« What Kind of Compensation Poker Player Are You? | Main | The Importance of “Why?” »

11/11/2010

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Oh, I get it. Only compensation people are responsible. Sales professionals do not want to accomplish the important work of the company and have to be treated like children. Not buying it.

Interesting post, Chuck. It reminded me of a Dan Pink article that ran in the Telegraph a few months ago. Dan described companies who got rid of sales compensation plans. Excerpt below:

"Davidson feared that commissions were doing more harm than good – that this largely unexamined business practice might be quietly undermining his 150-employee company. He wrote on his blog: 'That's what our sales salary system felt like – a gigantic, complex and medieval Spirograph centered on an assumption that wasn't true.'

"So, with some trepidation, he approached his sales team with the bizarre idea of scrapping sales commissions altogether and simply paying people a healthy flat salary. The response surprised him.

"Not only were commissioned sales not leading to better performance, it wasn't even the arrangement salespeople themselves preferred.

"In the absence of commissions, Red Gate's total sales have increased. And while two salespeople left the company – uncomfortable with the new regime – most stayed and are thriving."

The article is available in full here: http://www.telegraph.co.uk/finance/yourbusiness/business-thinking/7752986/Forget-carrots-and-sticks-they-dont-always-work.html

I've seen straight salary plans work too, Derek - in certain circumstances. For example, my insurance company (national brand) sells house, car, life and personal umbrella plans through a salary-only comp plan. Must work for them, as they're always either #1 or #2 in the country. So it can work.

My point though, is that the designers of a sales incentive scheme (ideally a team of Sales, Marketing, Finance, IT and HR) need to carefully point their weapons (those employees charged with making the sales)at the right targets. Which means that a laser gets better results than a shotgun.

Because if you reward the wrong activity, you will get more of that activity.

Chuck,

Nice post. I think part of the issue with this post, as I am sue you know, is that in a few paragraphs you can outline an issue and point to solutions, but it is not possible to cure specific problems.

I think what you are saying is that the solutions must be specific to the problem. For some companies a flat pay structure may work, for others the problem may be caused by poor communications. But, in all cases if the compensation programs motivates people to do the wrong thing, the results will be bad.

This is simply true. Of course the sales team needs to be on board. The marketing team should be focusing on the same high-level goals and every stakeholder involved (support, manufacturing, delivery etc.) must be pointed in the same general direction. Unless people know where they are going, and how you expect them to get there they will make guesses and perform in ways that they "feel" are best.

There's the rub, Dan; you can only cover so much ground in a 400 - 700 word post, and when the environment being described is not black & white, or is even contentious to some, you cannot cover all the possibilities.

What I've written about I've experienced, many times over a long career. But a writer's experience and point of view can never cover all the possibilities out there. So we raise a red flag of caution. Some need to see that flag, while others don't. Doesn't mean the point being raised isn't valid.

Only fools think that sales incentive plans are always effective; but people who claim that poorly designed incentive plans are "largely unexamined" are simply peddling a slightly different form of flim-flam. Anyone with any tradecraft knowledge and experience knows that incentives are both powerful and dangerous, because people do what is rewarded, especially if it is good for THEM even when it is not in the best long term interest of the enterprise.

There's an ancient joke about the two problems with incentives: 1. they might not inspire the desired behavior; 2. they do inspire the desired behavior and you end up regretting it. Imperfect incentive plans are nothing new or revolutionary and they cannot be instantly solved by some silly over-simplified generalization. Effective use of reinforcement psychology is more difficult than heart surgery; all hearts are identically constructed, while people are only identical in their unique individuality.

The comments to this entry are closed.