There are three kinds of sales people, say the authors of a new article in the Harvard Business Review: laggards, average performers and stars. A one-size-fits-all compensation package may treat them equally, but it won't produce equal—or optimal—results. When companies incentivize their sales teams according to the category in which they belong, they reap financial benefits, the authors' research showed.
When a company's sales numbers lag, its sales executives often blame the compensation package and take steps to change the way they reward their sales employees. In the meantime, finance executives view sales force compensation as a major expense and institute controls to keep costs at what they feel are safe levels.
The best way to motivate a sales team while addressing the concerns of both sales and finance leaders is to match sales people with compensation packages that best suit their selling styles, according to Thomas Steenburgh, a professor and researcher at the University of Virginia's Darden School of Business, and Michael Ahearne, a professor at the University of Houston. Their research appears in the July-August edition of the Harvard Business Review.
"Sales teams are not homogenous groups," Steenburgh said. "They are made up of individuals with different levels of motivation and who care about different things. If companies tailor their incentive programs in ways that recognize these individual needs, then they will get the most out of a wider spectrum of sales employees."
Core — or average — performers tend to be the largest group on company sales teams, but company managers often ignore them, Ahearne and Steenburgh found in their research. This is because sales managers tend to be former sales stars and they identify mainly with other sales stars. As a result, they tend to overlook core performers for promotions or other accolades. According to Steenburgh, companies do this at their own peril.
"Core performers can't make their numbers if they aren't in the game," he said. "They get the least amount of attention, yet they are the most likely to move the needle if given the appropriate set of incentives."
These sales people thrived by having multitiered targets that provide steppingstones, the authors found. But multiple tiers do not work with either laggards or stars.
The pacing of bonuses is the motivational key for laggards, they found. The research showed that periodic incentives rather than year-end bonuses are more helpful to keep laggards on track.
Sales team stars are often the targets of finance departments seeking to cap commission rates and control costs. According to Steenburgh, this approach is unwise. "Capping sales commissions just when star sales employees are on a roll encourages them to call it quits once their targets are met," Steenburgh said.
Instead of placing caps on commissions, Steenburgh says that companies should provide overachievement commissions, which are rates that kick in after sales targets have been met. This keeps star sales people in the game longer, which is important because the fourth quarter is often when customers are most likely to buy.
Before applying these evidence-based techniques in their own firms, Steenburgh encourages executives to take stock of their sales force and do a little detective work of their own. To understand if their sales force follows the typical performance curve of laggards, core performers and stars, Steenburgh recommends calculating each employee's sales performance against sales targets and looking for patterns to determine the company's sales force makeup. Instead of implementing complete overhauls, executives should focus on smaller segments of their company's compensation plan and design a pilot program for each segment.
"Evidence — not assumptions — is what executives need in order to choose the best approaches for motivating their sales employees," Steenburgh said.