The standard method for rewarding sales teams looks something like this: You figure out how many sales you need to make to hit your growth targets, split them up between managers and ultimately between reps, and pay bonuses for beating quota. But that system doesn’t reward improvements, doesn’t recognize teams, doesn’t support progress, and the reward it offers - more money - isn't the most effective, incredibly. Maybe it’s time to rethink the whole way we approach rewarding sales teams.
Actions Or Results?
Right now, the majority of sales teams are rewarded for their results. The quota system is so universal that it needs no explanation; the majority of sales reps aren’t following any process that ranges wider or drills deeper than talking points and maybe call scripts. But rewarding outcomes isn’t as common sense an approach as it looks at first sight.
The argument for rewarding reps based on outcomes looks something like this: they’re here to make things happen. If they can’t make sales happen, they don’t make quota and they don’t make money over basic. That’s sensible because they’re being rewarded based on the outcomes they achieve, and the business needs those sales to succeed. You can’t keep the lights on with good intent; if you did everything right except cross the finish line before the other guy, no medal for you.
The only problem with that is it doesn’t take account of what we know about human motivation.
Right now, most reps don’t meet quota. They don’t create their own goals. And they don’t learn from their failure because it’s outside their control. Where rewards are pegged directly to results in a linear fashion, you won’t see the destructive gaming of the compensation system that complex, staged quota-and-reward systems threaten to produce. But what you do see is that people are being paid for something happening, not something they do.
No, sales don’t fall out of the air - but even the very best reps aren’t in charge of circumstances. Deals fall through because the rep’s contact at the target company moved on - or got moved on; because the tech environment changes; and for a million other reasons that can’t be tied to a rep's actions. When that happens, reps are being punished for luck. When they hit great numbers for reasons that aren’t down to them either, they’re getting rewarded for luck.
Issuing rewards and punishments at random is how you teach people to be disoriented, disorganized and helpless. There are bound to be a few people in your organization who could sell anything to anyone, and a few more who would have to get up early to find the door on natural talent alone, but that big central 60% bloc? They’re being taught something every day. To make it identification with the company and its goals, enthusiasm, focus and the sense that their success or failure is in their hands, tie their compensation to their actions - and build a path of actions that leads to results, for them to follow.
Goals, Quotas And Owning The Process
Most sales teams treat quotas like goals. But that’s all backwards, says sales coach Dan Demer. When quotas are almost unattainable by the average rep, the motivational power of the two is lost when they’re mixed.
If quota should form part of a ‘floor’ that everyone should be able to stay above, and sales teams shouldn’t be leaned on to produce ‘watered-down’ quotas full of weak sales that won’t stick and trash your reputation, what should you measure to ascertain performance? Goals should be the stars reps aim for. Anyone who turns up and does their job should be on quota. Boy, that’s a different way to think of things.
Goals should be something that maybe only 20% of staff hit in a month; but they should be something staff choose for themselves. Goals, says Demer, should be ‘created by the individual or group responsible for accomplishing them. Not dictated down.’
When impossible targets are dictated down, most sales staff actually use a totally different quota system: they make sure they’re not in the bottom 20% of performers. They assume quotas are impossible to attain, and that those reps who do make or exceed quota are doing it because of something inherent in themselves, rather than something they’re doing. Learned helplessness and dependence set in.
Cash Or Candy?
While outcomes might be unattainable, actions aren’t. Reward reps for things they can control and they’ll do them. It doesn’t have to be a monetary reward either: the relatively new academic discipline of behavioral economics, aimed at telling us how economic questions bear on individual behavior, suggests that cash money is actually not the best motivator. That’s counterintuitive, sure, but bear with me here.
Pleasure seeking and emotional responses have such a large effect on our behavior that they can even override the profit motive. Somehow, we take account of that when we design sales processes and plan calls, but forget it when it comes to our own industry. In a seminal study from Richard Thaler, PhD at Caltech, New York City cab drivers quit early on rainy days.
Well, the rain meant more people were catching cabs. Rain is good weather if you’re a cabbie. A cabbie who normally made $X in 8 hours could have worked 8 hours and made $X+ some. (Yea, that’s not real algebra. I know.) But instead, what happened?
You’re ahead of me, right? They quit early. They made quota and went home.
If money can’t motivate self-employed cabbies when customers are all but falling into their laps, what makes you think it’s going to drive reps to hit a quota they secretly believe is impossible anyway?
