Aligning Sales Goals and Incentives

On paper, the theory behind sales incentive alignment seems pretty straightforward. Identify a key business goal, such as new product sales, profitability, account penetration, or reducing inventory, and then develop the right programs to drive results.

In practice, however, companies often unwittingly wind up developing and running incentive programs that lead to wasted energy. Sandra Daniel, the president and CEO of the FIRE Light Group (www.incentivesmotivate.com), cites the example of a credit union that came to her after a failed incentive promotion.

“The lending department wanted to double the credit union’s overall loan volume, so an incentive for the loan officers was established,” she says. “For one quarter the officers were paid an additional two dollars for every application they brought in. So, naturally, what the company got were lots of new loan applications from people who wouldn’t qualify for the loans. This wound up increasing the organization’s costs because it was processing all this useless paperwork and not getting any closer to its goals.”

Such alignment disconnects can be caused by the following:

• a lack of understanding of incentive design
• failure to think through the likely outcomes of rule structures
• legacy programs that persist even after business goals have shifted

Julien Dionne, a strategy manager at OpenSymmetry (OpenSymmetry.com) and blogger (www.leapcomp.com), suggests that many companies’ incentive practices need to catch up with the rapid pace of change in today’s marketplace.

“A common assumption in the comp-planning world is that reviewing compensation plans is an activity that takes place once a year,” he says. “In some circumstances, however, as we’ve seen this past year, it makes sense to tweak the plans, adjust the performance levels, and restart the performance period midyear to keep employees motivated.”

Dionne and Daniel agree that before making any changes to incentive programs, organizations need to realistically consider what the expected outcomes will be based on an understanding of motivational drivers and not blind expectations.

“An organization shouldn’t simply say to the salespeople, ‘We’re going to pay you on new revenue,'” says Daniel. “The organization needs to consider the type of new revenue, and make sure it’s not encouraging salespeople to bring in new clients who don’t pay their bills or churn existing clients in a way that makes them seem like new revenue. At the core, it’s a matter of asking a series of questions that begin with, ‘What if?'”

Daniel adds that program developers should think through the ripple effect the new program will also have on the larger organization — on product people, the legal staff, administrators, and anyone else who will be involved in handling the increased demand. Then these costs need to be factored into the overall budgeting and communications strategies.

Salespeople typically provide the final piece to the sales incentive alignment puzzle. Dionne argues that salespeople are usually receptive to incentive programs driven by key business goals, as long as the company communicates why alignment benefits both the reps and the company. “Getting buy-in from the sales force is obviously one of the most important aspects of running a successful incentive program,” he says.

Daniel agrees but emphasizes that generating this kind of sales staff buy-in is a strategy, not a one-time event. “Using incentives to drive business behavior requires an understanding at all levels of the organization,” she says. “It should be woven into communication plans, the HR and sales budgets, the rewards and recognition system, and in every other facet of the organization where it needs to be demonstrated that the organization truly values its employees and their production. It is really a complete loop; if people feel valued, they want the organization to succeed. They see that when the organization succeeds, they are rewarded. Then they understand clearly how their behavior — and what exact behavior — directly affects the success of the organization. If they are then recognized and rewarded for that, the loop is complete.”

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