‘Rethinking Sales Incentives’ was voted as the Number 8 Sales Trends for 2011. Incentive programs, commissions and bonuses have been synonymous with sales teams for at least the last 50 years. However throwing more money at sales teams to perform better, especially in these more complex and creative times may be a thing of the past.
While the ‘carrot and stick’ approach has been reasonably successful for most sales teams in the twentieth century, especially when sales people were simply selling product, scientific research is showing if you want smart thinking sales people this approach is no longer viable. If we are to have sales people who can navigate ambiguous markets, create new opportunities, forge new partnerships, and sell real value, then our traditional incentive programs are often the wrong way to motivate people for today’s challenges. Yet external rewards such as bonuses, commissions or incentives are still strong features in sales management forums.
In 2011, more and more companies will be enlisting new approaches to motivation, rethinking how they incentivise and reward their sales teams both intrinsically and extrinsically.
For many years it has been believed that sales people are only motivated to sell if they have strong financial incentives to do so. For a number of sales people this may certainly be the case, however, it would be a false to assume that this is the case for all sales people. Another false assumption is that the more you incentivise someone the better they will perform. Science is turning the business world upside down, challenging ‘norms’ and long held beliefs about what motivates and drives people.
As the world, and with it the business world, becomes more complex, it will be harder and harder to determine who did what and who deserves what because many tasks are no longer simple transactions. With selling becoming less transactional and relying more heavily on teams rather than a lone sales person to bring in the deals the compensation issue is becoming more complex.
Who deserves what? How much should they be paid? Many companies spend hundreds if not thousands of hours going around in circles trying to work out what is fair and reasonable. And to no avail. This perplexing issue could have a more simple solution, although some people may not like it.
According to the latest research synthesized by Daniel Pink in his latest bestselling book, Drive: The surprising truth about what motivates us, the best use of money as a form of compensation is to take the issue of money off the table.
His book highlights what scientists have known for some time now:
‘The more prominent salary, perks, and benefits are in someone’s work life, the more they can inhibit creativity and unravel performance. As Edward Deci explained when organisations use rewards like money to motivate staff, “that’s when they’re most demotivating.” The better strategy is to get compensation right – and then get it out of sight. Effective organisations compensate people in amounts and in ways that allow individuals to mostly forget about compensation and instead focus on the work itself.’
I know this may be heresy to sales people, teams and sales leaders, because for so long big commissions and bonuses have gone hand in hand with sales teams. Well, maybe this could be a thing of the past.
What the scientific research is showing is that ‘for simple routine tasks which aren’t very interesting and don’t demand much creative thinking, rewards can provide a small motivational booster shot without harmful side effects.’ In short if you want people to, for instance, stack boxes more quickly, offer a bonus to those who stack the most in the shortest space of time and to the standard you want. As long as the task is simple and mechanical in nature, bonuses work to lift performance.
However if the task or situation involves even rudimentary cognitive skill i.e. you have to come up with ideas or solutions, possibilities or plans, then a larger reward leads to poorer performance.
With transactional selling going the way of the internet leaving most sales people out of the equation, the rest of selling now requires the need to deal with complex solutions, consultation, problem solving and prevention, creativity and collaboration. All of these tasks require cognition. Our brains need to work, think, sort stuff out, create options and so on.
Another key finding from Pink’s book that throws cold water on the money motivator is that most people are not motivated by money at all. Yes, you need to take money off the table, so it’s not a day to day issue, and pay the right amount from the beginning, and instead focus on fostering and developing the following ideals in your business and your people. Then you will find lifts in performance that are far more significant. The three elements of true motivation are:
Autonomy – the desire to direct our own lives
Mastery – the urge to get better and better at something that matters
Purpose – the yearning to do what we do in the service of something larger than ourselves.
If you would like to explore this further I would suggest you get a taste for it by viewing this 10 minute video by Daniel Pink which is a very good summary of the topic at hand.
So what does this really mean for sales teams? Well, it all depends on what you sell, how you sell it, how you run your sales business and what you want your sales people to do:
- If you are in simple transactional sales where your sales people do not really need to think in any complex way then maybe you can continue with your current bonus or commission schemes
- If your sales culture is more complex or is more of a lead team approach then you may need to rethink the way you reward people
One client of ours in the world of new home sales has taken the radical move to pay its sales people a far more substantial base salary to take money off the table. Instead of sales people panicking about where their dollar will come from and how they will afford to feed their family this week, they want their sales people to focus more readily on better quality sales efforts rather than the mental churn and burn often seen in this industry. It is early days and the transition will be interesting. However, in their endeavour to bring about better standards of professional selling in an industry known for its ‘cowboy’ culture, changing the way they remunerate their staff along with continued professional development such as coaching, combined with a committed leadership will see them prosper. If they can stand steady and hold their own in the face of challenges I have no doubt they will see the fruits of their labour and out perform their competition in the long run. And isn’t that the irony, when we remove these financial incentives we will get better performance.
An example of a company who have already taken this on board and making it work is Australian company Atlassian.
It’s a brave new world for sure.
Remember everybody lives by selling something.