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Sales Compensation Focus

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”

Pros

Cons

  • 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”

Pros

Cons

  • 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

Customer Satisfaction

Account Managers

50%

20%

15%

15%

Product Specialists

0%

70%

15%

15%

Team Vs. Individual

Individual

Team

Individual

Team

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.

Conclusion
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 smccarthy@sibson.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 or ssharma@sibson.com.


Read the January 2010 edition of Sales Compensation Focus.

Contents © 2010 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.


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