By Towers Watson
Sales incentives are a powerful and invaluable tool in the sales management process, but they can derail effective selling when used inappropriately. What constitutes inappropriate use? Letting incentives do the job of the first-line sales manager.
This occurs more commonly than most would think. And it typically happens in organizations where the first-line sales manager abdicates responsibility for managing the field sales force and relies solely on the incentive plan to communicate sales strategy and guide sales representatives’ (reps’) behavior and actions.
While this kind of hands-off management can take place in any kind of sales organization, at any time, it is most typically seen in these situations — 1) a top sales rep with insufficient management skills is appointed as sales manager and receives no formal training and 2) a successful, long-tenured manager ‘takes it easy’ letting a seemingly well-oiled machine run itself.
Obviously, the mere fact that you have a new first-line manager or, conversely, an experienced hand, is not necessarily a tip-off for trouble in your field sales organization. In determining your responses, think back over the past six months or so to get as accurate a reading as possible on the sales force’s current performance.
Given the choice, a rep will always choose to focus on a product of service that sells well over an unknown quantity. It’s the sales manager’s job, therefore, to make sure a rep does not have a choice; that he or she has clear instructions about product focus and sales goals.
When new products are not moving, it is likely that reps have not received appropriate directions and are taking their cues from incentive goals that reflect an outdated selling strategy. In one organization we worked with, the sales manager assigned new product goals, but continued to rely on an incentive plan that chiefly rewarded sales in volume, regardless of product type. Not surprisingly, as long as the incentive plan remained unchanged, reps’ behavior remained unchanged.
When volume fails to produce expected profits, it is often because reps are going for the short-term payoff and emphasizing less profitable transaction sales over longer term, but ultimately more profitable, solution sales. Again, a hands-off sales manager and an outmoded incentive plan may be the twin culprits.
One company, for example, had a new sales strategy that involved bringing customers an integrated set of products designed to address broad business issues. Although this represented a major internal culture shift, senior management did not place enough emphasis on the change from short-to-long-term selling and failed to define clearly the profitability expectations and goals for its sales managers.
The sales managers, for their part, continued to use an incentive plan that rewarded quick results over longer-term relationship building. As a result, no one was bringing integrated sales packages to the market, and the hoped-for-profits failed to materialize.
When all reps easily exceed their goals, it’s a clear sign that the goal-setting process is badly out of date. And such “walkover” goals can be as de-motivating, in their own way, as unrealistic goals because they do not call for much creativity or initiative from reps.
Effective goals should be designed to stretch the sales force and create interest and a sense of challenge. A good rule of thumb is to allow 80 percent to 90 percent of the sales reps to reach threshold, 50 percent to 60 percent to meet or slightly exceed 100 percent of their goals, but only 10 percent to considerably exceed their individual goals.
Although sales results are only one element of the total sales job, managers often evaluate reps against this single criterion. For a manager, it simplifies communication about performance and helps avoid what might otherwise be a difficult or painful conversation about various elements of job performance. But it is another sign of abdication of responsibility. This tends to be a particular problem for new sales managers, who often do not receive adequate training in delivering negative feedback to subordinates or in setting a range of both quantitative and qualitative performance measures.
The performance management process is a key tool to engage reps in personal development of their sales skills, reflection on sales behaviors and longer-term activities related to the health and development of the future.
Companies often find they have some territories that have been underperforming, but which have high potential for growth. In many cases, it is just a matter of getting the right salesperson in place to harvest this untapped potential.
But if the pay plan is overly focused on volume and commission (rather than growth and/or performance against goal achievement), it may also mean a pay cut in the short term for any salesperson taking on this assignment.
While it may be the right career move for the individual, as well as the right move for the company and its customers, their pay plan could serve as a major hurdle to making this work for everyone’s benefit- in both the short-and long-term.
This is probably a giveaway question about who is really managing the sales force. If you are tempted to say no, you may be far more dependent on your incentive plan than you think. The fact is incentives are not the only element in changing behavior. And there are many ways to manage and change behavior without increasing overall compensation costs. But if first-line management is not well versed in the skills needed to manage people effectively, a company has no choice but to fall back on its incentive plan as the only means of communicating sales strategy.
The role of the first-line sales manager requires an active, hands-on management style. Sales managers need to mentor, coach and give direction to reps, and lead by example. They need to keep in close contact with their field sales force by discussing problems, modifying goals, evaluating performance, and providing help. Hence, they need first-rate leadership, communication and management skills, with a clear understanding of the company’s selling strategy and how that strategy links to both the compensation and recognition programs. Sales managers certainly need to use tools, including incentives, to help get the job done. But they cannot let the tools do their work for them without adverse consequences for the sales process.
This article was provided by Towers Watson.