Oh, those loyal salespeople. The high performers who exceed their quota year after year, working Saturdays and flying around the country at a moment’s notice, closing the deals on teammates’ stubborn accounts, even if they’re not actually paid for it. Those loyal, selfless, team players.
We all know salespeople are motivated by their compensation (and success, but mostly money). Most high-performing salespeople—those who consistently meet or exceed their quota—will not remain at a company where they do not earn significantly more than their lower-performing teammates. They all know who’s doing well and who is not pulling their weight; sales leaders know, too. And, using the incentive compensation program, they have a nice opportunity to play Robin Hood, in reverse—taking compensation away from the low performers and giving it to the high performers.
Last year, Harvard Business Review published a piece with a statistic workplace leaders are still talking about: “A high performer can deliver 400 percent more productivity than an average performer.” When high performers have managerial support, they are more likely to enjoy their work and remain satisfied with their workplace. In other words, sales compensation can help you retain your best people.
To harness this power, however, a clear sales compensation plan is needed. U.S. companies spend more on sales compensation than the entire U.S. Federal Defense Budget, but many organizations focus too quickly on the numbers rather than connecting the plan to what the company wants to accomplish. Or they ratchet up the quotas by 10 percent, add two new performance measures to an already complex plan, send an e-mail, and consider it done. Professionals don’t know how they are being paid—they just hope their check is right. This simply is not an effective allocation of pay or method of motivating high potentials.
This lack of clear strategy and understanding makes it impossible to motivate in a way that will advance the organization. Instead, we need to connect front-line compensation with both the individual and the overall organizational strategy, so that incentive pay ultimately will do what it should—further drive high performers and revenue.
Here is a three-step guide to building a compensation plan that will increase worker productivity:
- Set high upside potential. Most companies pay their salespeople through a combination of base pay and incentive pay. Base pay is guaranteed, and incentive pay is earned by how close he gets to quota. The exciting stuff comes at the next level, above incentive pay, called upside potential. Upside potential is what a salesperson can earn if she exceeds quota and reaches the higher levels of performance in the sales organization. (A top performer is usually a person at the 90th percentile of performance or above.) This is the part that can support or detract from the desired sales culture, and it lets top performers know whether they can really be significant earners.
- Use the Reverse Robin Hood principle. Organizations that know how to use the Reverse Robin Hood Principle typically set the pace with the leaders in their industries. The idea is that an organization doesn’t overpay the low performers but instead significantly rewards the high performers. (Low performers always have the potential to become high performers by meeting or exceeding their quota.) Instead of paying low performers any incentive (defined by selling a pre-determined amount below their quota—it’s never arbitrary), the organization uses those funds to reward the top. That’s a big challenge for a lot of organizations. This principle makes a statement about philosophy that ultimately affects the sales culture. If the company operates as a meritocracy that emphasizes accountability and applauds performance, then the Reverse Robin Hood principle fulfills the promise of opportunity. If it operates with a collectivist view on balancing rewards, the Reverse Robin Hood Principle can wreak havoc on the culture. That may not be a good thing if the organization likes that collectivist culture.
- Do not put a cap on pay. Some companies place a cap on the total amount a salesperson can earn in a year. It could be very high—$1 million—and it could be far out of reach for all salespeople. Even so, research has shown it’s terribly de-motivating. So how much cash should a top salesperson potentially earn in a given year? More than her manager? More than the head of sales? More than the CEO? The answer to this question is indicative of an organization’s pay philosophy and its ability to attract and retain the best talent in the industry. When we asked C-level executives, nearly all agreed that a top salesperson could earn more cash in a year than the head of sales. While that high-earning rep may be a different person each year, and this earnings level may not be attained every year, that event would not be unheard of in the organization. In fact, C-level executives noted that these events would be motivational to the organization. As for earning more than the CEO, many C-level executives philosophically agreed that this wouldn’t be an issue given the right level of sales production, but it’s not usually realistic. Nevertheless, “sky’s the limit” potential is inspiring to reps who see no limits to their capabilities.
Companies depend on their top salespeople to bring in the revenue, and top salespeople depend on their companies to reward them fairly. Making sure the compensation plan adequately differentiates high performance from average and low performance is critical to supporting a sales-oriented culture.
Mark Donnolo is managing partner of SalesGlobe and author of “The Innovative Sale: Unleash Your Creativity for Better Customer Solutions and Extraordinary Results” and “What Your CEO Needs to Know About Sales Compensation.” He focuses on helping companies grow profitably by developing and implementing strategies that improve the effectiveness of their customer-facing sales, marketing, and service organizations. His areas of focus include sales strategy, customer segmentation, channel strategy, sales organization design and deployment, performance management, and incentive compensation. More information can be found at www.salesglobe.com.