Are incentives the sales industry’s narcotic?
19th December 2018 | Mark Bryce
This 2016 research conducted in the context of a programme of study leading to the MSc Professional Practice in Sales Leadership qualification seeks to understand the effects of sales force incentives and how to balance pay plans with company objectives (B2B).
As a sales director of a successful office equipment business for over 20 years, I could be forgiven for being one of many in our industry who have used incentive schemes as a tool or motivator to directly impact on sales results, without actually standing back and examining their real effects in any depth and how they play a role in delivering the desired results. I may have noticed from time to time that certain incentives have had undesired consequences and corrected them, but did I really understand what forces were at play and how incentives align with business strategy, values and sales behaviours? Are we as sales leaders “addicted” to sales incentives and are they the “narcotic” of the whole sales industry? Are we in danger of falling foul to them and is there a better way to deliver sales pay plans?
Segalla et al (2006; 419) point out that B2B salespeople are often the direct link between a firm and its customers, they usually know the client better than any other employee and often work in the field away from direct supervision. Increasingly, good team work is a determining factor in winning sales and building long-term relationships. This also creates important compensation design issues for managers in charge of their motivation and how to deliver the reward. One fundamental concern for sales leaders looking at how to motivate their whole team, is understanding how to distribute their financial compensation (Ramaswami & Singh, 2003).
During my Masters course I gained new insight into intrinsic motivation, through coaching and my reading, and understanding how this can complement extrinsic motivation. From my own experience there are more forces at play when considering sales motivation other than incentives alone, emotions of the salesperson being one of them along with their values. Sales compensation indeed plays a part in sales motivation but, in order to understand incentives deeper and their effects, we must also consider all of a salesperson’s triggers when it comes to motivation, behaviour and performance.
Mallin and Pullins (2009) posit that motivating and directing the salesperson to increase productive customer relationships, whilst rewarding performance is a hot topic and one of the most pressing issues that sales leaders face today. They go on to say that separately, motivation, customer relationship building, compensation and sales controls have a vast academic literature and theory established, so we should be able to understand how all of these topics triangulate, shouldn’t we? There are also lots of different types of incentives, so how do we know which ones are the most effective and how should this all be balanced to create the “perfect storm” for a sales pay plan, can we create a “utopian” model?
A “spiffy” world
In the sales world we have come to accept there is often support from our suppliers in the form of incentives too. Generally they have become accepted as it means less emphasis on the employer to make up all of the sales rewards and compensation. These incentives are known as “spiffs” (Sales Promotional Incentive Funds) or “push money” (PM). These types of incentives have been used for decades and manufacturers use them to motivate salespeople to promote certain models they want to shift out of their stockpiles quicker or to incentivise the salesperson to promote their goods ahead of their competitors’ products.
These types of incentives can come in the form of money or merchandise paid directly to the salesperson from the supplier or sometimes they can accrue points to draw down prizes or cash rewards (Radin and Predmore, 2002). They also point out that there is concern that these type of incentives can cause negative consequences to all the stakeholders including the manufacturers, retailers, sales staff and especially customers. They are often seen as “bribes” which encourage the salesperson to recommend one product over another which may ultimately be less suited to the customer. This clearly introduces bias and borders on being unethical. As an insider researcher, I aimed to investigate all types of sales incentives and examine their effects on motivation, behaviours and performance.
What else is at play here?
Miao (2007; 417), drawing on Amabile et al (1994), points out that research into social psychology has demonstrated that intrinsic/extrinsic motivation is composed of cognitive and affective dimensions that have distinct antecedents and consequences. Therefore, relying on I/E motivation without incorporating other dimensions and catalysts may compromise research into the field of sales motivation, so we can’t just look at incentives alone for our answers. For instance, a company may have various sales control systems in place: behavioural controls (such as training, monitoring, evaluation and compensating for good behaviours) and outcome controls (such as rewards for proportion of sales volume or revenues). However, we must also consider how intrinsic motivators such as pride and personal values can help deliver sound customer relationship building.
Miao et al (2007), building on Ryan and Deci (2000), explain how the “Self-Determination Theory” contends that the increased cognitive capacity (eg challenge seeking) and elevated task enjoyment can accelerate the internalisation of extrinsic rewards (compensation or recognition). There are arguments that focussing on a salesperson’s activity as a control, negatively impacts upon how a salesperson feels (Jaworski and Kohli, 1991; Ryan and Deci, 1985, 2000.) Capability controls such as developing and rewarding salespeople’s selling skills, however, seems to impact intrinsic motivation (Miao et al 2007). Arguably there’s a balance that needs to be found that blends incentive packages and how they are delivered.
The final piece of my query was to look at how sales managers’ own practice can impact upon a salesperson’s motivation. In my early years in sales, I remember working under a sales manager who was too focussed on KPIs, spent little time on developing his team, very rarely patted anyone on the back but enjoyed dishing out criticism and was very authoritarian. He didn’t really trust anyone, rarely listened and only cared about one thing, how much override he was making – ultimately all he cared about was himself. Arguably, no matter what compensation plan or control system is in place, this will only work if it’s backed up by good leadership.
My aim with this project was to research all areas of sales motivators, concentrating particularly on incentives and sales control systems, studying their effects on sales performance and also behaviours. The ultimate goal was to come up with a new hypothesis, a new hybrid model that could create the perfect conditions. This would be a model which could deliver the desired results and help build valued customer relationships, as well as good sales performances and help create intrinsically motivated staff.
The aim of this project was to deepen my understanding of the effects of sales incentives, how salespeople are motivated by them and what behavioural traits are caused by them. My project examined how sales processes are influenced by different types of sales incentives. This research also looked at how they can influence team cohesion, sales outcomes, company values, performance and the overall customer experience. I explored intrinsic and extrinsic motivators behind different types of sales plans and incentives programmes, and which ones elicit the best outcomes and performance.