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Incentive Compensation Has Nothing to Do With Commissions and Bonuses

David Goltz
Digital Transformation Strategist

I can already hear the objections coming. Even my own first instinct tells me the exact opposite should be true, right? But before we jump to conclusions let's look at this a little closer.

What's the Point of Incentive Compensation?

Upon closer inspection, the point of incentive compensation is really behavior modification. How do you fundamentally change the way that people act and behave? This is where things begin to get interesting. If the point of incentive compensation is to drive behaviors then behavioral psychology tells us that the motivators will vary for different people. If we apply this to sales, it tells us that what works for our junior reps may not be effective for motivating the experienced lone wolf. Therefore, we need to be able to use different levers to align sales activities with organizational objectives.

How Do You Drive Behaviors?

Let's take a look at some of the ways to motivate behaviors aside from traditional cash-based rewards:

  • Peer Recognition: According to a Forbes study, companies that scored in the top 20% for building a “recognition-rich culture” actually had 31% lower voluntary turnover rates. Peer recognition is a powerful motivator. If you can increase the retention rate of your top salespeople by making them feel valued among their peers it will pay huge dividends. Literally and figuratively.
  • Gamification: Not angry birds. But that doesn't mean it can't be enjoyable. Use points, badges and leaderboards to motivate sales reps to carry out “leading measures” or activities that correlate with revenue. This might include making prospecting calls, meetings with decision makers or increasing user adoption of a new application. According to a recent study, corporate workers say the top benefits of gamification are an increased desire to be at work and be engaged (30 percent), inspiration to be more productive at work (27 percent) and a sharper focus on tasks (20 percent). Game on.
  • Sales Contests: Reward the right behaviors with tangible gifts or prizes. A recent study by Aberdeen Group concluded that, "...while cash is crucial to effectively managing front-line salespeople, it is not the sole element through which their managers and executives should structure the performance of any given selling individual."" Gifts are not meant to replace cash. But they are a powerful motivator because they create a lasting reminder of achievement.

What's the Impact?

The point here is that incentive compensation is less about calculating commissions and bonuses and more about finding the appropriate motivation to drive behaviors that align with organizational objectives. Automating this process allows you to act more strategically. If you want to break into a new market, what is the motivation for reps to do so when they've already been successful where they are? Are your compensation plans aligned with this new objective?

Too often, sales leaders spend months designing the perfect go-to-market strategy and yet overlook the importance of incentive compensation to make the vision a reality. Without a doubt, incentive compensation is the key to executing your sales strategy.

To take this a step further, behavior modification can and should be leveraged in every aspect of the business. If you want to become a customer experience-driven organization you need to set that as an objective and work backwards to identify the behaviors you would like to motivate from Finance, HR, Service and Sales and reward those behaviors accordingly. Only then will a client-focused attitude permeate every level of the organization.

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