Are Team-Based Incentive Measures Right for Your Sales Organization?
By Sheila McCarthy and Shalin Sharma
The standard advice when designing best-in-class sales compensation plans has always been to pay for individual performance. Recently, however, an increasing number of companies are finding that team-based performance measures better reflect the way they sell to customers.
Before organizations adopt team-based measures and incentives, they must address two questions: What business conditions are driving the decision to reward team results rather than or in addition to individual results? How can an organization know if this is the right path to follow? Answering these questions requires a close look at the company’s business model and sales organization.
Recognizing a Team-Based Sales Organization
Organizations need to determine how the work of sales teams and individuals comes together to drive the business. Does the organization subsist on competition among “lone rangers” who rarely need to work together for the good of the customers? Or does it rely on a complex network of account managers, overlays and geographically dispersed customer teams to work in a symbiotic, seamless way to best meet customer needs? (See Figure 1.) Once an organization understands these key features, it can assess the pros and cons of measuring individual vs. team performance in its sales compensation plan.
Figure 1: The Pros and Cons of Measuring Individual vs. Team Performance
Focus on the Individual – “Lone Ranger”
Clearest line-of-sight for plan participants
Demands performance and results for pay
Clearly differentiates between high and low performers
Encourages a strong “sales culture”
Contributes to an “every man for himself” environment
May hinder effective team sales behaviors, creates fiefdoms
Creates crediting issues when a sales effort comes from multiple contributors
Focus on the Team – “Three Musketeers”
Fosters a collaborative/selling environment – “happy to help”
Enhances a focus on the customer’s needs – “we are customer advocates”
Resolves crediting issues for complex team sales
Spreads incentives across high and low performers, potentially allowing low performers to “draft” behind top performers
Dilutes pay-for-performance culture
Hinders management’s ability to quickly diagnose performance driver(s)
Source: Sibson Consulting
Selecting the Best Measures at the Team Level
Assuming an organization decides to employ a combination of team and individual incentives, which metrics are best suited for team versus individual measurement? Ideally, an effective sales compensation plan should have three incentive measures. These can range from the objectively quantifiable (such as customer revenue) to the more subjective in nature (such as management by objectives). How the sales strategy and organization support key business objectives will help determine whether a chosen metric is best suited for team or individual measurement. A company should identify those activities that require the greatest collaboration of the team. These may include generating multi-product revenue, cross-territory results or customer satisfaction.
Figure 2 illustrates how one high-tech company supports its complex network of product overlay positions and work across multiple account teams to drive the revenue of emerging products.
Figure 2: Percent of Target Incentive Allocated to Various Measures
Assigned Account Revenue
Assigned Account(s) Emerging Products Revenue
Management by Objectives
Key Influencer Meetings
Team Vs. Individual
Source: Sibson Consulting
Finding the Right Balance
Individual incentives are still critical to success, so an appropriately balanced team vs. individual incentive mix maintains the “skin in the game” for sales reps while supporting and enhancing good team-based decisions for the customer. The best method for a company introducing team-based incentives for the first time is to follow a judicious approach to avoid alienating its valuable high performers.
If the company is moving from a pure individual mix, introducing one team-based measure that accounts for no more than 30 percent of the total incentive would be advisable — leaving 70 percent of the incentive for rewarding individual results. As the organization becomes more comfortable with team-based measures, moving up to 50 percent based on team results will still provide a chance for individual performers to shine and will allow the company to maintain a strong pay-for-performance culture.
Although individual performance measures work best for some organizations, others can benefit from team-based plans. The keys to success include recognizing a team-based sales organization, selecting the best measures at the team level and finding the right balance. Executed with care and a sound business case in the right organization, team-based incentives can support a more collaborative environment that can improve alignment with the company’s overall objectives and create a winning sales strategy.
About the Authors
Sheila McCarthy is a senior consultant in the Chicago office of Sibson Consulting. She works with organizations to improve their sales, service and marketing channel performance through people- and process-based solutions. She can be reached at 312-456-7946 or email@example.com.
Shalin Sharma is a senior associate in the Chicago office of Sibson Consulting. He works with organizations to develop sales strategies and sales effectiveness programs. He can be reached at 312-456-7929 firstname.lastname@example.org.