It would seem intuitive to suggest that linking additional rewards to additional outputs would be a win for both stakeholders and shareholders, but is this really the case?
In many organisations the Stakeholders (sales team and sales management) and Shareholder’s views and needs are polar opposites… the former wants the highest rewards for the lowest output, whilst the Shareholders may think that the basic salary should cover the highest outputs.
We should clarify here that we are dealing specifically with the reward schemes for sales teams and not organisations as a whole.
It is the accepted norm within the UK that a sales role will command a good basic salary – a requirement to attract and retain the best sales talent, with an additional incentive scheme that is agreed in return for specific outputs.
Structuring a reward mechanism for the sales team can be tough, not everyone responds to the same motivators, agendas can often be conflicted, the actual results may sometimes take many months to materialise, often it is difficult to measure some of the business drivers that could legitimately make up the sales incentive scheme.
Here is a quick check list of things to consider if you are rethinking your sales commission structure:
What are the business needs?
The sales team targets and the business targets have to be congruent and in sync. If the business aims to have 1000 new clients by 2014, then targeting and rewarding the sales team on GP alone may not get you where you need to be. Likewise some of the best sales incentive schemes have many layered targets, over short and long-term, individual and team goals as well as overall business performance and share price. The more tied the business and sales goals are the better the sales reward scheme will work…for everyone.
Are the drivers in the sales rewards scheme within the control of the sales team?
Making the sales team accountable for operating profit may seem a good idea. It rarely is. A great sales person in a well run, efficient organisation is in a win-win with the company. In many organisations, penalising or rewarding the sales team for things they have no control over is counter-intuitive and can be highly de-motivational. However, there is a fine line and this will be different depending on the nature of the sale, the product or service and the nature of the market, and the sales cycle…but consider the value of including or excluding the following from the sales commission plan: recurring business, complaints, debtor days, refunds…all elements that will be part of the organisations goals but may or may not always be within the control of the sales person.
How are the drivers in the sales incentive scheme to be measured?
It must be relatively easy to measure the drivers else they will be poor sales drivers. Along with being within the control of the sales team the sales drivers should also be transparent, clear, consistent and certain. Again, using some complicated formula that only the MI Team or Accounts can calculate three months hence will not be an effective sales driver.
Is money the best motivator?
The aim of a sales incentive scheme is not just to reward the sales staff. It is predominantly there to ensure the organisation hits its targets. Couple this with the fact that people are not all motivated to the same extent or by the same thing. Depending on circumstances, a new job title, greater freedom, increased time off or additional special project work may well carry a greater incentive than an additional monetary reward.
Is it just about results or is effort important too?
It is always about results. Always.
However, you should always measure effort. When the results aren’t as expected start drilling the effort stats before buying into ‘it’s a tough market’ or ‘our competitors are selling cheap’. Many a sales manager has shot themselves in the foot by buying into, and repeating, these stories.
Should the sales incentive scheme be linked to profits or share price?
Contentious topic – undoubtedly the sales team has a part to play in maximising profits and maintaining/building share price, but to a degree some of the factors that impact on operating profit and share price are out of their control…and will always remain so. Apply with care on this one. Of course, if the sales team are rewarded in part with company shares then they have a vested interest…
Applying the numbers – do you give the sales teams stretch targets before the sales bonus structure kicks in?
Personally I have always been against commission structures that are activated immediately anything is billed, much preferring the sales incentive model that start once a minimum financial threshold has been hit. With this in mind, I am always wary of peaks and troughs in sales performance as this may indicate orders are being held back in a month where the minimum target is unlikely to be hit. Likewise, I am keen to look at setting targets for maintaining minimum rolling averages, as this can prevent the peaks and troughs to some degree.
Frequency? How soon should the commission be paid? Should some commission be paid quarterly, half-yearly, yearly in line with company objectives, or should it all be paid monthly, one month in arrears?
Uncapped or capped? Do you want your commission structure and sales reward mechanism to give the sales team unlimited earnings or do you want to cap it at a certain point? Both schemes will have their place depending on the nature of the sale and the ongoing relationship with the customer.
Team or individual Reward? To what extent should someone’s reward be positively or negatively influenced by the outputs of another? Also consider that sometimes peer pressure is a huge motivator, making team targets worth considering.
What are you rewarding? Is it new business development or account management or renewals or a combination of all three? Consider where the emphasis is. If the commission paid for new business is signifigantly higher than any other commission payments attached to other outputs, then expect the effort to be focussed in new business development. Obviously, you may want this…simply use the sales rewards structure to drive the behaviours and sales focus you need.
Flexible? Give yourself the option to be flexible on the reward structure. Just as business needs change depending on what is happening in the marketplace and perhaps the share price, behaviours and outputs may also need to change…build this proviso into the commission plan, but remember to be honourable. It is a poor manager that changes the commission structure just to avoid paying commissions.
Paying a huge sales commission bill should be the aim of any company, by default it means that the sales team are performing in line with company objectives and the bigger the cheque the higher the performance levels….if the sales reward scheme and commission structure has been designed correctly. Obviously paying a huge commission payment where the business isn’t winning too, is an indicator that the commission structure is failing your business.
For more information about how to structure your commission plans to generate sales, drive desired sales behaviours and motivate the sales team, please call for a confidential chat.
Carol Griffiths – Lead Consultant and Director
Morton Kyle Limited
0779 002 1885