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Sales motivation and Compensation Planning

Guest post by: Tom Miller

Article Overview: Performance based compensation works very well as a means of motivating sales people. Sales people who are paid commission, tend to be guided by their compensation plan. Read this before you redesign your sales compensation plan.

Sales motivation and Compensation Planning

There is no 'I' in 'team' and there is no ‘we' in ‘sales'. Performance based compensation works very well as a means of motivating sales people. There are other ways although few understand them and among those who do, even fewer consider these other ways to be a practical alternative. It's not surprising that sales people are often mercenary in there decision making. Especially if that is what their compensation plan promotes. This shouldn't be a problem if a sales person's job is largely solitary and his or her duties can be carried out without much assistance from others. There are a number of circumstances that require a team orientated approach where success is hindered by a sales person's otherwise laudable single minded pursuit of success.

Customers don't organise themselves to suit their suppliers. Invariably, those with more than one office, straddle any geographic sales territory assignments. A common solution is to assign accounts according to the location of the head office. Once again, customers don't locate their centres of operation to fit the travel needs of their assigned sales person. Efficiency would be served if the local sales person looked after customer offices in his or her area. This idea breaks down when sales people can't agree on how the commission should be split. Even when they do agree, all parties then tend to favour other business where they receive 100% credit and the customer, who is subject of the split, is neglected.

Sales people can easily be perceived as self centred or self serving and entirely focused on money. If you have carried a sales target, you will know that missing it by too much or too often puts your job in jeopardy. Few in any role are prepared to risk sacrificing their job in order to be seen as a team player.

Another approach is to associate sales people with their accounts instead of geography. Applying intelligence to account assignment allows for optimising efficiency. This usually means everyone having very different sales targets because it is difficult to divide up accounts for locality and then balance the value of expected business to align sales targets. When you add to this the need to take into account each sales persons specialisation or expertise, the task of intelligent account assignment becomes overwhelmingly difficult.

Allowing a free for all in which whoever finds an opportunity and wins the sale, owns the account is an approach favoured by smaller organisations. Apart from encouraging sales people to be seduced by far away opportunities and lured into supporting customers hundreds of miles away, this leads to the best sales people retaining the choicest accounts and then resting on the ongoing revenue.

Success in selling means achieving a target month in and month out or quarter by quarter, however it is measured. Forgive the cliché for it is appropriate, sales people are only as good as their last result. Past success is quickly forgotten, pushed aside by the ever pressing need to keep business flowing.

Those companies who sell through partners and direct to end users, in the same territory, invite conflict. Even when a sale through a partner affords the same credit in terms of target contribution and commission, many direct sales people will still prefer to take the business themselves. Being seen to bring home the essential sustenance is an important motivator.

Paying commission to more than one sales person for the same business seems a reasonable alternative to the law of the jungle. Providing that it is accounted for in the budgeting process and every one puts the spirit of cooperation first, this approach can reduce conflict between teams. On the down side, it is an accountant's nightmare and it offers less effective sales people places to hide where they can be seen to achieve target without comparable contribution.

Sales managers should sort it out. That's what they are paid for and it certainly forms a significant part of a sales manager's role. Disharmony uses up great gouts of energy that should be used to secure more business. Since sales managers also have targets and performance based compensation, circumstances can lead to rifts between managers of different territories, all the way up to country level.

Sales executives and managers are usually in their positions because they are competitive people who strive for success. They are paid for results and so sales results become a measure of success or even self worth. The money is just the score card.

Yet there hangs just out of reach, the teamwork dividend. We all know that a team of people who pull together can achieve great things, way beyond their combined weight.

A solution may be found in self led teams where compensation is based on the team result. There are many examples of companies achieving great efficiency improvements with self led teams in functions other than sales. Read Tom peters or Loren Ankarlow for case studies.

Can it work for sales people? As a sales manager at SGI, I experimented with two teams to reduce the management burden of too many direct reports. Two experimental self led teams delivered outstanding results, with an average per person performance against target above every other sales person in my team.

Within the teams, contribution wasn't even and relationships suffered from the usual frictions yet the experiment delivered better results than any other individual or group within my sphere of responsibility.

Earlier personal experience underpins this result. In my first sales role, commission wasn't part of the package. Instead, everyone in the company received a bonus based on the overall result. The amount was a percentage of salary. It was a great environment to work in. At the end of each month, when we needed to get products out of the door, instead of going home, sales people would join the warehouse staff to pick and pack, working late into the evening under the direction of the warehouse manager.

Non fiscal extrinsic motivation can come from peer pressure, camaraderie, competition, and expectation. Intrinsic motivation depends on having passion for the work and abilities to match. Managers who understand motivation can increase job satisfaction and enjoyment for sales people. It entails taking the time to understand and having the latitude to do the right things for the individual.

Teams, who are inspired by their goal, work better. People who have the trust of their management tend to do well. Self organisation opens up all sorts of opportunities for efficiency gains. Managers who relinquish control can get outstanding results, if they have the right people doing the right jobs.

Here is a radical suggestion. Have a sales team set their own compensation plan. Give them the same constraints the managers have. See what they come up with. Listen to their proposal. Try it out. It's a bit scary to rip up the rule book, to discard the old truths and write some new ones. It takes your breath away. It's seems high risk yet, as Mario Andretti of F1 and Daytona fame said, "If everything seems under control, you're just not going fast enough."

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Article Tags: commission, managing sales, sales compensation, sales management



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