Pay For Performance

As is usual this time of year, I’ve been involved in lots of discussions of incentive and commission plans–both last quarter as people plan for the new year, and now as these plans are being introduced at Sales Kick Off Meetings.

One of the biggest errors I think organizations make in managing performance and incenting sales people is they try to manage all aspects of the desired behaviors and goals through incentive and commission plans.  As a consequence, we start to see very complex commission and incentive plans  — impossible for people to understand, difficult to manage, ultimately not achieving the desired goals of driving specific behaviors and levels of performance.

Too many commission and incentive plans are becoming so diluted with different components, it takes PhD’s in statistics and behavioral analysis to understand.  While I might be exaggerating a little, we start to see elements of commission and incentive plans including:  keeping CRM updated, doing certain territory marketing activities, collaboration within the sales and account team, numbers of prospecting calls, providing management reporting. and the lists go on and on.  If I looked long enough, I probably could find some plan that includes showing up for work on time, brushing your teeth, and combing one’s hair (that is if you have any remaining).

Gradually, these plans become so bloated, it’s impossible to understand exactly what the sales person or manager is supposed to focus on, and the 2 or 3 key behaviors or performance elements that are most important to the organization achieving and exceeding its goals.

To some degree, I think these bloated plans point out fundamental organizational and leadership weaknesses.

First, I think they represent clouded thinking on the organization’s strategy and priorities.  We aren’t crystal clear on the most important areas of focus for the organization.  We want people to do everything, we don’t set priorities, so we toss an incentive element into all the things we want/expect people to do.  We want people to achieve order and revenue goals, we want them to focus on certain product lines, or on customer retention, or on new customer acquisition.  We want them to keep CRM and other reporting systems updated, we want them to do a certain amount of prospecting, we want them to leverage social selling tools, we want them to work effectively with peers, we want customer feedback on needs and new products, we want them to brush their teeth and comb their hair before they come into the office……….

We have all sorts of things the should be doing, so we create a metrics and toss a bonus element into the incentive plan.

Second, it’s part of the general societal mentality of providing rewards for everything we do.  I won’t jump on that in this post, but I think you know what I mean.

Finally, and perhaps most importantly, too often we use commission and incentive plans as a surrogate for managers managing performance.  Rather than holding manager accountable for managing performance–setting clear objectives, watching performance, coaching, and developing people to make sure performance is maximized, addressing performance issues directly and clearly; we put commission and incentive plans in place–hoping that tossing a little money at a lot of different things, people will be doing the things we expect them to do.   We “absolve” managers of this responsibility, relying instead on incentives to do what managers must be doing.

As leaders, we have a number of tools we leverage to manage and maximize performance.  The commission and incentive plan is just one of those tools.  The performance plan is another tool—but one that is seldom used or that has become ineffective through lack of attention.  Beyond this, there are certain minimum levels of performance we expect of people—as ridiculous as it seems that we have to manage these, they include things showing up for work on time, cooperating with peers, behaving politely, being ethical, not doing things that are illegal.  These are things I call “conditions of employment,”  things that if you want to work with our company you must do these things.

It’s ridiculous and just plain wrong to put many of these things into commission and incentive plans.   We need to pay for performance, but in most cases we have several elements of the compensation plan to leverage—the salary, commission, and incentive plans.

Commission and incentive plans are very important in focusing people on some of the most critical goals we are trying to achieve.  Keep those plans simple and focused.  But leverage all the tools you have available to you in maximizing overall performance.  Make sure you have strong and effective performance plans in place.  Make sure there is absolutely no misunderstanding of “conditions of employment.”  Leverage all of these collectively to maximize overall performance.