So what does work, if cash isn’t the answer?
The answer lies where our love of luxury, our emotional need to have our efforts recognized, team membership feelings and competitiveness meet. And the good news is that the most powerful motivators are actually cheaper than cash!
In a study at UCLA and MIT, researchers found that subjects preferred tangible rewards - candy, small gifts - to an equivalent cash amount. The researchers hypothesize that using cash as a reward makes people think about the purchase value of the cash. It’s never enough to stimulate effort, but tangible rewards are assessed in terms of their pleasure value, not their cash value, in a ‘social market.’
All of which is well enough in theory. But here’s the kicker. Remember when I said that noncash rewards might be cheaper? A study on sales staff by the Aberdeen Group showed that noncash rewards were about 60% cheaper than cash rewards.
The ideal way to reward individuals is to make actions, not outcomes, generate tangible benefits that appeal to pleasure seeking. After all, reps are in control of actions: managers are in control of processes, so if processes work and reps work them, success should be the outcome.
What’s the ideal reward? Candy might be a bad call, but ideas like novelty items or reductions in the prices of gym memberships aren’t that effective because there’s no direct pleasure. If the idea is to reinforce the actions you want, think: is it immediately pleasurable?
Team Or Individual?
Rewarding teams might seem like a strange way to approach the business of incentivization. But then, candy might seem a weird way to encourage people to work. And if you think about it, we work in teams, we plan for teams, and we talk a lot about teams; if Together Everyone Achieves More, but only those who achieve the most get recognized or rewarded, teamwork isn’t really being recognized or encouraged.
Star players are not the only players.
Michael Mankins, a partner at Bain & Company and coauthor of Decide and Deliver: Five Steps to Breakthrough Performance in Your Organization, and Deborah Ancona, a professor at MIT Sloan School of Management and coauthor of X-Teams: How to Build Teams That Lead, Innovate, and Succeed, concur that diverting some attention to whole-team performance and recognition of that performance is a key and underused driver of business success. ‘Rewarding a team dramatically improves not only the team performance but also the individual’s experience,’ Mankins says.
We can see this in sports, everybody’s favorite metaphor. In ESPN’s documentary on North Carolina coach Dean Smith, people who watched him take his team to two national championships and gold at the Olympics recall how he mandated intrateam recognition. Players who scored were expected to point to the last person who passed to them. When a player walked off the court, the rest of the team clapped.
What about closer to the phones? Does this approach have anything to do with sales? Let’s ask Rick Hanson, vice president of worldwide sales and field operations at Hewlett-Packard Enterprise Security. Hanson recalls, We’ve tried running sales contests in the past… there was a single goal and the reps who achieved that goal were rewarded, usually with money.’ What happened? Sales reps who thought they could hit the targets and reap the rewards entered those contests. Those who felt or knew they couldn’t reach the cash didn’t even bother trying. Sound familiar? ‘This was hardly the work of a cohesive, driven team with shared goals,’ Hanson observes.
Currently, at HP, Hanson’s reps use a Fantasy Football gamification system that lets reps win points for actions - calls, deals, increasing pipeline. Results are visible companywide. The twist? Reps don't compete as individuals. Instead, they build teams - their own teams, within the gamification tool. Team spirit and competitiveness come together and a team victory becomes its own reward.
This isn’t a new idea. Dale Carnegie was a fan. In How to Make Friends and Influence People, the ur-sales writer tells the story of how Charles Schwabb stimulated production at a steel mill by writing each shift’s productivity down on the floor in chalk. Each successive shift set out to beat the number. Competition, yes - but as a team. (Read the whole story here.) And crucially, it’s about specifics. The more specific feedback is the more effective it is. Take a look at how Best Buy does it. In their Path to Excellence training, Best Buy rewards sales staff who apply the concepts taught in training while they’re selling. There are four levels of recognition, bronze through platinum; mostly platinum Best Buys outsell mostly bronze ones by three to one, according to Yesware.
Peg compensation to things reps can actually control; build their actions into a flow that produces the results you want and reward reps for compliance. Consider rewarding teams as well as individuals.
When quota is achievable, everyone feels secure: they know they’ll hit it if they do their job. When they choose their own goals, they identify with them. They feel more confident. They feel challenged, not crushed. In fact, this is what your top performers are already doing!