How To Motivate Higher Returns
erhaps the best-known example of a sales incentives program in popular culture is the famous contest from the 1992 film Glengarry Glen Ross, based on a play by David Mamet. In a movie that included acting giants like Al Pacino, Alan Arkin and Jack Lemmon, perhaps the most memorable performance was that of Alec Baldwin, who was onscreen for fewer than 10 minutes.
In his speech, the arrogant "Blake" character Baldwin portrayed told a down-and-out sales team that the company decided to add "a little something" to a sales contest going on at the time. "As you know, first prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize is you're fired," he explained.
He said a lot more than that in his "motivational" speech, but that part in particular is what concerns this article. It's worth citing here as an example of precisely what not to do in any sales incentive program.
Other Things You Shouldn't Do
Now, the model provided in Glengarry Glen Ross isn't going to be co-opted in any sales organizations anytime soon. There probably aren't many sales directors or managers out there who think that system would work for their teams. That said, there are plenty of mistakes made in real-life programs that lead to less-than-optimal performances from sales forces.
So, what are some of the most common problems found in sales incentives initiatives? One of big ones is focusing too much on the team's top performers.
"One of the biggest pitfalls we see when we audit programs is the common lament that the same people always win," said Mike Ryan, senior vice president at Madison Performance Group. "Organizations fall into that trap, where they reward the top performers only. What they tend to do, then, is overpay for performance, because the top people are pretty much the top people anyway. You don't necessarily need to throw a lot of your budget at them. Obviously, you want to reward your top performers, but giving your budget exclusively to those folks disenfranchises the people who are just a few steps below them."
Additionally, these programs sometimes focus too much on a particular service or product line. Rick Davis, president of Building Leaders, a Chicago-based sales consulting and training company, recalled when he worked at a company that released a new product and developed a sales incentive program around it. The problem was that the sales team got so caught up in the incentive for the new product that it took focus away from the company's main offering.
"I think one of the biggest pitfalls is that you incentivize for something because it becomes a special program, but it can take away from the main objective,"
Davis said. "The big picture for the company must always be considered."
Another issue is finding the right timelines. These programs can fall short of expectations if they're too long or not long enough, said Srinath Gopalakrishna, professor of marketing at the University of Missouri. The David and Judy O'Neal MBA Professor at UM's business school, Gopalakrishna recently released a report, titled "Assessing the Impact of Sales Incentive Programs: A Business Process Perspective," based on in-depth research he conducted on a program in an insurance company.
According to him, some contests can be "gamed" by more experienced sales professionals, who don't necessarily turn in the best performances.
"We found that there were different tiers of agents that responded in very different ways," he said. "When you set a contest that is almost equal to the sales cycle, you're going to have people who put all of their efforts in before the contest begins. And people will do what we would call sandbagging—they hold the sale for just a few days or weeks to push it into the contest period. They know that once the contest begins and they start looking for new prospects, they won't be able to close before the contest ends.
"So not much will happen during the contest, which is when you really want them to work a lot. Also, when you have a really long contest, it's very difficult to maintain the spirit, motivation and interest."
To really motivate the sales team with an incentive program, directors and managers should consider the following tools and tips.
Offer a Wide Range of Incentives
In the Glengarry Glen Ross scenario, all of the salespeople are offered a shot at the same car and set of steak knives. But what if none of them are actually interested in those things? (Clearly, none of them are interested in what's behind door number three.) What if the top sales person at the company is perfectly satisfied with the vehicle and kitchenware he already has?
Now, these kinds of questions likely didn't occur to David Mamet, as the contest was almost beside the point of the movie. But they're worth our consideration. How do you come up with the right rewards for your team? Actually, you don't.
"The main idea is that one size doesn't fit all," Gopalakrishna said. "I think when we have contests, we're looking to get maximum participation. We like to have all of our agents participate, and we put in place one rewards program that we think will appeal to the most people. That typically doesn't work. Different people are doing different things because of where they are in their career and what motivates them at that particular time."
"The biggest advice is to not worry about what to offer, and offer as much as you can," Ryan explained. "The companies that try to determine what's going to motivate people tend to spend a lot of time picking awards when a wide range of awards motivates a diverse audience. In many sales forces, you have multiple generations. It's kind of like determining what Christmas present is going to work well for your entire family. Often, when we look at what people redeem for, we're surprised at what we see. I think you can use images of some of the more dynamic awards—big-screen TVs, for example—as a way to market your program, but if you don't have a wide range of awards, I think you'll spend a lot of time worrying about what motivates your people."
