Sales Compensation Focus
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Boosting Motivation Through the Compensation Plan

By Steve Marley, ZS Associates  |  May 2013

Human motivation is commonly defined as the rationale a person has for acting or behaving in a particular manner. Therefore, the question “What motivates you?” is essentially asking, “Why are you acting in the way that you do?”

To help understand how you can boost motivation through the compensation plan, it is important to first understand two types of motivation: intrinsic and extrinsic. Intrinsic motivation originates from within an individual and is driven by an interest in or enjoyment of the task itself, without external reward or influence. Extrinsic motivation is driven by behavior or performance of an activity in order to attain an outcome that is rewarded. Rewards can include money or recognition. One of the central tenets of a successful sales compensation program is that it can direct behavior and reward performance effectively through extrinsic motivation.

While both types of motivation are necessary for a successful compensation program, this article and the featured case study focus on extrinsic motivation; intrinsic motivation is something best identified through your hiring and coaching programs.

A Case Study in Motivation

An industry-leading company, “Company M,” was concerned with complacency in its salesforce. Although the existing compensation plan had been designed with an eye toward customer acquisitions, new customer growth had been flat for several years, and reps were resistant to pursuing new customers.

 “Do we have a motivation problem?” the CEO wondered. “Are our salespeople complacent?”

A bonus plan was in place for new customer acquisitions, yet it wasn’t working. Therefore, the CEO assumed his reps were not extrinsically motivated by this component. However, the reps were not pursuing new customers on their own, so they didn’t seem to be intrinsically motivated either. What was causing the problem?

The author’s company partnered with Company M to dig deeper into this issue and discovered that the reps could, in fact, be motivated extrinsically. However, the compensation plan needed to be redesigned to effectively direct the desired behaviors and reward performance.

Company M believed it provided clear direction through the compensation plan to grow new customer business by including a new-business kicker on the commission rates. However, commissions were paid on a single metric of total revenue that included revenue from new and existing customers. Combining revenue allowed reps to maximize their incentive payouts by trading off the two sources against each other. Salespeople would essentially ask themselves, “Would I be better off pursuing opportunities in existing customers at one commission rate or new customers at a different, higher rate?” They were deciding to go after existing customers, in part because the compensation plan gave them that option and never really required that they sell to new customers.

A reward is only motivational when it is achievable and valued. The increased reward opportunity in Company M’s original compensation plan had little impact on its reps’ behaviors because a) it was more difficult to sell to new customers and b) with new customers, it took months or even years for sales to near peak levels. As a result, new sales were a lot harder to win and slow to ramp up, meaning the return on investment (ROI) for the salesperson — where ROI is defined as Reward / Effort — was too low for new customers.

While the compensation plan did provide general direction and a reward mechanism, the rewards were not sufficient to overcome the difficulty in selling to, and the lower revenue numbers of, new customers. Reps ultimately decided they could maximize their ROI and their subsequent earnings by focusing almost exclusively on existing clients.

The solution to the problem had two components: 1) Provide clearer direction and 2) Provide more meaningful rewards. The strategic direction was illuminated by carving out a specific component in the compensation plan that focused on new customers. Company M also modified the reward structure to increase the upside opportunity for new customers and encourage growth over a longer time period.

With these changes, reps began more aggressively pursuing new clients, demonstrating that reps could, indeed, be motivated extrinsically.

Designing Motivational Compensation Plans at Your Company

Sales compensation plans are not only designed to reward performance; they also play a key role in motivating your salesforce to achieve specific goals. When you design a sales compensation plan, the following three steps will help ensure you maximize the plan’s impact.

  1. Identify your strategy. Is it to acquire new customers? To increase profit? To maximize growth? Your compensation plan can then be designed to support that strategy.
  2. Understand the value proposition of your salesforce. Many people assume that salespeople value money above all else, but they may also value autonomy, recognition or other reward mechanisms. Salesforce interviews and surveys will help you understand how much of the compensation plan should be geared toward extrinsic rewards, and what types of rewards hold the most impact.
  3. Link the strategy to your salesforce culture through your compensation plan. Many companies consider the sales strategy when designing sales compensation plans but fail to consider whether the plan design provides the necessary value and rewards to motivate the salesforce.

Conclusion

Similar to Company M’s sales reps, your reps will need a combination of extrinsic and intrinsic motivation to be successful. By directing behavior and rewarding performance in accordance with the company strategy, you will create an underlying plan structure that can be modified to match your team’s value drivers. The end result will be an extrinsically motivating incentive plan that complements — rather than conflicts with — the sales team’s natural and intrinsic motivation.

About the Author

Steve Marley is a principal at ZS Associates in Evanston, Ill. He will present at the 2013 Spotlight on Sales Compensation. Marley can be reached at steve.marley@zsassociates.com.


Read the May edition of Sales Compensation Focus.

Contents © 2013 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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