Several months ago I posted about Daniel Pink’s Drive. His assertion is that ‘creative’ employees and roles are better linked to non-monetary incentives once a base level of remuneration is reached and achieved.
Compensating employees that are wholly, or more likely partly, commission or bonus-based is still a matter of much argument. Pink’s synopsis of years of research into the subject suggests most companies have it wrong. In fact, whole companies and systems exist to figure out how to calculate the variable portion of employees’ pays.
Others just make do with Excel.
However, fact is, most salespeople are still placed in a stick and carrot setting.
- Most are paid a commission based on either a goal of total revenue or profit margins. These are simple and based on desirable revenues and associated profits. The net earnings may be an explicit target. The notion is that the salesperson applies maximum pressure to customers to obtain the highest price available for goods or services in order to maximize revenue and profit.
- Companies have resorted to making gross profit the top incentive for salespersons in order to ensure the salesperson does not overly discount. The downside of such an approach is that salespersons might avoid engaging in sales that earn them little money, even though their employing company might actually need the revenue and cash flow at that time.
- Other incentive planners have resorted to creating tasks and challenges for the salesperson to achieve. These, typically, are accorded to more specialized sales functions such as marketing including telemarketing or technical pre-sales. Quota may revolve around number of calls, number of leads in the funnel, number of demos or customer visits and even customer feedback and satisfaction based on surveys. Negatively, such plans might indicate to the salesperson that once the target is attained further gains are nominal or not essential.
- From a salesperson’s perspective it is critical that the goals be explicit, simple and comprehensible. Capping a compensation plan might also allow for better budgeting, but is counterproductive given the penchant for work to slow down once 100% of goal – and payout – is attained. Companies and managers should also be mindful of creating convoluted and multi-pronged compensation plans that may not be easily, or at all, understood.
Like any relationship both sides win when both sides are satisfied. Management needs to consider the perspective of the employee before creating and operationalizing a plan.