Which Comes First, Motivation or Compensation?

Most companies struggle to take full advantage of sales compensation planning potential due to the lack of understanding the impacts to the organizations profitability, use of the proper tools, compensation expertise and visibility. The result is often misalignment between plans and corporate goals, delays in payment and reporting, unclear plan documentation, inaccurate or incomplete calculations, and excessive overhead. The strategic nature of incentive compensation planning becomes more apparent from the perspective of an organization’s second highest variable, expense after salaries. Paying on these ineffective plans can often lead to the cost exposures of overpayment. In the end, the sales force becomes de-motivated, while productivity is drained and sales opportunities are missed.

The output of salespeople is usually measurable against goals, costs, results, market potential and the competition. Therefore, the compensation plan should be designed to direct the sales force activities and behaviors to align with the corporate revenue and profit goals. Most organizations recognize the sales force as a significant contributor to the achievement of revenue and profit objectives. The sales force productivity assessment process should include measuring financial results. These measures can be stated in the compensation plan as absolutes of a fixed level of sales and or profits.

Financial results can be conveyed as a percentage of goal attainment or relative to prior year’s performance. They can also be expressed in relation to market share against competitors. Corporate strategy and management will decide which results drivers are most important and that will influence sales force behavior to achieve the most advantageous results.

The design and implementation of a sales compensation plan is significant with the organization’s long-term strategy and business philosophy to improve sales force performance, and has become a key driver to successful and profitable business growth.  It is simply not enough to make an attempt to modify an existing version of a compensation plan in hopes of motivating the sales force. While every compensation plan has advantages and disadvantages in the incentive effects, incentive intensity and risk the use of behaviors versus results provide performance measures mechanisms.

Because compensation plans have limitations based on organizational strategies and personality profiles of the sales force, organizations often elect to combine other productivity drivers when measuring results. Competitive compensation plans could result in high levels of competitive behavior and alienation of less aggressive personality types. A cooperative compensation plan could result in the disproportionate compensation of the efforts of high individual performers and create a de-motivating effect. However, offering a compensation plan aligned with the corporate strategy and goals minimizes the impacts to the organizations profitability.

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