Annual Focus Incentives: Simple Motivations

In choosing incentive programs, sales managers who want to motivate reps to higher levels of performance rely on instinct and experience. After all, who knows their reps better? The sales managers deal with their reps every day, and they can see which incentives work and which don’t.

Often, what works is something very simple. And it starts with knowing what reps want.

“Generation X likes frequent incentives: they are not used to once-a-year bonuses,” explains Scott Selvaggi, director of sales at an Embassy Suites hotel in Florida. “To keep them motivated, you need rewards with a short turnaround time.”

So Selvaggi creates his own informal incentives for his sales unit of eight people. “Whenever we do a telemarketing blitz, the first, second and third finishers get a day off with pay, or sometimes they can leave early the next day or come in late. Time is sometimes just as important as cash. Especially that day off with pay.”

Selvaggi is always looking for ways to provide rapid rewards to his reps without costing the company much. “We also use weekend stays at our affiliate hotels as incentives, or tickets for a football or basketball game. They are easy to use, and it doesn’t cost us anything.” He tries to motivate his reps at least quarterly with these simple but attractive rewards.

George Upton, a business manager at Colortech, is willing to spend a bit more on motivation. But he does not worry too much about the sensitivities of Gen-X salespeople. “We flog repeatedly and reward infrequently,” he jokes.

The Colortech manager recalls his own military experience when it comes to motivation. “It’s amazing what you can get people to do for a piece of cloth or a patch on the sleeve,” he notes. Upton thus looked for a reward that gave the winner “a sense of pride,” and that other people would notice. He came up with something simple: a jacket.

Any Colortech rep who sells more than 500,000 pounds of plastic in one month gets a bronze jacket with “500,000 pounds” inscribed on the chest, Upton explains. Sell 750,000 pounds and you get a silver jacket with that goal clearly marked. There are gold and platinum jackets for even higher totals. All the jackets are medium weight, so they can be worn most of the year.

Upton sets the goals high enough that winning a jacket is still difficult and thus impressive to co-workers. Of 11 reps, only four have ever won any of the jackets. Only two have hit the million-pound mark, and none has gone higher. The winners wear their jackets to the office frequently. They wear them to sales meetings, and they wear them during their own social engagements. There is no shyness about wearing these pieces of cloth.

“General” Upton is well pleased with the results. “It was absolutely amazing, although it should not have been, with the amount of intensity these rewards produce. Now, they all just have to get one of those damn jackets.”

Design for Future Profits

Upton and Selvaggi have all the right instincts when motivating their reps. They think about achieving real sales results at minimum costs. But both line managers work directly with small sales forces they know well, and they spend little money on prizes. What happens when you are trying to motivate a huge and varied sales force or must spend major dollars to get results?

This is where planning and discipline must come in. Most major companies choose much more flexible incentives, such as gift certificates. And they put major up-front effort into making sure that the incentives will work. Yet even the largest incentive programs start with the same questions that Selvaggi and Upton asked. What does the company want? What do reps really want?

For example, the experts at Compensation Resources helped a company that sells semiconductor components to optical-product firms set up a special incentive program with high-end gift certificates. The immediate aim was to increase “design wins,” not sales. When reps get their customers to design their new products to use the company’s semiconductors, they have, in effect, guaranteed streams of profitable revenues well into the future.

The program thus awarded points for each design win to about 40 salespeople and the application engineers that assisted them on customer calls. These reps are highly compensated, so the ultimate prizes had to be high-end items that would be meaningful to high-income families. Compensation Resources recommended certificates from a catalogue firm that offered top-end stereo equipment, trail bikes and other goods that start at about $1,000 in retail value.

“You are not going to drive the behavior of these well-compensated reps with toaster ovens,” emphasizes Daniel Moynihan of Compensation Resources. However, as reps earned points and spent them over time on the big prizes, they often were left with residual point values. So the plan added lesser-value items to assure that all points earned could be spent.

The plan was not cheap. It was budgeted at $250,000 per year and cost about $40,000 to set up, including software to track the point earnings. But it has proven both successful and popular. “The metric was a key business driver: design wins,” notes Moynihan. “So if they accomplished the desired activity, it was sure to drive future profits.”

The incentive has been extremely popular. When a new VP of sales considered dropping the gift-certificate awards, reps insisted that it be continued. The program now has added more point-earning goals, including meeting sales quotas and exceeding quotas by specified percentages. The next step is to extend the award to nonsales staff in the company.

