Where’s the incentive?

Nick Pearson investigates how windfalls can rouse moneymaking performances.

There are very few companies in today's ultra-competitive marketplace that do not offer their staff some kind of performance-based bonus scheme, with the intention of motivating them to achieve the planned objectives and more.

From the somewhat arbitrary '13th cheque' right through to the most sophisticated and often mind-numbingly complex programs, companies are seeking to reward their people with something more than just base salary.

Incentives can be particularly effective for the sales force and can mitigate the fact that most of the time these key staff are working 'unsupervised', often even hundreds of kilometres from the head office.

Performance-based pay is particularly suitable for sales people since their output is easy to measure, whether the parameter is volume or value sales orders, new customer acquisition or increased distribution.

The sales force drives top line performance and the typical salesman or sales manager is goal-oriented and target-driven meaning that they respond well to the opportunity to earn extra benefits by achieving their objectives.

Yet some companies fail to realise the potential benefits offered by a sales incentive scheme because they create programs not aligned with the overall business strategy, and in certain cases reward the very behaviour leading to the business objectives not being achieved.

From the very beginning, the incentive program must be well thought-out and sufficient time should be spent planning, including taking input from interested stakeholders.

When we work with clients on their Sales incentive programs, we use a simple but effective approach we call the 3Cs Framework to check that the scheme is in line with the overall objectives of the business.

• CONSISTENCY with the overall business and customer strategies, the route to market sales process and the sales force role profiles.

• COMPATIBILITY with HR processes including the annual performance review, the recruitment and development approach as well as the overall culture in the business.

• CONSEQUENCES of the scheme which should produce the desired outcomes in terms of the impact on the company and its customers, the behaviours it drives and the activities which the sales force undertakes.

A good place to begin is to define the objectives of the scheme and to choose the most appropriate format. The following checklist is a useful framework for defining the key elements to be considered:

• Is the primary role of the sales force purely selling or is there a strong element of relationship building involved?

• Do you want to reward just results or are ‘activities' also important?

• Will the bonus or commission be paid on all sales made or only when the target or goals have been reached?

• Will the program cover all products and customers or a selected number?

• Is the scheme progressive or regressive? Will earnings potential be capped or uncapped?

In deciding the precise make-up of the incentive scheme or when considering making changes to an existing program, there are a number of ‘watch-outs' to be avoided:

• Be careful not to diagnose every sales problem as a problem with the incentive program.

• Get the ratio of the earnings potential for top performers compared to the average right - these people are your ‘stars' and the scheme must motivate them and keep them loyal to the company.

• Ensure that the variable pay element does not become seen as part of the regular salary. This is achieved by keeping targets stretching enough. However, targets must be achievable or people will become de-motivated.

• Keep it simple. Ideally the scheme should contain three to four metrics to ensure it is focused on the key drivers and that the sales team can understand how it works.

• Implementation is as important as design, and should not be neglected.

• Communication is critical to success; people must be kept up to date with their progress and results and payments earned should be provided soon after the results are achieved.

Nick Pearson is managing director of Pearson Consulting. E-mail: This email address is being protected from spam bots, you need Javascript enabled to view it . The company has launched its new website www.beyondsaleseffectiveness.com.

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