Do Incentives Work For Sales Team Performance?

Sales Team Performance

On a farm you’ll find water troughs, each with a ball cock that floats on the surface of the water and opens or closes the tap to control the flow of water into the trough. A well-functioning ball cock always sits exactly at water level.

Salespeople – in fact all employees – often work the same way. They observe what is allowed within the organisation and what gets encouraged or discouraged in some way and they adjust their performance to sit exactly at that level which benefits themselves most and escapes unpleasant consequences.

Numerous studies have shown that ‘compensation control’ (using compensation to control outcomes – sometimes called ‘carrot and stick’) is not a useful predictor of sales team performance or results. In fact, as other studies have shown, once a person has earned sufficient money to cover the essentials of a safe and healthy life he is minimally influenced by additional pay.

In an ideal world, each member of your sales team would come to work fully inspired and work hard to produce the maximum possible results and ask for nothing more than sufficient income to meet the basic needs of themselves and their loved ones. They’d work ‘for love’. Reality is different, and so sales managers turn to incentives.

Incentives

How many times have you heard an incentive announcement and immediately thought, Well we all know who’s going to win that competition!

At the start of the incentive period, the company might as well hand out the prize to the salesperson who has won the last three competitions because he or she usually takes it anyway, perhaps without even breaking a sweat. That way the company could pretend they’re managing performance and avoid all the unintended negative consequences of incentives.

There is plenty of evidence that tangible incentives, at best, have a momentary influence on sales team performance. In fact, they often have a negative effect on longer term performance and, in turn, on results.

For most people, unlike the fictional characters Scrooge McDuck and Smaug, money has little value until you spend it. It’s not the money that motivates a salesperson; it’s what the salesperson decides to spend it on that may inspire higher performance. And if the sales manager pre-determines how the money will be spent by offering a gold pen or a Fiji holiday, only those who actually feel the need or want of a pen or holiday will possibly be engaged.

Incentives also communicate a message that is damaging to sales team performance: results are all that matters. It doesn’t matter how you get them, just get them! Is that what we want our salespeople to hear? That message also attempts to negate the significant influence of those factors in sales results that are completely beyond the salesperson’s control (such as economic conditions, the weather, or traffic jams). As a result, salespeople sense injustice and their engagement plummets.

 

The Peter Principle

When the incentive is a promotion or other advancement, the message is, if you’re a good salesperson you’ll automatically be an acceptable sales manager. The Peter Principle (Laurence J. Peter, 1969) occurs when the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. Thus, employees only stop being promoted once they can no longer perform effectively, and ‘managers rise to the level of their incompetence’.

The Peter Principle suggests that ‘in time, every post tends to be occupied by an employee who is incompetent to carry out assigned duties’ and that ‘work is accomplished by those employees who have not yet reached their level of incompetence’.

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Key Sales Manager Functions

It is well proven that if a sales manager invests time and money in just a few key functions, which together form the core of her responsibilities as a sales manager, she would not only know more about her sales team’s true performance capability, but also directly and positively influence a significant and sustainable increase in sales results.

 

“The major incentives to productivity and efficiency are social and moral rather than financial.”

Peter Drucker

These key sales manager functions, which should account for 80% of a sales manager’s time and energy, will improve team engagement, decrease staff turnover, and improve your sales team performance:

 

• Learn to coach* your team

 

• Invest in effective skills training for the team (avoid corporate training ‘fluff’)

 

• Facilitate in-office simulations and review sessions of selling skills and knowledge

 

• Do regular joint calls on prospects and customers with salespeople (in a support role as a sales coach not as a micro-manager) to observe actual performance and improve performance in future calls.

 

• Provide the performance-based (behavioural) tools that enable salespeople to manage their ongoing professional development.

 

• Ensure your sales team is resilient and will flourish despite setbacks.

 

• If offering incentives, get feedback from your team on what would be of value to them and make sure the targets are achievable.

Sales managers have the right to know what their salespeople are doing and a responsibility to know how well they’re doing the correct things. Only then can they be effective.

Sales managers’ job descriptions need to emphasise, reward, and recognise the right sales management performance, as well as focusing less on sales results, which only come as a consequence of performance.

*Observe a salesperson’s actual behaviour with customers, evaluating performance (as much as or more than results), providing performance feedback, and coaching to high performance in the right behaviours.

Sources:

http://www.medicaldaily.com/higher-income-life-satisfaction-key-happiness-377599; Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction, Christopher J. Boyce1, Gordon D.A. Brown1, and Simon C. Moore, 2 1 Department of Psychology, University of Warwick, and 2 School of Dentistry, Cardiff University. Pub.: Assoc. for Psychological Science, 2010; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3183267/; http://positivepsychology.org.uk/the-contribution-of-income-to-our-subjective-well-being/