Page 171 - HBR's 10 Must Reads - On Sales

HOW TO REALLY MOTIVATE SALESPEOPLE

Using Real Company Data to Build Understanding

The big difference between earlier research on sales compensation
and the research that’s come out in the past decade is that the latter
is not based just on theories. Although companies tend to be very
secretive about their pay plans, researchers have begun persuading
them to share data. And companies have been opening up to aca-
demics, partly because of the attention being given to big data; man-
agers hope that allowing researchers to apply high-powered math
and estimation techniques to their numbers will help them develop
better tools to motivate their workforce. Indeed, these new empiri-
cal studies have revealed some surprises, but they have also con-
firmed some of what we already believed about the best ways to pay.
Tom Steenburgh, a professor at the University of Virginia’s
Darden School of Business, published one of the first of these pa-
pers, in 2008. He persuaded a B2B firm selling office equipment to
give him several years of sales and compensation information. This
unique data set allowed Steenburgh to look at sales and pay data for
individual salespeople and use it to make assumptions about how
pay influences behavior. The company had a complex compensation
plan: Reps earned a salary, commissions, quarterly bonuses based
on hitting quotas, an additional yearly bonus, and an “overachieve-
ment” commission that kicked in once they passed certain sales
goals. He focused on the issue of timing games: Was there evidence
that salespeople were pushing or pulling sales from one quarter to
another to help them hit their quotas and earn incentive pay? That’s
a really important question, because pushing and pulling don’t in-
crease a firm’s revenue, and so paying salespeople extra for doing
that is a waste.
Even though the salespeople in the study could receive (or miss
out on) substantial bonuses for hitting (or missing) quotas, Steen-
burgh found no evidence of timing games. He concluded that the
firm’s customers required sales to close according to their own needs
(at the end of a quarter or a year, say) and that the firm’s manag-
ers were able to keep close enough tabs on the reps to prevent them
from influencing the timing of sales in a way that would boost their

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