Much has been written over decades on how to compensate sales people to achieve optimal results. The answers are all over the map. Daniel Pink’s best seller, Drive, advocated for intrinsic rewards not extrinsic, such as incentive pay. Those who like that idea jumped on his research and position. Trouble is, it is wrong in fact and by observation.
To be clear, it is wrong for most companies, except when it isn’t. Huh?
Most companies don’t have a lot of sales people. And, without question some good sales people are driven by extrinsic rewards (ie money) and some are more driven by intrinsic rewards (ie autonomy, purpose, etc.) If you create a reward system for your company that focuses on one or the other or some combination, you can likely attract enough good sales people for any approach. Ken Olsen, CEO of Digital Equipment, hated the idea of commission, and in an era when most of his competitors had highly commissioned sales people, he was successful without such a plan.
That being said, research also shows that Pink’s research was flawed when it comes to sales people. If one looks at the research cited in his book, it focused on short-term incentives, some as short as hours or minutes. Meta-analysis of well constructed research studies shows that longer term incentives (over 6 months) had a positive impact on sales people.
So what are the keys to effective sales compensation? We believe there are two:
- Align your sales compensation plan to your strategy so your sales people are incentivized to support actions that execute your strategy, which will then achieve your goal(s). BTW, this is a good idea for all compensation plans.
- Don’t change it … unless it isn’t working or your strategy changes. The approach you take to sales compensation will attract sales people who like to be compensated that way. If you keep it consistent, you will keep your sales people motivated. If it is truly strategically aligned, good things then happen.
Bottom line, as I was told when we took Lamaze classes when my son was to be born: choose the approach you like and find the book that supports it.
Or follow our advice and align compensation to your strategy and keep it consistent.