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Pay For Performance?

by David Brock on September 1st, 2010

I hear the phrase, “Pay For Performance,” all the time.  I think it’s a reasonable concept, that is, the better you perform, the better you get paid.  Naturally, we want to pay our top performers the best, who can argue with that?

Somehow, it seems as though Pay For Performance is getting distorted.  If we want the sales person to do something, other than get orders, we put a bonus on it or add it to the commission plan.  We want the CRM system updated, put a bonus on it.  We want forecast accuracy, let’s pay the sales people for accurate forecasts.  We want the sales person to participate in a task force, let’s put an incentive on it.  Somehow, things seem to be getting confused.  Too often, our solution to motivating sales people to do we need them to do is to put some form of compensation on it–a bonus, a commission element, an incentive.

I get into a conversation about this issue at least once a week.  A sales manager or business executive calls me to ask, “How do I get my sales people to do what I want?  What if I added something to their compensation plan?”  Throw money at the problem, it will motivate the right behavior!

Somehow that seems to be a temporary and, possibly, an expensive fix.

In a comment on this blog, my friend Jim Keenan, reminded me that much of this is all about leadership.  Jim’s right, somehow, the issues, seem to be rooted in leadership.  Leadership–getting people aligned to achieve the organizations goals and objectives, providing them the skills and tools to achieve them, motivating and inspiring them, coaching them–helping them improve their performance.  Leadership is all tough stuff.  It’s demanding, it takes time and patience.  It’s dirty work, a leader actually has to get engaged with their people, they have to set expectations, they have to manage performance–both good and bad.

Getting a sales person to keep the CRM system updated is not just something managers can dictate, we’ve seen the failure of these strategies.  Leaders have to show sales people how the tool helps them–the sales people–become more productive and effective.  They have to help the sales person understand the impact of this information on the rest of the company.  Producing accurate forecasts is important for the company–other functions set their plans and schedules around the forecast, they allocate resources based on the forecast.  Accurate sales forecasts are a cornerstone to overall company performance–leaders need to make certain their people understand this importance of this to the organization.

Leadership requires the leader to clearly identify roles, responsibilities, expectations.  It requires the leader to define expected behaviors, and to model them in their own performance.  It requires the leader to clearly communicate these to the sales person, making sure they understand and own these responsibilities and expectations.  Leadership requires leaders to manage performance.  Thise means they need to invest time in their people, coaching, developing, and helping them achieve the highest levels of performance.

To borrow a term from Jill Konrath, in the “crazy busy world” of sales managers, it’s often tempting to take the easy way out, to substitute pay, an incentive, a bonus to get what we want.   Rather than doing the tough and time consuming work of leaders, we throw money at the problem.

Don’t get me wrong, I think bonuses and incentives are very powerful in motivating certain actions and behaviors.  I think they are best applied over a short period of time for very specific and short term goals.  For example, in a new product introductions, an accelerator or incentive around the sale of that product can give a quick start.  Accelerating penetration of new markets by leveraging a bonus for sales into those markets can be very powerful. 

However, in my experience, bonuses, commissions and incentives are not effective in driving sustained behavioral or performance changes.  Bonuses or commissions to get the sales people to do things that would be considered “conditions of employment,” set the wrong tone for the organization – both the sales organization and the overall organization.

None of these are substitutes for solid leadership!

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4 Comments
  1. Great point, David. You hit the nail on the head (twice). First, an effective sales leader will not have to resort to compensation for each extra assignment or task, and secondly, most sales people receive a base salary, and such tasks as maintaining a CRM, participating in a task force are part of their jobs for which they are paid-or better said, a “condition for employment”.

    • Thanks for joining the discussion Duncan. Managers have a set of tools to manage performance. We need to use the right tool for the right purpose to create the desired result.

  2. I wonder why sales leaders seem so afraid to say: this is what I expect of you. Do it. Why is that so hard?

    • Thanks Chad, as I mentioned, sometimes throwing money at the issue is the easy way out. Setting performance expectations means you have to measure, manage, coach…… I’m really sympathetic to sales managers, they often are caught between a rock and a hard place. They are as time poor as our customers, as pushed for results as sales, and the list goes on. Sometimes, its just easier to do the tactical thing rather than the right thing for sustained performance. As always, you make great points.

      Regards, Dave

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