Page 165 - HBR's 10 Must Reads - On Sales

HOW TO REALLY MOTIVATE SALESPEOPLE

system was fairly basic: Reps earned a salary and a commission of
around 1% of sales. The company worried that the system was too
focused on outcomes and might over- or under-reward reps for fac-
tors outside their control. So it began basing compensation on their
effort and behavior, not just on top-line sales. For instance, under
the new system, a portion of compensation was based on customer
satisfaction surveys, the number of prospective accounts visited
(even if they didn’t buy), and the retention of existing accounts.
Largely because of this consulting assignment, I became so cu-
rious about the best ways to compensate salespeople that I began
reading academic articles on the subject. Eventually I pursued a PhD
in marketing at Yale, where I studied the theory and practice of how
companies can and should manage and pay salespeople—research I
now continue at Harvard Business School.
Although there are fewer academics studying sales force com-
pensation and management than researching trendy marketing sub-
jects, such as the use of social media or digital advertising, in the
past decade it’s become a fast-moving field. While some of the basic
theories established in the 1970s and 1980s still apply, academics
have begun testing those theories using two methods new to this
area of research: empirical analysis of companies’ sales and pay
data, and field experiments in which researchers apply various pay
structures to different groups of salespeople and then compare the
groups’ effort and output.
This new wave of research is already providing evidence that
some standard compensation practices probably hurt sales. For in-
stance, the research suggests that caps on commissions, which most
large companies use, decrease high-performing reps’ motivation and
effort. Likewise, the practice of “ratcheting” quotas (raising a sales-
person’s annual quota if he or she exceeded it the previous year) may
hurt long-term results. Research based on field experiments (as op-
posed to the lab experiments academics have been doing for many
years) is also yielding new insight into how the timing and labeling
of bonuses can affect salespeople’s motivation.
In this article I will take readers through the evolution of this
research and suggest the best ways to apply it. With luck, this

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