Sales personnel perform a key task for any organization. However, as their output is directly related to their level of motivation, incentives come into the picture, to spur them on as well as to recompense loyalty and achievements. Interestingly, an incentive structure thus fulfills two purposes - it is forward-looking as well as a reward for past accomplishments.

Motivation is largely an internal feeling. However, when others, such as a company, stands to benefit from a person feeling fired up and ready to go, and has the power to influence behavior, it seeks ways to kindle the fire within, so to speak. Even so, a company motivating its employees is more than a tad different from parents motivating their children, as in the former case, the desire to motivate is aimed less at employees' welfare and more at enhancing the company's profits. Carrots make for loyal donkeys!   Although the motivation of employees by a company thus comes across as a selfish act, an ideal incentive structure aimed at motivating key players should try to minimize this one-sidedness, and genuinely meet the expectations of those receiving the incentives. These recipients are more often than not, sales personnel. After all, sales revenues are what drive a company. Hence, it stands to reason that sales staff should be pepped up to meet the goals set for them, and subsequently, appreciated for working hard so as to continue with the same company.

In a sense, laying down targets is where the process of defining incentives starts. Every employee has an objective - sales personnel have the objective to sell. But is there a minimum quantum of sales a person must generate in order to keep his/her job? If applicable, this minimum level should be clearly mentioned in an employees' job profile and be cautiously set, after weighing various details relating to the product, market, competition, business cycle and other industry specific factors.

Do your incentives work?

Having established the minimum threshold, a series of incentives is then fixed to motivate an employee to outperform his colleagues, and thus stir the productivity of the entire sales force. This scenario implies two essentials - the first being that the incentive offered must be viewed positively by the employee, and the second, that sales employees are working individually, not as a team.

To be effective, an incentive must be desired. As an example, if a company offers a sales person who is a bachelor, a family trip to Singapore as an incentive, he may feel the travel incentive is badly structured, or wasted on him. Quite the contrary, he may prefer hard cash or a bonus on sales. This brings two kinds of incentives in the picture - monetary and in-kind incentives. Awards, recognitions and offers to enhance skills and knowledge are also forms of incentives.

Incentives must thus be determined after keeping in mind the employees' preferences and at the same time, these should not overburden the company. An ideal incentive system should be simple, and quickly and easily administered.  In short, an incentive must work for both company and employee - what works for your competitor may not fit your organization's goals or corporate culture.

Structuring salary for sales personnel

A company may ideally like to pay a sales employee only on the basis of the sales s/he generates, but the uncertainty of remuneration implied by this condition would make hiring talented staff very difficult. While incentive compensation involves paying sales personnel depending on the quantum of sales they generate, a fair and transparent structure that splits total remuneration as fixed pay plus incentives related to sales targets is more likely to inspire skilled persons to join a company.

Ayush Deora, director business development for Verityapps Solutions Pvt. Ltd. believes that the fixed amount decided by an organization as salary should be divided - as half fixed and half incentive. For instance, if he wanted to pay 20,000 to his business development executive and give him a target of 10 orders, he would structure the salary as:

Fixed salary: Rs.10000 Incentive per order for the first 10 orders: Rs.1000 Incentive per order above 10 orders: Rs.1200

Deora also notes that he would maintain a credit score for each business development executive (BDE) wherein, as an example, he would give each 1 point per order for the first 10 orders and 1.5 points per order for orders above 10. This points system would help him review the performance of each executive. Further if the nature of business is recurring, he would prefer to have recurring incentives for executives. So if Executive A has bought client X who renews an account every year, Executive A's incentive would mature every year.

The role of quantity, quality and effort

Amit Kumar Dubey, regional liability manager (south) with ICICI Lombard GIC Ltd believes that an incentive system must be based on quantity, that is the sales / turnover added by a person, quality or the profitability of the deals closed and effort, that is the calls made, clients met and new clients developed. He attributes fifty percent weight on quantity, thirty percent on quality and twenty percent on effort. Basically, all these aspects must be given their due - as some people may work hard but find things do not go their way - this may be a temporary phase. Likewise, the quantity and quality of sales need to be emphasized, as the latter especially prepares people for the next level.

Starting up an incentive system?

