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Through this week I posted a long article “Quality versus Quantity: Aligning Sales Incentives with Profitability” broken down in 5 parts.
Part 1: The first part of the series introduced the concept of aligning incentives and profitability and talked about the difference between incentive, bonus and recognition
Part 2: This post discussed four category of profitability drivers: Revenue through product preference or price protection, cost containment, risk mitigation and strategic influences.
Part 3: This third post discussed the importance and benefits of accurate reporting.
Part 4: This part focused on change management and how to prepare sales people to focus their time on new objectives / compensation plans.
Part 5: Finally, this last post reminded us how good intentions can sometimes lead to unintended outcomes and provided two such examples.
Key Points
There was a lot of content in this 5-part article, so here are some of the main takeaways:
- The sales force can be a key contributor to the company’s bottom line.
- Some sales jobs can influence profitability, some can not.
- Clear, reliable and timely measurement is key to holding individuals accountable for progress toward individual and unit profitability goals.
- All levels of the organization, from the CEO on down, must champion the effort behind any fundamental change.
- A short-term emphasis on profitability can lead to longer-term consequences.
- When considering changes to sales people’s pay, include low risk options such as SPIFFs.
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Managing Change
Preparing sales people to focus their time on new objectives is no small endeavor. Field sales organizations in particular are less likely to conform due to their remote nature. The good news is that a well-designed incentive plan can motivate the necessary change. A poorly designed plan and or bad execution of the plan can be worse than no change at all, as disenfranchised sales and service people can upset customers and contribute to a loss in profitability.
New incentive-plan execution is often the wobbly third leg of the incentive-plan-management stool (with discovery/prioritization and plan design being the other two legs). Communication is a critical component of implementation, and good communication starts at the top. Leadership must clearly define and consistently reinforce the rationale for moving to a more profit-based system. All members of the management team must demonstrate behaviors that are consistent with the new order.
Compensation’s role is to ensure that pay differential aligns with the profit-enhancing outcomes being reinforced by management. The line manager is a crucial component in this mix. Ensure line managers thoroughly understand the crediting rules under the new plan, and what is the range of potential pay based on various and realistic performance scenarios. Help enable the manager to motivate each individual sales person through coaching discussions around the opportunities for performance and pay. This should be a one-on-one exercise, since each individual’s motivation for performance, pay and recognition is slightly unique. Managers need to know that compensation management will quickly address issues surfacing from the line. Conducting a line or line-manager focus group prior to plan roll out can surface what will likely be issues once the plan goes live.
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