February 26 by Michael Carrell
Cash matters. We can all agree on that. Cash compensation, or variable pay, is a critical component of sales compensation. It enables salespeople to provide for their families, to buy the things that they need to feel secure, and it helps them afford the lifestyle that is socially acceptable to them. Variable compensation (bonuses, commissions, etc.) needs to be fair and competitive to be effective. However, in many industries, cash compensation has become table stakes.
With a deeper understanding of human behavior through areas of study like behavioral economics and social psychology, we have uncovered surprising insights into what truly motivates us in the workplace. Sales incentives are going through an evolutionary shift, transitioning from transactional drivers to emotional drivers, and more organizations are finding they need to update their sales incentives to effectively drive sales behavior.
The Evolution of Sales Incentives
In the Industrial Age, work was manual and straightforward, motivations were forthright, and so was the pay. You put in your time, finished your required work, and collected your paycheck. If you exceeded expectations, you received additional pay. The family’s necessities of food, shelter and security were addressed. Fast-forward to today: the business world is global, fast-paced, and constantly evolving. Basic needs have been commoditized and the work we do is more complex, intellectual and enigmatic, including the role of sales. Solid, competitive pay is dictated by employees, not employers. Organizations are finding that to retain top talent, they need to offer far more than good pay.
A global HR organization recently identified that, although compensation was one of the drivers behind employee engagement, high compensation did not necessarily equal high engagement. Instead, the research showed it was more important to employees to offer a variety of motivating tactics.
Within any given industry, compensation plans are often similar in structure. And many salespeople view their variable compensation as what they are entitled to, based on their performance. It does not necessarily motivate them to put in that extra effort. So how do we leverage the right sales incentives to increase sales performance? This is where applied behavioral science enters the picture to help us better understand, predict and motivate human behavior.
How a Better Understanding of Human Behavior Leads to More Effective Sales Incentives
Charlotte Blank, Chief Behavioral Officer at Maritz, presented on this topic at Apttus Accelerate last year. In her session, she presented research findings based on the work of Paul Lawrence and Nitin Nohria, professors at Harvard Business School and authors of the book, Driven: How Human Nature Shapes Our Choices. Lawrence and Nohria have identified four primary drivers of human behavior.
• Acquire – the desire to acquire rewards of relative value
• Bond – the need to bond, connect and establish relationships with others
• Create – mastery; learning something new; the feeling of making a difference with your work
• Defend – the urge to defend and protect what it yours
Notice these motivators all go well beyond, “I want my paycheck”. Effective sales incentives have become more personal and more emotional. To successfully motivate your salespeople, you need to understand their intrinsic motivators and what their priorities are when it comes to acquiring possessions and status, developing close relationships with others, accessing new information and learning new ideas, as well as their need to protect what they perceive to be “theirs”. Blank explained in her Accelerate session that you want to design sales compensation and incentives for all four of these motivational drivers.
Tangible (cash, prizes, trophies, awards) and intangible rewards (status, recognition, leaderboards)
President’s Clubs, rewards trips/events that give people the opportunity to feel a part of an exclusive group, motivation of socializing with elite/special company
Opportunities for sales training, mentorship, individual goal-setting (possibly MBOs – management by objectives) and rewards for achievement, accelerate communication when people are close to a goal (aka – hitting their quota/target for the quarter) – offer encouragement and recognition
Get salespeople to have “skin in the game”; account/territory “ownership”, upfront/advanced bonus payout (draws) that must be returned if performance/goal is not met
Sales incentive programs of today require a mastery of both art and science, that balance and align individual motivations with organizational goals. Fair, competitive pay is foundational to every sales compensation program. But, to effectively drive sales and increase performance, additional incentives must be put into place that tap into all of these individual motivators.
As organizations across industries grapple with this challenge of updating and evolving sales compensation plans, more effective processes and solutions are required to help successfully rollout and executive these new incentive programs. Sales leaders and compensation managers have their work cut out for them in this new age of sales incentives. To provide the most value and enable the sales organization to be as productive and motivated as possible, the management of sales compensation needs to be nimble, dynamic and proactive. Automated Incentive Compensation Management (ICM) solutions can streamline these processes and better align sales incentives with individual motivations and organizational goals. Thereby saving time, increasing payment accuracy and driving sales performance towards specific business outcomes.