In the case of start-ups, where a company is less flush with funds, Dubey believes a company should encourage profit sharing, whereby sales personnel are made responsible to enhance the profitability of a deal, and simultaneously also prepared for future growth opportunities. In fact, he notes profit sharing doesn't work that well as an incentive in larger and older organizations, as these already have a well-defined structure within which employees chalk a career path. 

Dubey thinks such incentives should have two components. First, a monetary part totaling say 0.05% of the profit - on deals with profit less than 10 percent - increasing to a maximum of 0.20% on deals with profit more than 15 percent. Alternatively, the monetary part could comprise a slab structure, whereby if the sales employee meets a target, s/he receives 1 percent of the sales; if s/he exceeds the target by 20%, s/he receives 3 percent of the sales and so on. Secondly, an incentive system should have an appreciation part rendered through award functions or a travel component or sponsorship of training.

Deora however, says that what matters most for start-ups is the research done prior to launching the service or product. If a service or product is uniquely designed and is a utility that is likely to sell well, a normal structure may be adopted. However, if sales are expected to require a knack, or instinct to make the concept happen in the market, an aggressive incentive module should be set in place. Further, a certain percentage of the incentive should be converted to allowances for necessities, such as phone expenses, travel expenses etc.

Do you really need a sales team?

Sometimes, sales are not done by single personnel, but by groups working in tandem with each other. This is not to say that regular individual sales personnel are not supported by an entire organizational structure, as they are. In fact, the importance placed on sales incentives is more often than not, not viewed favorably by other staff, who point out that it takes an entire organization and not just sales personnel to achieve positive results.

Having said that, while some incentives may be introduced for non-sales employees, where sales are accomplished by a team, not by individuals, incentives structures need to be accordingly adjusted. The starting point in such scenarios is to define the team. More specifically, who constitute the sales team? All sales personnel who have a finger in the pie, so to speak, should be included in the team, so as to ensure that they do not respond adversely to each other's incentives.

Secondly, the formulation of a sales team should not merely be a process of putting together individual sales personnel. Linda Kuritzkes of Teambuilding Inc., USA says that "When recruiting individual sales people, companies usually look for strong individuals, with ‘killer' selling skills, who are motivated by personal achievement." However, "Taking a group of individuals and asking them to work as a team is often harder than it seems." According to Kuritzkes, you need to "make sure that there are some true synergies to be achieved by the team that cannot be matched by individuals working separately. Effective teamwork is tough and takes training, management, and lots of communication."

Scope of work of team members

Evidently, then, you need to brainstorm your business' need for a sales team and then recruit and train the right people - those who are receptive to working with others. The hierarchy or emanating management structure must complement the working of a sales team. For instance, if individual players report to more than one boss, their managers must pull in the same direction.

With this in mind, the compensation plan must be structured to include a team component. Each member's proportion of team and individual incentive may vary, depending on their role and its relative importance to achieve the overall goals of the team. If a members' failure to contribute poses a major risk to the fulfillment of a team's objective, he/she may also have a percentage of fixed pay linked to his/her output. Further, the head of a sales team, who has secondary business objectives to fulfill besides sales targets, will have a small portion of his/her incentives determined by sales. The latter portion will be bound to his/her other functions.

Basically, fairness dictates that people making the same effort and achieving similar results should be on the same incentives scale. To judge this, apply a simple rule of thumb - if each member's incentive were to be disclosed, how would other team players react? Brainstorming this answer will help the management establish a transparent incentive structure based on best practices.

Incentive structure must align with business goals

Dubey says team efforts need a clear definition of the responsibilities, functions and activities of each member. Individual performance should be gauged through activities to be performed - such as client response period - which are worthy of reward, whereas the teams' performance may be tracked by means of deals closed or the achievement of its broad goals.

Once the tasks of each individual member of a team are laid down, a weight must be attributed to these functions depending on their relative importance and the effort entailed in their successful accomplishment. A plan should ideally be tested before being frozen, and members taken in confidence to approve the incentive scheme.

Invariably, an incentive structure that has been correctly configured will work. At the end of the day, the management needs to ensure that the compensation plan is aligned with business goals so that it achieves its purpose - motivating employees to achieve desired sales targets.

Charu Bahri is a freelance writer and author of two books. She also writes funding grants and software for a charity working in the health sector

Issue BG73 Apr07