The Game of Incentives

The Lead - The Game of Incentives

I was talking to a friend this week and we stumbled onto the philosophy behind sales compensation. It’s a critical, yet often overlooked component of a sales organization. I think there are a few reasons for that, which I’ll get into. But let’s set the stage first.

Motivation

The first piece we need to understand is how sales people are motivated. Now there are some humble beings out there who will say things like “I’m not motivated by money”. Most of those people are not sales people. But let’s pretend for a second there’s a sales person out there who says they aren’t motivated by money.

Even if the thing itself isn’t motivating, the reality is that inherently sales is about numbers and a scoreboard. As I’ve written about previously, we get rejected, told no, ignored just about every day. No one is in the game because they enjoy that.

The beauty of sales is that if you can survive the minefield of rejection and pressure, the reward is freedom, flexibility, and in many ways a feeling of controlling your own destiny. Part of that is income. And so the compensation a sales person receives, is a critical piece of the motivation equation. Hopefully we can all agree on that.

The Problem

I’ve worked in and with enough organizations to tell you that more times than not, companies don’t get this right. There are several reasons it happens, and most of them are unintentional. But when compensation isn’t properly aligned, we shouldn’t be surprised when we don’t get the outcomes we want.

Rather than laying out all the pitfalls, I’ll boil it down to one basic issue. Organizations create compensation plans that work for them, but don’t necessarily create the same win for their sales team. I don’t mean to say that we should only experience growth at great cost to the organization. More simply put, we should think abundantly about how we can achieve our goals as an organization while rewarding those doing the hard work of making it happen. We ought to offer compensation that will not only reward our sales team well, but also retain them long term.

Principles of a Good Plan

I could list out all the “don’t”s but I’d rather focus on what you should do. So here are the principles I believe are universal to a well structured compensation plan, which by the way will illustrate what you shouldn’t do!

• Clear - Simple but can’t be overstated. If your comp plan is hard to follow or understand, it’s a huge miss. How can your sales person feel motivated if they don’t understand what they’re working towards? This should be straight forward. Your sales person shouldn’t have to wonder what they should expect on a paycheck. From experience I can tell you that complicated structures only breed frsutration and confusion.
• Realistic - While it may be attractive to tell a prospective hire that they can bring home a huge paycheck if they hit all their numbers, you’re shooting yourself in the foot. As soon as that sales person realizes it’ll be near impossible to hit the goal, motivation goes out the window. Take a look at what your organization has done historically. Maybe even what a past contributor did, and factor in ramp time. It’s ok to aim higher, but be fair to the person coming in and understand that it’s their livelihood.
• Rewards the Exceptional - Probably a better header but here’s what I’m saying. Your plan should appropriately reward results that exceed expectation. If the monthly goal is to close 10 doors, offer additional comp for when that gets exceeded. That will keep motivation going beyond the baseline. Absence of this, and you can expect your sales person to check out or maybe even intentionally push deals to the next month.
• Aligned to Expectations - This is likely the trickiest one. Here’s the reality - sales is the frontline for building relationships in your company. They make the first impression. But a successful relationship for most companies, is a long term one. In property management, we aren’t selling a widget. We aren’t closing a deal and walking away. If the handoff isn’t done well, we risk churning a new client quickly and expensively I might add. So don’t compensate your sales person like you would the widget sales person. Tie compensation to bringing on the right clients, in the right way. The risk is ending up with a lot of bad fit clients, with poor expectations. You need guardrails.

I could probably write a lot more on this topic, but hopefully these bullet points are a good summary. I’ll leave you with one final thought.

The quickest way to run off a high performer, is to get stingy with comp. I’ve watched this happen first hand. If your plan is confusing, it’s not motivating. If you’re trying to save a buck here and there by withholding comp for things that weren’t orginally agreed to, your sales person will leave. If you’re lucky they’ll find a new role. If you’re unlucky, they’ll do just enough to skate by without being noticed.

Sales is hard. If it was easy, everyone would do it. We’re willing to make ourselves uncomfortable because of the rewards.