Merchandise in particular is an effective means of reward, he added, not only because it provides a wide array of prizes, but also because of its emotional value.
"In many cases, the non-cash award is viewed by the recipient as being more valuable than cash. One of the reasons for that is salespeople are breadwinners. The cash they receive is something they perceive as being good for household expenses. They don't necessarily get the whole benefit of getting an award, because the cash passes right through them and into their checking accounts. When you look at general rules of thumb, depending on what kind of sales force you have and the weight that overall compensation has to variable pay, you probably want to look at non-cash as being 5 to 15 percent of your variable pay component. I find that when organizations stick to that particular ratio, they're most successful."
Reward Various Levels of Performance
In the past, the premise of sales competitions was simple: Top performers in contests will collect the best rewards. (Again, the Glengarry Glen Ross example applies here.) However, there are inherent flaws in such a simple model. For one thing, as Davis pointed out, salespeople sometimes owe their successes—and failures—to circumstances beyond their control.
"We had a guy working for us, and customers couldn't stand him, but they liked the product and the company. So, this guy kept getting awards every year. I later met some of these [clients] in a different career, and they said, 'I can't believe the company still lets this guy work for them. He's the worst salesman.' But just according to the number of sales, he was highly successful."
Additionally, this kind of program does not motivate, and often discourages, other team members who might otherwise step up their performances, Ryan said.
"Smart companies recognize that if they individualize goals, they can move people up the performance ladder," he explained. "At the branch level, you may find that you have high performers who—if they were to penetrate just one key account—could make all the difference for that branch. Or perhaps you have a few middle performers who need to develop a marketing plan to get into a particular account that's been in the stranglehold of your competition. Or you may have some lower performers who need to get up to speed on the tools and techniques they need to be successful.
"Given the fact that how you drive performance is often an individual thing, some organizations are allocating funding that way. What a lot of progressive companies are doing is allocating the funding down to the local level, that of the sales managers. They may have a small portion of those funds to actually utilize with their salespeople on a one-on-one basis. They might be able to give particular salespeople in their branch or location specific goals that can help them. There are some really sophisticated organizations that have the ability to really segment their sales populations well. They can determine, based upon their sales reporting process, where individuals might need to close gaps. They can target those individuals using direct marketing techniques, where the program is administered through the Web, and you might have a different goal than me, even though we're side by side in the same office. It's a much more effective way to drive performance across the enterprise."
Avoid the Award Hierarchy
A corollary of both offering a range of incentives and rewarding different levels of performance is not getting locked into a basic competitive awards structure. Returning to the example provided in Glengarry Glen Ross, we see that the contest has a first, second and third place. A truly performance-oriented program, though, encourages salespeople to concentrate on their own accomplishments, not those of their colleagues.
One way these programs can be arranged is with a flexible point system, Ryan said.
"If you're going to have a program that is offering top performers points, you might want to structure it so they can use those points in any way they want. One person might want a big-screen TV for 5,000 points, while someone else might be motivated by five 1,000-point items. There's a variety of ways to structure these programs."
Another way to set these programs up is with a performance club that acknowledges everyone who hits a certain objective.
"I think when you set up a contest, there might be a winner, but everyone else feels left out," Davis said. "I think when you can set up incentives programs that create some kind of club or membership, you establish a level of prestige that people strive for. It doesn't have to be a lot."
Davis illustrated this point with his own experience as a member of a million-dollar club at a previous employer.
"The first time you won, you got a ring with an [insignificant] blue stone in it. The second time you made it, they replaced that stone with a quarter-carat diamond. The next time you made it, they replaced it with a half-carat diamond. The fourth time you made it, it was a full carat. I tell you, at every convention I went to or sales meeting we had, every guy that made it had that ring on. I still have mine. I'll bet that ring didn't cost much, but it was such a prestigious thing in our organization. It's not just about the intrinsic value of the reward. It's much better to have some preferred status within the company like a ring or a framed picture in the hallway that only costs the organization about $50 than it is to get a $2,500 flat-screen TV, and it's more lasting."
