A better starting point is to understand why sales compensation works. There are numerous motivation theories, which explain why people do what they do. When viewed collectively, these theories suggest that one or more of the following factors drive people’s actions.
- Economic. Sure, economic reasons drive a lot of behavior. Defining the word “economic” broadly allows us to include not only money, but also health protection, employment security, wealth building, physical safety and purchasing power. Sales compensation payments are a natural fit for this factor, but not universally. For example, sales compensation payments do not fully address the need for employment security and health protection.
- Social. When people react to what others think about them, we are tapping into their social psyche. As a general rule, most people want to receive positive recognition and live in harmony within their social environment. People gravitate toward actions that earn positive feedback and avoid performance that garners negative feedback. Measurement, even without rewards, is a compelling social lever. For some people, their tribal instincts make them eager to conform to the social norms—the performance expectations—of the sales team.
- Self-Construct. Often cited as the “wild card” in human behavior, a person’s “self-construct” provides an inner voice that answers the question, “What is right for me?” Self-constructs can be enduring, maturing or ephemeral. An important component found in self-constructs is the pursuit of self-accomplishment.
Each of these factors meanders and crisscrosses each other, and then can double back. The point is: No matter how much we want to, it’s not easy to reduce humans to a motivation presumption; this includes salespeople.
Lessons for Sales Compensation
Now that we know sales motivation is much more than pay rewards, we can correctly calibrate the use of sales compensation. Here are some principles of sales compensation effectiveness that have served others well.
- Sales Culture Counts. What sales leadership says is important and thus becomes important to most salespeople. People’s social/tribal instincts tell them to earnestly serve sales leadership’s objectives.
- Measurement Drives Performance. No need to clog the sales compensation program with every performance measure. People’s inner self-construct and their social accountability have them respond favorably to performance measurement—even without incentive compensation payouts.
- Aggressive At-Risk Pay Is Not Necessary. Setting aside the economic model of income producers (such as stockbrokers, real estate agents and life insurance sellers), who earn a percent of everything they sell, sales representatives do not need a crushing pay at-risk to drive performance. The deepest pay mix should not exceed a split of 50/50 of total compensation divided between base salary and target incentive. The average pay mix of B2B sellers is about 65/35. Use a higher pay mix for high persuasion jobs, less pay mix for lower persuasion sales jobs.
- Performance Measures Should be Few. To improve the connection between performance and rewards, keep the number of performance measures to three or less. Avoid using the incentive program for corporate measures, administrative compliance measures and activity measures. The message of the pay program gets lost when there are too many measures.
- Job Content Defines Pay Plan Design. Craft sales compensation plans to match job content. The number of plans should be equal to the number of jobs.
Sales compensation is an effective tool to complement management practices; it’s not a substitute. And, for goodness sake, never presume sales personnel are coin-operated humanoids.
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David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn.