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Let The Force Be With Sales: Incentives That Truly Work

Best incentives schemes are those that are announced much in advance in an elaborate manner, it should have a reasonable lead time before they are applied and implemented

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It was a grand award night, few well established companies and others a startup were almost swooning over their respective trophies. But the year was fair to them who made it big on the dais today. Few CEOs and Chairmen even managed to lap up the microphone just in time to thank their marketing, sales, communications, finance teams et al. The fanfare was a treat to watch. And out of all the paparazzi moments, I gathered sales teams as usual stood much ahead than the rest in garnering attention. Sounds unfair? Well, not if they are one of the primary growth factors in a company's revenue.

Sales force is critical to an organisation as they are the face of the organisation and represent the brand to the channel or directly to the customers. They are the ones who would also take the flak for failures or let's say constructive feedback of a product or service, not always showered with accolades. Motivating them through right type of incentive scheme is crucial to benefit the performance in terms of both revenue and profit of the organisation.

Incentivising for employees is a complex process. Incentives have to be linked to performance and parallel to this must also be fair, transparent, motivate to perform, achieve and rather over achieve. It is often observed that number of companies create incentive systems in a uniform structure i.e. same for all employees of all functions for the sake of simplicity or faster execution. While simplicity of schemes and ease of execution is important, they must be different for dissimilar functions and roles employees play due to the nature and expectations of a job. There is no fix way of determining incentives yet still be a way that they are guided well before conceptualised.

Sales force compensation has long been guided by the principal-agent theory. This premise of economics explains the conflict or dilemma that occurs when one person or entity (the agent) making decisions on behalf of, or that impacts another person or entity (the principal). The system has been chosen as it permits an easy way to measure short term output. As it is challenging to supervise or monitor the sales force on fields, the principal-agent economics played by incentives allows managers some control over their performance. As studies show that sales people are more risk friendly or less risk averse, such schemes tend to attract them and push the envelope.

There are times the incentives tend to get over or underplayed. Few very easy to notice errors in such incentive systems I made diligent notes of while leading HR functions of high flying organisations are attempted to be spelt out here.

Even if there are incentives meant to reward employees in the 'Sales' function, the incentives systems must not hold a blanket approach. They will have to be different as per an industry or as per a role to motivate employees the right way to perform better. For example, incentive schemes will have to be different for fast moving goods vis-à-vis heavy commercial or industrial products which take years to sell, like an Aircraft. Similarly incentives even within same industry or company must differ, for example, incentives for B2C sales personnel will have to be different in comparison with a B2B sales employee. Incentives for selling of industrial products will have to be different as compared to that of a retail or distribution product. The approach must be similar to one making a sandwich with one's own chosen ingredients and not opt for a sandwich with universal ingredients that without eager takers has greater chances of going stale.  The latter takes place too often wasting precious resources.

Companies must not award people for their sheer luck. I have not been able to appreciate much the practice of managers or leaders often keeping targets of sales teams very high, almost unreasonable, to aim for higher incentives. At times a sales person is in a tough territory and has to work very hard to get his share of incentives whereas some of his colleagues in easier territories get their share rather easily. When I say tough, it obviously means not the perspective but the market realities of demand forces and competition as per demographic play. There is always this element of an unexpected happening in the market a sales person is expected to be prepared with. A new retailer's opening in his immediate region or ceiling or shifting of marketplaces meant for distribution or some retailers shifting brand loyalties or shutting down. The sales persons failing to perform due to sheer bad timing or luck is not a skill problem and if considered one, they leave jobs, the company losing out on potential talent. The target fixing must be done as per market potential, likely growth of market, economy growth and other external factors.

If a company caps the incentives, they are also limiting the number of feathers in their cap. It is observed that a ceiling on incentives does not help an employee go beyond a point, he may hold immense potential to bring in more sales but the practice of rationing incentives can play a spoil sport, it may not deliver the promise of true motivation and may put a bar on higher performance. I experienced the belief of 'unexpected performances should be rewarded unexpectedly' philosophy working positively on psyche of the sales force. As per my personal experience companies sell more when they eliminate thresholds where salespersons' marginal incentives are reduced.

Another common practice prevalent in the industry is of ratcheting quotas i.e. raising sales person's targets without logic if he or she exceeded it the previous year.  It can be a good gimmick for starting spinoffs or SBUs of companies as it boost up sales instantly but over the next few years it may prove counterproductive rather even deteriorating for a company as an employer brand, latter can be easily considered a worse form of HR intervention. If the sales teams are in a position to achieve higher targets than the previous years, they may have by now already found a liking to lower their sales keeping in mind the incentive they may be rewarded with so that the consecutive year their targets mustn't become unachievable. Basically a dishonest way or mildly put an unfair means of doing business. Ratcheting targets does not help in achieving the overall purpose of the scheme. Similarly unachievable targets can either result in a sales person turning into a laggard, slowing down his efforts to achieve or may create greedy monsters waiting for the next possible opportunity to gulp down their share of higher incentives compromising quality of service delivery. World across the bank scams have found the mentions in media for the notoriety of such sale spiels to its customers, accounts opened at pretext of after sales freebies or fancy schemes only to create huge losses for  the banks in the longer run owing no real transactions.

Yet another very usual incentive related practice in most of the companies is that these rewards are run across all functions during the same time, same tenure and same structure (of percentages or cut offs). These days uniformity is clearly not a trend. These incentives are paid out either quarterly, half yearly or annually. This may act as a dampener for remarkable performers and the schemes will lose its charm and essence if they are deferred. For average or below average performers this can still be a better trade off, they may get the time to catch up on delivering their best. I remember how I helped a sales person chase numbers, he could not accomplish a target of selling 1000 refrigerators in a quarter and as per the cumulative quarterly bonus scheme I introduced, his quarterly targets rolled on to the next to help fill the missing numbers. The sales person improved his efforts gradually over the period of time and his short term focus improved his overall performance in the long run, holistically benefitting the company.

As it is understood, motivational factors for different persons are different, so best schemes will be those that are customised as per people's acumen and personality traits. But it is also known, this is not so practical to follow and execute. It may create huge comparisons leading to dissatisfaction amongst the sales force as some may even consider the incentive schemes of the other group to be easier, hence compromising the effectiveness of the scheme.

Best incentives schemes are those that are announced much in advance in an elaborate manner, it should have a reasonable lead time before they are applied and implemented. This will enable the sales force to gain clarity as to what efforts they must put in to achieve certain levels of reward. It may sound like a simple thing, a mere common sense thing but often over-sighted or not communicated well. So even if targets are set high, they must have logic behind and must seem achievable by the sales team. The scheme must be simple, transparent, and rational. The scheme must have both mind and heart of sales people involved so that they can use the same wisely.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Dr Yasho V Verma

Dr Yasho V Verma is a Management Thinker & Philosopher, a Mentor and a Strategy Consultant, an Academician and a Veteran in consumer durables and retail. He was formerly associated with LG Electronics as its COO and Director. Currently he is consulting with World Bank. He is also a member on Board of Dena Bank and an advisor to Videocon. Besides, he is in the board of few other business houses across various industry verticals and consults them on plans and policies.

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