What’s the best way to compensate and motivate your sales team?
Whether you’re a manager or a sales professional yourself, I’ll bet you have some thoughts on the matter.
This month’s Harvard Business Review offers up a fresh take that I wish I could’ve benefited from when I first started out.
That was thirty years ago in Ireland selling financial products and services. Back then we didn’t have social media or marketing databases, so we literally took to the streets to generate leads. We would stop busy shoppers on Dublin’s famous Grafton Street, commuters going to work, or anyone who would agree to an appointment. The pressure was intense. I was far away from home and paid solely on commission. I needed to make some sales if I was going to survive.
Today, as the Senior VP guiding the global IT education sales-force for CompTIA, the largest trade association for the IT industry, I am driven to find the best way to compensate my sales teams. Because I am passionate about our training and certification products I want to inspire my team in the best way possible. Strict commission is not the only way.
Employers use commission based remuneration primarily for three reasons: First, it’s easy to measure the output of a salesperson, unlike that of most other workers. Second, field sales people work with little if any supervision; commission-based pay gives managers some control, making up for their inability to know if a rep is actually visiting clients or playing golf. (Being an avid golfer myself I believe there is nothing wrong with the occasional round of golf with a client, it’s where a lot of deals are done!) Third, studies of personality type show that salespeople typically have a larger appetite for risk than other workers, so, a pay plan that offers upside potential appeals to them.
In some organizations, a salespersons total remuneration package consists of a salary, commissions, quarterly bonuses (based on hitting quotas), additional yearly bonus and an “over-achievement” commission that kicked in once they passed certain sales goals. Questions have always been asked of timing games: Was there evidence that salespeople were pushing or pulling sales from one quarter to another to help them hit their quotas and earn incentive pay? It’s a very interesting dilemma and although I have witnessed examples of this throughout my career, it is more the exception that the norm. Everyone in sales will recognize how difficult it really is to “sandbag” a deal.
So, it’s no surprise, after 30 years experiencing numerous sales compensation plans across various markets and as we are always looking at ways to improve our systems here at CompTIA, I was extremely interested to read Harvard professor Doug J Chung’s article “How to really motivate sale people”.
He calls for a simplified pay system with multiple components such as quarterly performance bonuses and overachievement bonuses geared to keep high performers, low performers, and average performers motivated and engaged throughout the year.
He also urges companies to consider experimenting with their pay systems. There are important lessons to be learned from doing controlled experiments on remuneration for sales people, because the behaviors encouraged by changes in incentives can exert a large influence on an organization’s revenue, and because sales force compensation is a large cost that should be managed as efficiently as possible.
Compensation studies and their results also help the world at large, because research that improves how companies motivate salespeople will result in better and more-profitable businesses for employees and shareholders.