Page 168 - HBR's 10 Must Reads - On Sales

HOW TO REALLY MOTIVATE SALESPEOPLE

to allow her to book a sale that would ordinarily be made in January
during the final days of December instead (this is known as “pull-
ing”); a rep who’s already hit quota, in contrast, might be tempted to
“push” December sales into January to get a head start on the next
year’s goal.
While a very simple comp plan such as the one advocated by Hol-
mstrom and Milgrom can be appealing (for one thing, it’s easier and
less costly to administer), many companies opt for something more
complex. They do so in recognition that each salesperson is unique,
with individual motivations and needs, so a system with multiple
components may be more attractive to a broad group of reps. In fact,
to get the optimal work out of a particular salesperson, you should
in theory design a compensation system tailored to that individual.
For instance, some people are more motivated by cash, others by
recognition, and still others by a noncash reward like a ski trip or a
gift card. Some respond better to quarterly bonuses, while others are
more productive if they focus on an annual quota. However, such an
individualized plan would be extremely difficult and costly to ad-
minister, and companies fear the “watercooler effect”: Reps might
share information about their compensation with one another,
which could raise concerns about fairness and lead to resentment.
So for now, individualized plans remain uncommon.
Concerns about fairness create other pressures when designing
comp plans. For instance, companies realize that success in any
field, including sales, involves a certain amount of luck. If a rep for
a soft-drink company has a territory in which a Walmart is opening,
her sales (and commission) will increase, but she’s not responsible
for the revenue jump—so in essence the company is paying her
for being lucky. But when a salesperson’s compensation decreases
owing to bad luck, he or she may get upset and leave the firm. That
attrition can be a problem. So even though there are downsides to
making a compensation system more complex, many companies
have done so in the hope of appealing to different types of salespeo-
ple and limiting the impact of luck by utilizing caps or compensating
people for inputs or effort (such as number of calls made) instead of
simply for closing sales.

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