How Compensation REALLY Affects Sales Performance
You pay the most successful salespeople more money, and that motivates them to do better, right?
Or does it?
Find out in this post, as we analyze findings from several sources around the web:
1. Survey Results from Velocify Show Some Relationship Between Performance & Compensation
A Velocify survey of 800 sales professionals found 60% of companies with below average market compensation increased their revenues year-over-year. That same survey found the number was 73% for companies with above average market compensation.
Their survey also found 66% of sales leaders at above average market compensation companies rated employee morale as “excellent.” That compares to 21% at below average market compensation companies.
They don’t clarify what that relationship is, but one certainly exists.
2. Dave Kurlan Questions Whether Compensation Should Tie Only to Results
He uses an interesting scenario to show why you maybe wouldn’t want to do this.
Say a company has 5 salespeople. The company expects $2 million in annual sales from each.
Each of those people get 0, 27, 16, 6, and 30 leads. Salesperson #1, who has no other leads in their pipeline, closes the biggest deal of the year – $500,000 – in the 1st quarter.
But then they don’t close any for the rest of the year because the company has an 8-month sales cycle. And the company also didn’t deliver them any additional opportunities.
So that person gets overpaid because they nail their 1st quarter quota, but then bomb the rest of the year.
Compare that to salesperson #2, who misses their quota with $385,000 in sales in the first quarter. But then, this person has the opportunity to land $1.85 million in additional sales.
Remember, salesperson 1 didn’t have the same level of opportunity. And, they appear to be a better salesperson right now than salesperson 2. But, #2 may be the better salesperson at the end of the year (in terms of total results).
So, does it make sense to pay based only on results? Say #1 finishes lower than their annual quota, but had no opportunity to beat it.
What would their morale be?
Or, would it be fair to somehow pay on a combination of effort and results? And in that case, how would that affect the morale of employees with different levels of opportunity?
3. What about Offering Prizes for Meeting Sales Targets?
Thomas Steenburgh and Michael Ahearne tested this out and discuss the results at a Harvard Business Review article.
The problem is that companies unwittingly structure prizes so “star performers” win them. “Core performers,” employees that do well but aren’t among the sales elite, know stars will win, so they don’t up their own efforts.
The key, these authors say, is to offer non-cash gifts as lower-level prizes. Core performers must see these gifts as having equal or superior value to what the stars can win.
As an example, they compare awarding a golf vacation to a local family getaway. Even though the star wins the golf vacation, the core performer feels like they won because they rationalize, “I prefer spending time with my family versus golfing anyway.”
Get Feedback from Your Employees
As a sales executive, it’s not up to you to dream up the perfect decision to employee compensation. But it is on you to make the final decision.
Work with your employees to design motivating compensation programs. Continue to get ongoing feedback on workplace morale.
You must do whatever it takes to make your employees feel valued. Your company’s livelihood depends on it.
