Pay for Performance in Sales—the Right Way
No matter the sport, you’re bound to come across “superstars” who are being paid to perform at levels far below what their pay would suggest. Alternatively, you may find the league minimum rookie has broken out as the real team hero. It happens year after year.
But what if athletes were compensated more like sales teams? Instead of rewarding players for big seasons they’ve had in the past, what if they were paid according to how the current season was unfolding? Would incentivizing pay for performance change the outcome on the field?
While we may never know, according to reports, incentives have made their way to the NFL in at least some capacity. While big name players have long been compensated with bonuses for everything from working out more, to helping their teams get to the Super Bowl, Tom Brady might have been the first player to use incentives of his own.
Download our guide, "Designing Sales Compensation Plans," to learn how to pay for performance with sales compensation plans. Or, keep reading for a few tips.
Danté Stallworth, a former teammate of Tom Brady, said that “He’d pay scout team and practice squad guys if they picked him off. Not in an arrogant manner, but more, ‘Let’s work together.’ He’d tell them, if you can read me, read the receiver, pick me off and I’ll pay you.”
While the Yahoo! Sports report didn’t detail the amount of compensation given to these players, it demonstrates that Tom Brady has a comprehensive understanding of the power of pay for performance and how incentives can change behavior. That very concept is why well-designed incentive compensation plans are so effective for sales teams—if you are clear about the goals you have for your reps, and put money on the line, they are more likely to reach these goals.
Brady demonstrates one aspect of a well-designed compensation plan; it’s a win-win for multiple parties. The practice teams get an extra bump in their paycheck, while being motivated to try a little harder than they might have previously, and Brady is able to further hone his skills by practicing against more challenging opponents.
Whether It’s on the football field, or on the sales floor, paying for performance is a powerful way to change behavior and reach challenging objectives.
Here are three ways you can structure and differentiate pay for performance across your sales team to ensure players at every level and role are pulling their weight and being fairly compensated for their work:
The amount of time that passes between a closed deal and employee morale have a direct relationship—the longer it takes for reps to get paid, the more their morale decreases, and vice versa. Unfortunately, many companies still wait as much as two months to pay out commission checks; that is, if manual calculations such as spreadsheets, don’t tie up the check for even longer. That’s just not a way to “reward” someone for hitting their goals.
By the time your reps get paid, they are already on to the next deal and, the original win is the furthest thing from their mind. This kind of delay is a waste of your incentive compensation investment because it certainly isn’t engaging your reps or driving the right behavior. The closer you pay a rep to the sale, the more the bonus check reinforces the behavior you want: closing more business.
What’s the optimal balance between incentives and risk? This is a common challenge because it’s incredibly easy to create a plan with an ineffective sales pay mix. If your reps have too much base pay and not enough at risk, this weak incentive pairing will create an unhealthy culture in your sales department. Your sales people are likely to lose motivation to chase new deals if your incentives are weak.
However, if base salary is too low, and most of a rep’s salary is coming from commission, then you’re risking poor behavior. Generally speaking, you need to pay by sales team role, with jobs with the most influence on the purchasing decision having a more aggressive pay mix. Reps with a longer and more varied sales cycle, as well as those who have more consultative or strategic types of sales should have a less aggressive pay mix.
The “pay cap” has become the bane of NFL owners and coaches everywhere. It’s also a common issue we see in sales. Regrettably, many organizations still cap commissions. Remember, your comp plan is the driving force behind the behavior you want from your reps. Capped commission plans disrupt your efforts to motivate your sales force, sending employees a detrimental message to stop putting in effort once they’ve reached a certain level.
“A large opportunity exists to improve employee performance by incenting behaviors: employees who effectively demonstrate their organizations’ priority behaviors achieve results-based performance scores that are 40% higher and 13% more sustainable than their peers who do not” according to the CEB Study: Redefining Pay for Performance.
If you want your sales reps to perform at the peak of their abilities, you can’t spread the incentive playing field too thin (with every role and rep getting paid the same amount and in the same way). The above steps can help you understand the way your workforce should be paid for performance, and how to differentiate their pay in order to inspire them to hit quota quarter after quarter.
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.