Incentive Evolution

What's New in Sales Incentives?

By Fred Jerant

Designing a successful incentive program is much like practicing medicine: every case is different, and there are no one-size-fits-all approaches. But our experts offered plenty of suggestions that are worth considering.

At its most basic, an incentive program should have this essential structure, Wessling said.

• A proper assessment—defining realistic and measurable objectives are business, brand and strategic imperatives.
• Design the program. Wessling said that it should start at the first level of sales management, and not trickle down from above.
• Announce and implement the program, recognizing that communications are now primarily electronic.
• Implement an ongoing measurement system, and issue awards accordingly, whether at intervals or at the program's conclusion.
• Encourage feedback to help improve the next iteration of the program.

When it's time to set goals, Siewert said, "Try looking at the two-year performance of your sales force or distributor network to develop a baseline, and then evaluate the market for the coming year. If the average was 100 pieces sold per year, stretch it a bit—say, 150 pieces. And then issue rewards based on incremental growth; this is a good way to get a positive ROI from the program."

He added that this approach works best when the goal quotas are reasonable, and suggested using tiered goals. "One rep might have a better territory, and so should be expected to perform better than another rep in an area with fewer opportunities would," he said.

"Look at your sales force in terms of a bell curve," he added. "The top 15 percent might earn a group travel package; the next 45 percent could earn something of lesser value, and tangible, and so on."

And keep an eye on product margins, Siewert said. The incentive program should be self-liquidating—that is, the program should bring in more than it costs to operate it.

If you've been working toward changing employee behavior via training, as Ozer suggested above, don't limit incentives only to sales performance…also reward the effort to improve.

"Create goals for them, and offer smaller incentives for hitting those goals along the way—adopting and consistently using a cold-call script, for example," he said. "If their sales haven't reached enough to win the big stuff at the end, they've still received some recognition for their efforts to improve."

Ozer said there's no guarantee of a payback from issuing these small incentives, "but sometimes you must have a leap of faith. You may not see results immediately, but the awards are a small price to pay for true behavior improvements."

Perhaps Hendrickson espouses the simplest approach. "Consider turning the program over to a professional," she said.

"Incentive programs are not as easy as they look. A specialist can make sure that you have clear, measurable objectives and effective communications," Hendrickson said. "He or she can also help you determine the best way to attain your goal. I have seen companies propose using a points-based program for a certain length of time; after examination, it turned out that their proposal really wouldn't work. An expert can offer alternative options."

Their contributions can include setting up fair and easily understood rules and parameters, determining the propriety and availability of proposed incentives, offering guidance to announcing and updating the program and its progress to the employees, and much more.

"Companies don't always think through all the steps of an incentive program," Hendrickson said, "because they don't understand everything that's involved. It can be like trying to sell your house by yourself, instead of working with a realtor. You put in lots of hours and lots of effort—but you might get burned in the end because you didn't know what questions to ask."