Page 173 - HBR's 10 Must Reads - On Sales

HOW TO REALLY MOTIVATE SALESPEOPLE

effectively incentivized by a yearly quota and bonus, more-frequent
goals helped keep lower performers on track. Some people compare
the way people compensate a sales force to the way teachers mo-
tivate students: Top students will do fine in a course in which the
entire grade is determined by a final exam, but lower-performing
students need frequent quizzes and tests during the semester to mo-
tivate them to keep up. Our study showed that the same general rule
applies to sales compensation.
Our research also suggested that the firm would benefit if it
shifted from quarterly bonuses to cumulative quarterly bonuses.
For example, say a salesperson is supposed to sell 300 units in the
first quarter and 300 units in the second quarter. Under a regular
quarterly plan, a salesperson who misses that number in the first
quarter but sells 300 units in the second quarter will still get the
second-quarter bonus. Under a cumulative system, the rep needs
to have cumulative (year-to-date) sales of 600 units to get the
second-quarter bonus, regardless of his first-quarter performance.
Cumulative quotas do a better job of keeping reps motivated during
periods in which they’re showing poor results, because reps know
that even if they’re going to miss their number, any sales they can
squeeze out will help them reach their cumulative number for the
next period. In fact, even before we made our recommendations
to the company in our study, managers there decided to move to
cumulative quotas.

Out of the Lab, into the Field
In addition to sharing sales and compensation data with academics,
companies in the past several years have been allowing controlled,
short-term field experiments in which researchers adjust reps’ pay
and measure the effects. Prior to the use of field experiments, most
academic experiments regarding sales force compensation took
place in labs and involved volunteers (usually undergraduates)
rather than real salespeople. Shifting from this artificial setting into
actual companies helps make the results of these studies more prac-
tical and convincing.

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