Why sales incentives just don’t work (part two)

In the concluding part of this two-part article Rob Dickerson continues his discussion around sales incentives and whether they actually motivate and improve sales performance.

(Continued from “Why sales incentives just don’t work (part one)”)

In part one of we saw the conclusion of a meta-analysis of 128 experiments looking at the effect of extrinsic rewards on the individual’s motivation to perform the task.1 One conclusion from this paper was that when rewards are tangible and foreseeable intrinsic motivation for interesting tasks decreases by about 36%.2

Sales incentives are inherently designed to reward high performers. They are also usually tangible and foreseeable. Therefore the implication from the data is that running an excellent incentive scheme to identify and reward the top performers is destined to ensure the performance is dampened as we pay to remove the actual motivation for the task.

“An excellent incentive scheme… is destined to ensure performance is dampened.”

But everyone knows high paying sales incentives are a way to motivate? Pfeffer and Sutton caution that these basic assumptions are just that – assumptions.3 They rightly argue that the belief is taken on good faith ‘rather than tested or even subject to critical thought.’ It seems easier to continue with a habit rather than challenging the underlying assumptions. Sales incentives may be just that – a bad habit.

Recently I implemented a new incentive scheme for a specialty care team. The incentive scheme had a forced ranking system so the top performers were guaranteed a good pay-out at the end of each cycle. After announcing the scheme I met with one of the team’s highest performers. Knowing she would be highly likely to fall in the top category I was keen to hear how she felt about a potential bonus worth 35% of her base salary. I was not that surprised to hear her say she hadn’t really given it much thought as she loved her job and focussed on this rather than the incentive payments. “Don’t get me wrong” she said “I like the extra dollars but I think of it more as a surprise if it happens.” This is probably a best-case scenario for forced ranking incentive systems as they also have the potential to drive teams apart.

“Forced ranking systems can lead to jealousy and resentment damaging trust and sociability in the workplace.”

Pfeffer and Sutton state when individuals within a team are sorted into categories of ‘winners’, ‘nothing special’ and ‘losers’ the impact is often detrimental. Forced ranking systems for external rewards can lead to jealousy and resentment damaging trust and sociability in the workplace.3 This is a long way from the desired outcome of teamwork. Many organisations have teamwork or collaboration as a core competency but may also have a reward system that drives the opposite behaviour.

Not all extrinsic financial rewards are for sales results in the pharmaceutical industry. It appears the offer of sign-on bonuses remains a popular tactic within the pharmaceutical industry. Another financial incentive, which is thankfully declining in popularity, is the retention bonus.4 The retention bonus not only ignores the presence of intrinsic motivators but can also signal that extrinsic motivators, specifically financial rewards, are the only motivators that drive the actions for the field force. There is a danger that a financial offer for simply staying put may also be negatively perceived as follows:

1. We (the management) don’t trust you because we believe that at any opportunity you could move to a competitor company and use our IP against us.

2. We believe your loyalty to the organization has a specific monetary amount and we have defined that for you.

3. We don’t think you have any belief in our product or organization and work here purely on a transactional basis for money.

Of course a retention bonus may not be interpreted like this but seems like a high risk strategy and perhaps one of the reasons the practice is losing popularity.

“Organisations often underestimate the administrative burden.”

As a sales director I have been personally involved in many incentive schemes. These have been for Primary Care, Secondary Care, Specialist teams and Pharmacy / OTC teams designed for representatives through to second line managers. Whilst it’s possible to design, launch and administer a ‘good’ incentive scheme the general belief is there is no perfect system.5 Furthermore, organisations often underestimate the administrative burden on administering the scheme. Often I found myself involved in meetings to discuss some minutiae in the fine print, re-calculation of the data for a challenge and then meetings to adjust the new incentive scheme to avoid the pitfalls of the last one. As human beings we are acutely tuned to fairness.6 We can spot when something doesn’t seem fair for all individuals very quickly and want to see justice implemented. The problem with incentive schemes is they are very black and white – as they need to be. The real world of people is never black and white so there are almost always a group of unhappy individuals at the end of the incentive period.

The pharmaceutical giant GSK announced in December last year they were making the radical move of removing individual sales targets. Sales people at GSK are to be rewarded for their technical knowledge, quality of the service they deliver and overall performance of GSK’s business the announcement stated.7 CEO Andrew Witty states the move is designed to respond to the needs of patients and society. This is a radical and positive change for the future. It may turn out to be just as positive for the sales force as well. This is a change I’m sure many companies will follow if evidence based management is the rational choice. In an industry where we make medications available that save lives and vastly improve the quality of life for millions it makes good sense to allow each persons intrinsic motivations to flourish.

General references

1. Deci, E.L., Koestner, R. & Ryan, R.M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation. Psychological Bulletin, 125, 627-668.

2. http://blogs.hbr.org/2013/04/does-money-really-affect-motiv/

3. Pfeffer, J. & Sutton, R.I. (2006). Hard facts, dangerous half-truths, and total nonsense: Profiting from evidence-based management. Boston: Harvard Business School Press.

4. http://www.worldatwork.org/waw/adimLink?id=50454

5. Ariely, D. (2008). Predictably irrational: The hidden forces that shape our decisions. New York: HarperCollins.

6. Grant, A. (2013). Give and take: A revolutionary approach to success. New York: Penguin.

7. http://www.gsk.com/media/press-releases/2013/gsk-announces-changes-to-its-global-sales-and-marketing-practice.html

 

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About the author:

Rob Dickerson has a reputation for driving strategic change and building formidable teams. He has worked in senior roles in Sales, Marketing and Learning & Development in the Asia Pacific region. In his role as Sales Director for Menarini, his Australian national team has been independently voted as Best Sales Team in the industry for the past four consecutive years. He is sought out as a regular speaker and MC at industry conferences.

Now residing in Switzerland, Rob can be reached via the following contacts:

Email: rob.dickerson@bigpond.com

LinkedIn: http://au.linkedin.com/in/robdickerson1/

Twitter: @RobertDickerson

Mobile: +41 7923 79531

Closing thought: How can we allow each person’s intrinsic motivation to flourish?