Moynihan says the biggest traps in setting up noncash incentives are a failure to communicate and a failure to understand. “An award program has to be sold and sold big in order to change behavior,” he argues. And you must understand what your people value. Some people may just want a plaque, while others are strongly driven only by status symbols. You have to spend time up front, surveying your reps. What do they want? What will drive their behavior?”

Keep Incentives Focused

There are two absolute rules for making gift certificates work as sales incentives, according to Bob Davenport of HayGroup. “First, before you implement the program, you must have a clear understanding of its goals and objectives and know how you are going to measure performance,” Davenport emphasizes. “Second, you must understand what it will do for you that is different from or enhances your ongoing cash incentives. Companies always get into trouble when they don’t do both of these things.”

The second requirement often means that the first step in establishing a good noncash incentive is reviewing your basic compensation plan. “Gift certificates should never be a band-aid on a bad cash program,” Davenport emphasizes.

Experience provides some further guidance on these incentives. “From my own clients’ experience, I have learned that effective incentives must capture the attention and imagination of the reps,” Davenport says. “They work best when they are given almost by surprise.”

Davenport says this is necessary to avoid a common trap in awarding special incentives. “The worst happens when you give them out, for example, every April. Then people will wait and hold back until award time. Again, these incentives work best when they are unexpected.” The HayGroup consultant says that using special incentives only for new product launches could be a good way to keep them fresh, unpredictable and exciting.

Another related danger is simply having too many special award programs. “I had a client that had 13 ongoing special incentives,” Davenport remembers. “That is way too many to get anyone’s attention.” In that sense, noncash incentives are like cash compensation. Keep them as simple as you can to motivate the right selling behaviors.

And remember that special incentives like gift certificates are always add-ons to good cash compensation and sales management. “You never want incentives to detract from the core selling jobs,” Davenport urges. “Their purposes are to add excitement, to add energy and to add direction.”

Look for Special Goals

John Tallitsch of Buck Consultants agrees strongly with Davenport. “First, you have to ask how special awards will differ from the incentive portion of your cash compensation,” he explains. “Typically, incentive compensation is based on three or four objectives. Noncash incentives like gift certificates must augment that.”

For example, it may be very difficult for a cash incentive program to identify and reward individual contributions to team results. “The information system is only able to identify what the team has done,” Tallitsch notes. “But the team captain knows how each individual has contributed.” So the captain can recognize the hardest workers on the team with prizes such as gift certificates.

Another example is training. One of Buck’s clients wanted to shift the selling skills of its reps away from commodity to consultative selling. “They put in a very comprehensive training program, and they offered cash incentives for the ultimate sales results,” Tallitsch remembers. “But they worried that some reps would go for the cash by whatever means they could, and ignore the training. The company wanted to make sure they took the training seriously, because it was important to them over the long term.” So the company rewarded reps for completing and passing training sessions with noncash incentives. “They used this special recognition program to reinforce how important the training was.”

Tallitsch finds this kind of recognition program is also useful at rewarding reps who do something so significant that a customer reports back on it. “It’s a way of saying, ‘Good for you.’ Remember, you are always trying to augment the effects of cash compensation.”

The other common use of gift certificates is in sales contests. “A contest is a defined program geared to maximize results over a short time,” Tallitsch notes. Sales contests make each rep or team an adversary for the very large prizes that will usually go to only 10 or 20 percent of the sales force.

Competition brings two potential pitfalls. “You have to make sure the customers are in discrete territories and that there are no constraints on your inventory,” Tallitsch notes. “You don’t want reps or teams vying for the last bit of your inventory.” He suggests new-product launches as ideal candidates for these special contests.

But that raises another challenge. “You are aiming for repeatable and sustainable results, not just a short blip,” Tallitsch emphasizes. So in designing a contest you must already be looking to the future for how you are going to sustain the higher sales that a successful contest achieves. In the case of new products, the assumption is that a successful launch will breed higher sales through market familiarity. That means you must be confident in the product, not just in the contest.

But for established products, what’s your plan? “If you find yourself continually using contests, you may have big flaws in your basic compensation plan,” Tallitsch warns. “The purpose of a contest is usually to jump start a sales effort. You need to be pretty careful using contests, because they can add up to big money.”

One way of determining whether you need the extra motivation of gift certificates is to look at the productivity, measured by sales-per-rep, of your entire sales force. Suppose your reps are all bunched at the top, with high sales productivity. You are in very good shape, and probably should not fiddle with extra compensation costs, unless you want all your reps to do something new like launching a new product or acquiring a new skill.