Know What Time It Is
Time is an important factor to consider in sales incentive programs. In the course of his research, Gopalakrishna came to appreciate just how important this issue was.
"When you put a contest in place, as you look at people's behavior, you need to look at how they behave before and after the contest," he said. "The sales contest in an insurance setting, which is what I studied, basically involved a bunch of independent agents who were selling life insurance, as well as home and auto insurance. One of the things we learned as we studied this area is you see the sales go up during the time the promotion goes on. After the promo ends, you see a huge dip in sales. All you've really done is a time shift of the sales. You gained in the week the promotion was going on, but then the sales boost was neutralized by the drop after the promotion ended."
Also, the sales agents who had several years of experience were good at making sure that all of their higher sales fell within the contest, whereas the newer salespeople put in a lot of effort that didn't pay off until after the contest was over and they were no longer eligible for awards.
"The winners were all coming from the higher experience bracket. Even though the people with lower experience were generating a lot of sales, they weren't winning a lot of awards," Gopalakrishna said.
Because of these factors, Gopalakrishna recommends that sales incentive contests last approximately twice the length of the sales cycle. This duration gives everyone a chance to build sales while the contest is going on and reap as many rewards as possible, but doesn't drag on so long that the program loses momentum. (Note: In the Glengarry Glen Ross sales contest, the sales professionals were given just one week, which obviously is not a realistic time frame.)
Tie the Program to Meaningful Goals
Before any incentive program is rolled out, sales managers and directors should, as the old business aphorism goes, "start with the end in mind." One of the most glaring problems with the Glengarry Glen Ross scenario is that there aren't any real objectives behind it, with the possible exception of cutting staff. The sales targets aren't specified; the top salesperson simply gets a car, no matter how much or little his performance actually contributes to the company's bottom line. Clearly, sales incentives don't—indeed, can't—work this way.
"More often than not, what you see in the presentation and development of sales contests are the goals of the corporation and how you can help us get there," Ryan said. "What an organization will do when they're putting together a sales incentive program is think of closing those gaps as part of their financial rationale. In many cases, once they've built the business case for the incentive program, they'll apply multiple measures to getting that done. They'll apply some type of revenue or tangible-gains component—something they can measure, that's part of their normal process and that's designed to prove that those gaps are being closed."
In terms of goal-setting, objectives for sales incentive programs need to be simple, clear and realistic, Davis said.
"What often happens is we set these goals, and the salespeople say they're all over it, but they don't necessarily know how to accomplish those goals. Any salesperson can quickly lose initiative if they don't feel like they can accomplish the objective that has been laid out. I think it's like a contract where the director says, 'These are the goals we want to achieve,' they create some buy-in, and then they set up a process by which people can realistically achieve these goals. They might say something like, 'If you talk to this many people, you won't get sales from everyone, but you ought to get this percentage. So here's what you should be trying to do to reach that objective.'"
Once goals for these programs are established, they need to be tracked in an effective way. A common measurement, obviously, is return on investment (ROI). But in measuring the ROI of sales incentive initiatives, it's important to determine all the sales that resulted from the program, not just those that closed during the official time frame of the contest.
"At the end of the day, you look to these contests to deliver positive economic returns. Everyone asks, 'What's the ROI of my investment?' The ROI only happens because the sales generated are coming out of the effort that people put in during the contest. If the contest closes on a certain date, and you only measure the sales that happened during the contest, I think you're missing the point. When you reach the official conclusion of the contest, you find that the ROI is barely positive. But if you go out another one or two weeks after the contest ended, lo and behold, you have a huge ROI. There is an official horizon, and there's an expanded horizon."
In addition to financial metrics, sales managers and directors should consider how these programs encourage positive behaviors in their sales staff.
"I think you have to have reliable metrics around these programs," Davis said. "It should be performance-based: Part of it obviously should be based on sales volume and margins. The danger comes when all your metrics are focused on just sales results. A lot of sales people might work in territories or in circumstances in which market conditions do all the work for them, particularly in a resale environment. The metrics should be partly about results, but a good program can base incentives on ideal behaviors. It should reinforce activities you want your sales force to engage in."
If sales leaders can incorporate these principles in their incentive programs, they will bring their teams closer to that ideal espoused (but not practiced) in Glengarry Glen Ross: Always be closing.