How to Motivating Salespeople: What Really Works
by Thomas Steenburgh and Michael Ahearne
Artwork: Chad Wys, Hymn 2, 2011, chromogenic print, 30" x 24.2"
The finance organization, meanwhile, views the comp plan as an expense to manage. That’s not surprising: Sales force compensation represents the single largest marketing investment for most B2B companies. In aggregate, U.S. companies alone spend more than $800 billion on it each year—three times more than they spend on advertising. So naturally finance tries to ensure that comp plans have cost-control measures designed into them. Some companies offer flat commission rates so that compensation costs rise and fall with revenues. Others cap compensation once salespeople hit certain performance targets. Still others use bonuses to control spending by pinning salespeople’s quotas to Wall Street revenue targets. (See the sidebar “When Finance Calls the Shots.”)
But a few progressive companies have been able to coax better performance from their teams by treating their sales force like a portfolio of investments that require different levels and kinds of attention. Some salespeople have greater ability and internal drive than others, and a growing body of research suggests that stars, laggards, and core performers are motivated by different facets of comp plans. Stars seem to knock down any target that stands in their way—but may stop working if a ceiling is imposed. Laggards need more guidance and prodding to make their numbers (carrots as well as sticks, in many cases). Core performers fall somewhere in the middle; they get the least attention, even though they’re the group most likely to move the needle—if they’re given the proper incentives.
Accounting for individual differences raises the odds that a compensation plan will stimulate the performance of all types of salespeople. In this article we will discuss how companies can do this to deliver greater returns on investment and shift their sales-performance curve upward.
Motivating Core Performers
Ironically enough, many incentive plans come close to ignoring core performers. Why does this group tend to be off the radar screen? One reason is that sales managers don’t identify with them. At many companies the managers are former rainmakers, so they pay the current rainmakers an undue amount of attention. As a consequence, core performers are often passed over for promotion and neglected at annual sales meetings. But this is not in the best interest of the company. Core performers usually represent the largest part of the sales force, and companies cannot make their numbers if they’re not in the game. Here are some proven strategies for keeping them there.
Multi-tier targets. A project that Mike recently worked on with a national financial services company shows that such targets help motivate core performers. At the company a major proportion of the salespeople fell into this category. In bearish months they almost always found a way to hit their targets, but in bullish months they seldom exceeded their numbers substantially. In an effort to nudge them upward, the company experimented with tiered targets.
The first-tier target was set at a point that a majority of the company’s sales agents had historically attained, the second-tier target at a point reached by a smaller percentage of the sales force, and the third-tier target at a point hit only by the company’s elite. All the firm’s agents were divided into two groups: The first was given targets at tiers one and three, and the second group got targets at all three tiers. The hypothesis was that tiers would act as stepping stones to guide core performers up the curve.
The tiered structure indeed had a profound impact. Core performers striving to achieve triple-tier targets significantly outsold core performers given only two tiers. By contrast, multi-tier targets did not motivate stars and laggards as much: No significant differences in performance were found for those segments.
Thomas Steenburgh is an associate professor in the marketing unit at the Darden School of Business and formerly worked in incentive strategy at Xerox. Michael Ahearne is the C.T. Bauer Chaired Professor in Marketing at the University of Houston and the executive director of the Sales Excellence Institute.