In contrast, suppose all your reps are bunched at the bottom, with low sales productivity. Tallitsch says you likely have another kind of problem – maybe the product itself – but in any case, not a motivation problem. In most sales forces, at least some reps will be self-driven and sell well, even with less-than-perfect incentives. If even your best reps are performing poorly, don’t waste money on trying to motivate the rest.

In another common situation, there is a wide gap between high- and low-performing reps. What’s going on here? Of course, you should look for problems in territory alignment or other factors that might explain the gap. But this is also the ideal situation for looking at noncash incentives such as gift certificates to drive the behavior of lagging reps.

The appeal of gift certificates is growing. Tallitsch says the major trend in awards, for both special recognition and sales contests, continues to be greater flexibility. “Lifestyles have changed so dramatically and are so varied, it’s increasingly hard to find the right trip or the right prize for everyone. Merchandise certificates make awards convenient, since winners can pick what they want when they want it. They can even take advantage of store discounts.” Similarly, flexible travel certificates allow reps to choose when they will travel, avoiding commitment to a set period for a cruise.

But Tallitsch cautions managers about several other traps common to special-incentive contests. Where reps sell different products for different market managers, top management must assure that different award programs do not conflict with each other. “Otherwise, the sales force will sell whatever brings the highest rewards or whatever is easiest, or they’ll just be confused,” he emphasizes.

Managers must also avoid letting too many people win gift certificates, both to save costs and to prevent reps from viewing these awards as giveaways. And managers should always reinforce the behaviors that awards encourage, to ensure that results continue after awards.

Focus on the Entire Program

Although gift certificates are increasingly used for noncash awards, John Farrell, senior director of client strategy at the Carlson Marketing Group, says managers must not become too preoccupied with the awards themselves. Rather, they must consider the particular award as just one part of what he calls a “performance improvement program.”

A well-structured program should be self-funding and earn very high returns on investment. Do it right, Farrell says, and noncash incentives should boost performance “in the high teens, up to 20 percent.”

That sort of dramatic result requires thorough planning. “You can modify performance and motivate individual reps to exceed expectations and reach goals that go above and beyond normal,” Farrell argues. “But you must apply an integrated set of activities and elements.”

A thorough performance improvement program consists of five elements: goal setting, training, communication, measurement and rewards. Even for programs of short duration, each of these elements must be included for the best results to be achieved.

“You have to have the training component, for example,” Farrell says. “Otherwise, you may just be energizing incompetence.” For simple improvement programs, training may consist of just a clear emailed explanation of how the incentives work. Formal meetings might be necessary for more complex and ambitious efforts. Reps must know how to do what you are rewarding them for doing.

Like John Tallitsch, Farrell is concerned with long-term results. “An incentive just says do x and we will reward you with y,” he explains. “Performance improvement programs are often run for six to 12 months. And then they must impact the business for a long while.”

Picking the rewards is often the easy part. The hard parts are setting goals and training and communicating with reps to achieve them. Farrell aims for what he calls ‘mindshare.’ That is, an enduring change in the skills or behavior of reps.

Performance improvement programs are used for both inside reps and independent reps, Farrell notes. “There has probably been greater investment in rewards for the independent channel,” he says. “There are lots of competing pressures on these independent reps. You are competing against other companies’ programs and promotions. You want to capture mindshare as well as market share.”

The performance to be improved can be of several types: additional sales; new-product launches; quota performance on a monthly, quarterly or annual basis; referrals; even safety or customer service, as well as training. “It includes any activity that is important to your business,” Farrell summarizes.

Carlson helps its clients choose flexibly from different awards, including certificates for gifts or travel. Sales force demography and company strategy and budget usually determine the particular awards selected.

The thorough Carlson approach outlines all the steps that should be in a major incentive program, whether you do it yourself or hire a third-party expert to handle implementation.

Carlson’s approach to incentive programs consists of three basic steps: discovery, design and delivery. “In discovery, we understand the company, its goals, competitors and history,” Farrell explains. Design includes the five basic elements from setting goals to selecting rewards. Carlson will help estimate an ROI for the program at this stage. Delivery means that Carlson takes full responsibility for administering the program, getting awards to winners and reporting results to the client.

The three steps do not require much time. “We can do it all, from discovery through design and implementation, including printing and mailing promotional materials, in about six weeks,” Farrell says. Outsourcing the work to a firm like Carlson assures an integrated and comprehensive approach, freedom to pick the best awards, and freedom from the administrative headaches of fulfillment and reporting.

During implementation, Carlson monitors performance each month, and programs can be modified to energize the response. Most companies continue their core incentive programs, even as these improve. “They become a vital part of the fabric of the company’s relationship with its salespeople, its channel partners and its customers,” Farrell says.