Ill-Conceived Incentive Programs Can Actually Hurt Sales
By Peter Lyle DeHaan
John was a salesperson who periodically visited our business. His company supplied specialized equipment to our industry, and we regularly bought from him.
He cultivated relationships with many people in the company, including me, even though at the time I was scarcely an influencer—let alone a decision-maker. Yet John paid attention to me, and I looked forward to his visits and the cordial friendship we shared.
John once told me that his company provided a decent base pay along with a commission. The base pay was enough to live on, but to go beyond that the commission was essential. When my company made a significant purchase from John, I assumed he would be ecstatic.
He was not. He was quite nonchalant about his significant sale.
“Won’t you get a nice commission?” I asked him in private.
He shook his head.
I gave him a quizzical look.
“I only get a commission if my sales exceed last year’s. And last year was a banner year for me, three times what I’ve ever sold in one year. I was the top salesman of the company and ranked high on the all-time list.
“I won’t be able to match that this year, not even close. That means no commissions.”
I considered what John said. “Does that mean you need to try to alternate between good years and bad years so you can at least earn a commission every other year?”
John again shook his head. “Last year’s sales number is my target going forward to earn any commission. And since my base pay is fixed, if I want to earn more, I’ll need to change jobs.”
John continued his affable interaction with our business, but he seemed to have lost his enthusiasm. His company’s commission plan had disincentivized their top salesman, serving to push him away.
Much later in my career, the company owner presented me with an intriguing incentive plan of my own. Though it wasn’t sales related, he intended it to motivate me to produce even greater results.
As he explained the criteria to calculate my bonus—which could double my already nice base pay—I planned what I’d do to maximize my bonus.
My eagerness didn’t last long, however, when he got to the last provision of the plan, a caveat. It said that the payout was contingent on company profits. That meant I could meet every objective and receive no bonus if the company had a bad year.
He never asked me what I thought about the plan.
If he had, I’d have told him that to work all year for a bonus but then not receive it would be the biggest demotivating factor I could face. As far as my long-term employment with the company was concerned, it would be in my best interest to not pursue the bonus, even though that’s how I was wired.
I ignored the goals of the incentive plan and continued to do what I thought was in the best interest of the business. Even so, by year end I did earn a couple thousand dollars bonus. But I didn’t care. I didn’t get my hopes up because I knew that each year was contingent on the company’s profitability.
My indifference toward the bonus surely perplexed my boss, but he never asked why the plan failed to motivate me.
My employer no doubt put that last provision in place because of a negative experience that another company owner had encountered. She had put her operations manager on an incentive plan that rewarded her for growth, effectively for sales and customer retention. The manager responded with diligence to the incentive and the company grew under her direction. She earned nice annual bonuses.
A few years in, the owner realized the operations manager would make more than she would—much more. The owner paid the agreed upon amount and dropped the plan. The operations manager soon left.
Sales Management Success Tip
The purpose of a commission or bonus is to motivate salespeople. Evaluate your plan from their perspective to ensure that it does, in fact, incentivize them. Make sure there are no provisions that would cause them to not do their best or that might provoke them to leave.
Read more in Peter Lyle DeHaan’s Sticky Series books, including Sticky Customer Service, Sticky Sales and Marketing, and Sticky Leadership and Management featuring his compelling story-driven insights and tips.
Peter Lyle DeHaan is an entrepreneur and businessman who has managed, owned, and started multiple businesses over his career. Common themes at every turn have included customer service, sales and marketing, and leadership and management.
He shares his lifetime of business experience and personal insights through his books to encourage, inspire, and occasionally entertain.
