Incentive programs are designed to motivate salespeople to excel. At a time when many companies are strapped for cash, executives may be pressured into cutting these programs by those who assume the sales force should "suffer with the rest of us."
When sales are harder to come by, however, even the best sales representatives need an extra boost to maintain a high level of performance. According to the 2009 Incentive Practices Research (IPR) study, a recently released multi-industry survey conducted by ZS Associates, the best way to provide this boost is to complement the sales incentive plan with an annual recognition program.
Seventy-seven percent of IPR survey participants use a recognition program at their firm. These programs usually offer exotic trips and visible recognition for winners of the program. Further, participants rated annual recognition programs the most effective supplemental incentive vehicle available.
While most supplemental incentives can be effective motivators and often work in concert with one another, the use of recognition programs is widely considered the most effective. Here's how IPR survey participants rated the relative effectiveness of four common supplemental incentives on a seven-point scale:
Recognition plan: 5.5
Long-term incentives: 4.1
Spot awards: 4.0
The reason for the effectiveness of recognition programs lies in Abraham Maslow's hierarchy of needs. This theory of human motivation states that once an individual satisfies basic food and safety needs, he or she progresses to a higher level of needs and strives for self-esteem and recognition.
This means once salespeople have earned enough money to provide for their family and keep them safe, they are driven by a need to raise their self-esteem@#x2014;not just their earnings. Recognition programs provide the confidence and sense of achievement that financial incentives alone fail to provide.
Before delving into ways companies can better manage their recognition programs, it's important to take a quick look at how companies across industries are using some of the other incentive methods at their disposal@#x2014;methods that, while not as effective as recognition programs@#x2014;can impact sales force motivation.
Spot awards are monetary rewards given "on the spot" to salespeople who have exceeded expectations. These are typically fairly small awards ($25 to $250) and are part of a broader, companywide spot award program.
While 45 percent of IPR survey participants use them, spot awards are considered the least effective of all the supplemental incentive strategies. Since they are awarded after the fact and they pale in comparison to incentive plan earnings, spot awards provide no motivation for salespeople to pursue a specific target or goal.
Long-term incentives are designed both to reward high performers and help companies retain the best salespeople. Stock options or grants are the most common methods used. Though long-term incentives gained popularity in the late 1990s, they have since declined in use due to the stock bubble burst of the early 2000s and the Financial Accounting Standards Board's 2004 requirement that stock options be expensed.
According to the 2009 IPR survey, only 27 percent of companies pay their salespeople long-term incentives, down from several years ago. Further, the award's popularity fluctuates with the market. Long-term incentives were rated the second-most effective supplemental incentive program by participants in the 2008 IPR survey with a 4.6 rating. The drop to a 4.1 rating in the 2009 survey can likely be attributed to the severe stock market decline.
SPIFFs and contests are short-term incentives used to generate excitement among sales representatives and drive short-term results. SPIFFs are typically short-term commission payments for sales of a specific product the company wants to move quickly. Anyone in the sales force is eligible to earn a SPIFF, and they are the most commonly used of all supplemental incentive programs (82 percent of participants in the IPR survey use them).
Contests tend to be more competitive than SPIFFs. Therefore, a minority (anywhere from 10 to 40 percent) of salespeople typically win. Companies usually run two to three SPIFFs and/or contests per year, and the total amount paid out equals approximately five percent of total spending on sales incentives.
Without question, annual contests offering winners highly sought after awards, visible recognition, and public commendation are effective. Still, implementing an effective recognition program is a multi-faceted process. Here are three guidelines companies should follow when designing their annual program:
1. Make it selective, but not impossible. The results of the 2009 IPR study show most best-in-class companies set up their annual recognition programs so approximately 10 to 15 percent of salespeople win the award. This means 20 to 30 percent of salespeople are competing for the award for much of the year, which ensures top sales performers are constantly motivated to achieve better results.
This contrasts with recognition programs that are limited to the top three to five percent of the sales force. A majority of salespeople give up on winning these exclusive recognition programs before the year even begins.
2. Make the award highly valuable. Send winners on a trip they would never (or perhaps could never) make on their own. Many companies already do this. Eighty-seven percent of companies in the IPR study with recognition programs rewarded the winners with trips that can cost upwards of $20,000. Eighty-five percent reward them with a memento such as a commemorative plaque.
Offering mementos in addition to a "flashy" prize such as a luxurious trip provides salespeople with a constant reminder of the reward and recognition. This ensures the positive effects and value of the reward last well beyond the short trip.
3. Offer public acclaim. Companies need to communicate a "scoreboard" of performance on a regular basis to foster competition among the sales team. They should also announce the awards publicly at the end of the year. The public recognition of their accomplishment not only boosts winners' self-esteem, but also establishes them as role models for the rest of the sales force.
As companies are forced to do more with less, sales executives need to ensure their top performers are motivated and continue to deliver results. If funds are low, managers must get creative and find ways to supplement their incentives arsenal with relatively inexpensive, effective awards such as public accolades and mementos.
An effective annual recognition program will increase the engagement and loyalty of top salespeople right away. And it will pay major dividends for the company when the economy begins to turn around.
Chad Albrecht is an associate principal with ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. He can be reached at email@example.com.