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How Your Compensation Plan is Demotivating Your Sales

What demotivates sales reps? Money!

Sure, you might think money is the very thing that motivates sales reps!

Let me explain.

Sales reps are not all cut from the same cloth. Like buyers, they have different preferences, communication styles and personalities. So why is it that I still see compensation plans that reward only revenue results?

Do not treat all sales reps as one person, when their motivation and drivers are personal and individual! No sales rep is going to hustle when the compensation is not worth the work they put in. Sales leaders often complain that the CRM system is not updated when sales reps see this as extra work that has no benefit to them. If you want to change behaviour, you must reward the behaviours you want to encourage.

The reward is not just about money; it is how you value a rep’s hard work with incentives, rather than reward only the results no matter how short term.

A compensation plan is not only a reward package it is a reflection of the organisational culture. If the compensation plan is simple to understand and if it is progressive, transparent, enabling and fair then so is the organisation. Too often I see compensation plans that are complicated favouring tenure or more significant contracts.

A compensation plan is a real opportunity to develop a motivated culture and create lasting impact.

I remember an experienced sales rep who had one significant customer contract that was a key revenue generator for the supplier. The sales rep was consistently top of the leaderboard, this gave him power, autonomy and rewards. It also demotivated the remain sales team. It was also a risk to the supplier, you have heard of putting all your eggs in one basket!  Rather than invest in the development other contracts, through the sales team, that had the potential to over time equal the success. The supplier continued to reward the sales rep for work he had secured years earlier. You can guess what happened the Sales rep walk, and so did the large customer contract. Ouch!

A good sales compensation plan is a structure to reward continuous improvement. The specific behaviours that create the culture for growth; not only revenue result.

In the Harvard Business Review article, How to Really Motivate Salespeople, Dr Doug J. Chung research found three main motivating factors when designing a compensation plan.

3 Motivating Factors of a Compensation Plan:

  1. Salary vs Compensation. If industry’s sales cycle do not fluctuate with the season, then compensation should be directly tied to performance.
  2. Timing. Chung said, great reps need a year-end bonus to motivate them, but middle and low performers need frequent benchmarks (such as quizzes) to keep them on track. I say timing is also linked to pipeline characteristics, some contracts come around every 4 years’ other sales opportunities are more regular.
  3. Ratcheting. Many companies annually increase sales quotas of top performers while Chung’s studies indicated that this is demoralising. Effectively, penalising succeed, while setting the bar higher for the whole team. Chung recommends giving over-achievement of quota extra bonuses for the % increase over the target.

I Would Add the 4th Factor to Future Proofing your Compensation Plan:

  1. Rewarding the behaviours. You want to encourage is an essential part of the compensation. For example, 80% of sales need five follow-up calls after a meeting, yet, 44% salespeople give up after one follow-up call, an import behaviour you may want to reward if you did you would see an increase in your sales conversion rate.

If you want your sales reps to learn new skills, software or behaviours then provide incentives and make it fun. This action will drive your sales team to improve continuously. A successful sales rep does not magically appear. They develop, they have good sales leaders and learn from their experience. Your compensation plan can play a role in motivating, encouraging and sharing these success behaviours.

Scale Your Sales is a programme that shows not just tells ways to adapt skills to modern challenges.  It promotes coaching to encourage these success behaviours along with an active compensation plan.

Compensation is a tool that can reward or penalised. The more successful the sales rep, the less money is a motivating reward. Nothing demotivates a sales rep more than poor leadership and culture.

Other intrinsic rewards are:

  • An enabling open leadership team.
  • A motivating culture or community.

A morale killer is a leadership team that hands down blame while taking credit for successes.  An enabling open leadership takes responsibility when things go wrong. They own the process to fix the problem and delegates the success of the team.

Transparency openness and honesty is a winning team. As a sales leader or CEO, if you want to get a jump on issues, sales reps must feel able to ask for help and know they will gain support without judgment.

In a motivating culture or community, everyone feels valued and able to contribute to the success, whatever form that takes. If your compensation plan only values and measures revenue and not behaviours. You are likely to create a culture of ‘sell by any means necessary’ which will devalue the brand and the culture.

Continuous improvement is a collective effort within the team and across functions areas. You want to encourage mentor-mentee relationships within the sales team and your star sales to share their experience and methods with the team. You want to create a learning environment with clear goals and values.

Motivation must not depend on one person or leader but nurtured within the collective community culture.

If you get the compensation plan right then, success will inspire all your sales reps, wherever they are on the success path. Building a culture where people feel motivated to inspire each other means creating the structure and knowing when to get out of their way.

What do you Think?

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