Page 176 - HBR's 10 Must Reads - On Sales

CHUNG

be too low—and quotas do need to be adjusted from time to time.
But in general it’s important to prevent reps from feeling that unfair-
ness or luck plays a part in compensation, and resetting quotas can
contribute to that perception. And if something outside the sales-
person’s control—such as an economic downturn—made it more dif-
ficult to hit a goal, I would consider reducing the quota in the middle
of the year. It’s important to keep quotas at the right level to properly
motivate people.
On the basis of my own research, I would advocate for a pay sys-
tem with multiple components—one that’s not overly complicated
but has enough elements (such as quarterly performance bonuses
and overachievement bonuses) to keep high performers, low per-
formers, and average performers motivated and engaged through-
out the year.
Finally, I would urge my client companies to consider experi-
menting with their pay systems. Over the past decade managers
have become attuned to the value of experimentation (A/B testing,
in particular); today many consumer goods companies experiment
constantly to try to optimize pricing. There are important lessons
to be learned from doing controlled experiments on sales reps’ pay,
because the behaviors encouraged by changes in incentives can
exert a large influence on a firm’s revenue, and because sales force
compensation is a large cost that should be managed as efficiently as
possible. Involving academic researchers in these experiments can
be beneficial: Having a trained researcher take the lead generally
will result in a more controlled environment, a more scientific pro-
cess, and more-robust findings. These studies also help the world
at large, because research that improves how companies motivate
salespeople will result in better and more-profitable businesses for
employees and shareholders.
Originally published in April 2015. Reprint R1504C

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