Compensation Drives Sales Behavior? Is Compensation The Only Tool For Managing Sales Performance?

I’m participating in a discussion with a group of people I deeply respect.  It is about managing sales performance, particularly about getting sales people to do things they don’t like to do.  You know what those are:  Spending time doing reports for management, updating the CRM system, attending one more training class they think they don’t need, getting those expense reports in on time, participating on an internal task force……..   The list goes on.  The argument of sales people is always the same, “You’re keeping me away from the customer, don’t you want me selling?”  “This will keep me making my number.”

In the discussion, a suggestion has been made, “we should base some of their compensation on having them do this [activity].  What if we based X% of their bonus on doing these activities?”

I think this is a fundamental problem.  Sales people are motivated by compensation–aren’t all of us.  However, tying everything to the compensation plan is wrong.  It dilutes the plan–pretty soon the plan gets so confusing with the number of bonus elements, that it no longer becomes a motivator.  What are we saying our people should do?  Where should they focus?  Do we want them to sell?  Do we want them to do other things?  Which is more important?

This is a common problem, I think too often, managers try to leverage the compensation plan to drive the behaviors we want.  It’s kind of like a parent, giving a child a reward for doing what they have been asked.  Over the long term, it drives dysfunctional behaviors  –”You want me to do this, you have to pay me for it.”

We need to remember, there are several dimensions to performance management.  One is the compensation plan.  It should focus on the 2-3 major behavioral and performance expectations you want the sales person to focus on—in the case of sales people, that’s probably something directly related to sales.  We want to keep this clear, simple, unambiguous.

There is another side to performance management, that’s the performance plan or review process.  Too many managers don’t use this–frankly they do a bad job of managing this process and reviewing performance.  Just a point of clarification, many think a performance plan is something you put in place for people who are on notice and must improve their performance or be terminated. 

The performance plan is (or should be) something different.   It should set the basic standards of performance we have for each person in the organization.  It should establish each person’s goals and objectives for the year–not only their quota, but other expectations we have of the person and their expected contribution to the organization.  It provides a framework for the behavioral standards of each person.  The performance plan is where managers need to address expectations of the job that may not, or should not, be covered in the compensation plan.  If we expect CRM systems to be kept up to date, we don’t want to compensate them on doing this, we want to set it as a performance objective in their performance plan.  If we want them to do certain developmental activities, these should be covered in the performance plan.

I think a performance plan is critical for everyone.  It sets overall goals and objectives for each person in the organization, it outlines areas of personal development, it establishes “MBO’s.”   In many organizations, the performance plan and subsequent review is the basis for establishing raises, promotions and other things.  Every organization should have a performance planning process, every person should have a performance plan.  Managers should periodically review performance against the plan as part of their normal coaching process.  The goal is to make sure people achieve their performance objectives, that they are continuing to develop and perform.

It’s important for the sales person and the manager to develop the performance plan jointly–it provides the framework for them to work together, making sure expectations are being met, for aligning priorities and objectives, for growth and development.  It provides a road map for both the sales person and manager to inspect throughout the year.  It provides the basis for a coaching plan for managers.

In managing performance, we need to leverage both the compensation plan and the performance plan.  Without both, managers aren’t leveraging the tools necessary to develop their people and drive the highest levels of performance.