Rethinking Sales Incentives

Recognize This! – Like Years of Service, sales incentives have their place but should not be the sole focus of employee recognition and reward.

One aspect of employee recognition and rewards is sales incentives. It’s the narrowest program type, targeting just the elite of a small sector of employees. But the vast majority of organizations swear by sales incentives and/or a commissioned sales structure as the best approach to generate the most sales for the organization.

During the last year or so, however, there’s been a groundswell of coverage of companies thinking differently about sales incentives.

A few examples:

Esri Founder and President Jack Dangermond (in a New York Times interview):

Q. I read somewhere that your salespeople don’t work on commissions?

A. Correct. I think bonus compensation, commission compensation, robs people of their dignity.  That’s my feeling about it. If you’re doing something just for the money, as opposed to helping a customer, then they don’t quite trust you, and you don’t really feel so good about it.  I feel very good that my staff is helping a customer figure out what’s needed and wanted in their situation, and not just trying to push something. Of course, salesmen are salesmen. They sell things. And we have about 500 of them in the United States alone.  But I don’t like the idea that they’re trying to sell something in order to get a commission.  I’d like them to rather be listening and figure out what really is needed here, and not try to sell them something they don’t need.  And it makes the whole thing more fun.

Red Gate Software Founder Neil Davidson (in a Telegraph article)

“In the early days of the company, Davidson created a fairly straightforward commission scheme. But, of course, salespeople figured out a way to game it – by pushing sales into the time period most advantageous for them, by underselling one month to show a bigger gain the following month, and so on. This wasn’t because they were unethical; it was because they were rational humans responding logically to a particular incentive structure. …

“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.”

What’s the result of the majority of sales incentive programs? Research reported in Harvard Business shows:

“What is troubling about the vast majority of sales force incentives, however, is that they are tied to short-term, individual, results-focused metrics (e.g. monthly territory sales). These metrics can discourage teamwork and distract salespeople from focusing on what is required to develop sustainable customer relationships while driving new business and long-term success. …

“Overreliance on incentives to motivate and manage salespeople no longer works, given the complexities of today’s selling environment. Incentives are at best a partial solution to most of the challenges that sales forces face.”

That’s why, like years of service programs, sales incentives must be part of a complete strategic employee recognition solution that recognizes and rewards all employees for demonstrating the company values in their daily work – while achieving strategic objectives.

Are sales incentives always the wrong approach? No, but there is good reason to think differently about sales incentives beyond the way we’ve always done it.

Derek Irvine

About Derek Irvine

The VP of Client Strategy and Consulting at Globoforce, Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their organizations. As a renowned speaker and co-author of "The Power of Thanks" and "Winning with a Culture of Recognition," he teaches companies how to use recognition to proactively manage company culture. Derek holds a B.Comm and Masters of Business Studies from the Smurfit Graduate Business School at University College Dublin.

4 Responses

  1. […] That’s one of the reasons that the issue of commission-based sales compensation is so critical. If it’s true that paying commissions undermines the trust that your customers might otherwise have in your company and your salespeople (and I believe that it is), then it’s a huge problem. Compensation guru Derek Irvine is just one of the experts who are rethinking the efficacy of sales commissions. […]

  2. […] Sales incentives typically fall in their own protected category, however. Sales commission plans are de rigueur and can be appropriate when applied correctly. Then there are schemes doomed to fail, such as incentive caps. Take this example from Jeff Haden in Inc. magazine: “Incentive caps eventually de-incentivize outstanding performers–or at least limit their overall performance. Say your salespeople are on a 1 percent commission rate for sales up to $500,000 per month. Sales over $500,000 don’t earn a commission. Next month they start over… So what happens? An outstanding salesperson makes sure she goes ever so slightly over $500,000 each month. She could sell more–but what’s the point? If she hits her cap on the 25th, she might decide to hold off trying to close the deal with a hot prospect until the first of the month. Or she might just relax a little and prepare to hit the ground running on the first. […]

  3. […] Sales incentives typically fall in their own protected category, however. Sales commission plans are de rigueur and can be appropriate when applied correctly. Then there are schemes doomed to fail, such as incentive caps. googletag.display('google-ads-tlnt-intra-article'); […]

  4. […] Sales incentives typically fall in their own protected category, however. Sales commission plans are de rigueur and can be appropriate when applied correctly. Then there are schemes doomed to fail, such as incentive caps. Take this example from Jeff Haden inInc. magazine: […]

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