How to Motivate Middle Performers with Incentive Compensation
Most of the time when I speak about the middle performers, it is because I am trying to convince a sales leader that there is value in focusing on the middle performers rather than explaining the sales incentive tools available to increase their performance. Being a sales leader is no easy task, and it takes a lot of strategy and collaboration with sales operations to be incredible at sales compensation planning.
Why Focus on Motivating the Middle?
Most business leaders are focused on rewarding and retaining top performers (aka the ‘breadwinners) with the assumption that by making the top lucrative enough, it will increase everyone else’s performance as they try to get there (which is a false presumption).
Sales leadership and sales operations spend hours in meetings discussing how to design a sales incentive plan focused on motivating top performers and the amount of money that should be dedicated to them. Rarely is the conversation around the majority of sales teams–the middle performers–unless there is a need to pull pay from them to give more to the top.
Moving your middle even slightly can yield impressive results for a company, and there are many readily available studies to support this. However, rather than try to convince yourself of the value in moving the middle (which is the focus of the majority of articles), let’s focus on how to use your sales incentive plan as a key tool in helping you motivate greater performance from them.
Shifting Focus to the Middle
The most common lever is increasing payouts at a performance level right above where the 50th to 66th percentile performer achieves (i.e., so between half and two-thirds of performers achieve below this point). The rationale behind this is that with a bell-shaped performance distribution, an increase in payouts above the median performance level will create enough “pull” to shift the whole distribution upwards.
The increase in rates has to be significant enough to motivate sales representatives to increase their selling effort to achieve the higher payout level. For example, if the median performance is 70 percent of goal and two-thirds of reps achieve 85 percent of goal, payout rates would be increased at somewhere between 70 percent and 85 percent.
Another less commonly used, but effective way to move the middle is if possible, make your plan payout with a different frequency. Sometimes, moving the middle is just a matter of paying more or less frequently. If the plan pays monthly with commission rates that increase with volume, less frequent payouts may be needed as middle performers may not feel they have the opportunity to accumulate enough volume to achieve the higher payouts and the plan loses its motivating appeal.
If the plan is quarterly or annual with a very transactional sales process, more frequent payouts may be effective in creating performance checkpoints, and then the plan acts to ‘nudge’ the laggards. Of course, paying more frequently may be difficult to do with lumpy or infrequent sales, though not impossible with the use of cumulative plans (e.g., where payouts are made quarterly against an annual goal).
What is the Most Effective Method?
I often find that the most effective way to move the middle is take a step back and consider having an outside consultant evaluate your plan to make sure it is not working against you. For example, I have been working with an energy company that pays retroactively (i.e., once a certain level of performance is achieved a higher commission rate is applied on all sales back to the first dollar sold).
In this company, a monthly plan pays a rep four percent up to $10,000, and once that level is passed, the plan will pay six percent retroactively. If $9,999 is sold the plan pays $399.99, but if $10,001 is sold, the plan pays $600.06 (an increase in pay of $200 for $2 more in sales).
Reps are motivated to make sure they pass that $10,000 level every month, and they were holding back sales or even out the deal flow to make sure they made that level. This created a large group of sales people who achieved just above $10,000 every month. Moving the middle for this company was as simple as eliminating the retroactive pay structure.
How Effective are Pay Caps Really?
Pay caps can make it difficult to motivate the middle performers. Companies use pay caps for a variety of reasons (most are not good), and this creates motivation within the sales force to time sales (sandbagging) or stop selling altogether if there is the possibility of coming close to the cap.
This reduced level of performance creates a large grouping of middle performers that is tough to move. While there are numerous ways for a company to protect itself from huge payouts (commission rate deceleration, bonus structures with big ticket items), a pay cap is usually not the answer.
Final Thoughts–Aim for Simplicity
Ultimately, a final consideration is to simplify your plans. Plan complexity can result in sticky middle performers by creating confusion among sales reps on how to focus their selling time. Your commission plans are a way to communicate to the sales team where they should expend their selling efforts, and a complex plan may be sending the reps in all different directions.
Overly complex plans also can create situations where the reps are spending time calculating their pay rather than selling. I was tasked with running a sales operations division that handled close to 2,000 pay disputes per month in a sales force of 400 reps. By streamlining the credit split rules, we found a significant increase in the productivity of our middle performers as they were spending less time shadow accounting and more time selling.