In Sales Force Incentives, Give Choice a Chance
Want to get more sales out of a sales contest? Let your sellers pick their own incentives.
Based on the research of Sebastian Hohenberg
Sales incentives work, but only for some salespeople.
That’s the experience of Sebastian Hohenberg, assistant marketing professor at Texas McCombs. In an earlier job as a consultant on sales force management, he found that incentives worked well for employees who were already top sellers. But they often left the rest with empty pockets and wounded egos.
The problem was the failure to segment, Hohenberg suspected. Modern marketers tailor their ads to individual consumers. But they don’t apply the same logic to their own sales forces.
“Most incentive plans follow a one-size-fits-all logic. Everybody gets the same target and the same reward. The trouble is that all of us are different. A particular incentive motivates you, but it might only have a small impact on me.” — Sebastian Hohenberg
What if workers had a say in their own incentives? In recent experiments at two Fortune 500 companies, Hohenberg invited salespeople to select their own sales goals and the rewards they earned for achieving them, from a menu created by the company.
Given a choice, salespeople sold more units and brought in more revenue. Not only that, but the worst performers improved the most. “If you’re using a quota system and you want to boost your sales performance, this study points to an easy fix,” Hohenberg says.
Making Choice Practical
The idea of offering different incentives to different workers is not new, Hohenberg says, but it has traditionally run into a couple of roadblocks.
One is fairness. “If people find out that fellow salespeople have lower quotas but get the same rewards, it may backfire,” he says.
The other is complexity. If a system of targets and rewards is too difficult to understand, either workers won’t stretch to reach them or the firm’s incentive costs will skyrocket.
Self-selection might solve both problems, Hohenberg suspected. Let each worker choose their own yardsticks from a menu, and they would perceive it as fair. They could grasp the system easily if the menu was limited to only a few options.
With the participation of an auto manufacturer, he and Raghu Bommaraju of Iowa State University tried the idea on 580 sales managers at dealerships nationwide. Half were assigned the company’s existing bonus plan. They would earn $4,000 if they boosted sales 10 percent over their performance from the preceding three months.
The other managers got two other options. If they chose a target that merely equaled their earlier sales, they would get $1,000. But if they picked a 20 percent jump as their goal, they could earn $8,000. The choice was theirs.
In the monthlong contest, those who selected their own incentives sold an average of six extra cars, a 13 percent edge over those who didn’t get to choose. The manufacturer was so impressed that it repeated the contest six months later, with nearly identical results.
Hohenberg credits choice as a motivator.
“When you decide on both the goal and reward, you make it your own. Your commitment towards achieving the goal is much stronger.” — Sebastian Hohenberg
To see whether the concept would work in a different industry, the researchers ran a similar one-month contest at a telecommunications company. Among 204 workers at call centers, those who picked their incentives sold an average of $3,295 more in phone and internet services than those who didn’t. Sales improved the most for workers who had a high variation in past performance, raising their totals by an average of $4,667.
“This system works particularly well for the people who weren’t very successful or not very consistent in the past,” Hohenberg observes. “It gives them a feeling of competence.”
It was clear that choice was inspiring for salespeople. But were there also other factors at play, ones companies could use to fine-tune their sales contests?
To dig deeper, Hohenberg and Bommaraju conducted a third study, this time in a controlled online environment. They had 600 participants count the zeros in columns mixed with numbers. Participants picked targets for how many correct answers they could get in three minutes.
But the choice of rewards differed from worker to worker. By systematically adding and subtracting features that made self-selected incentives different from traditional quota plans, the researchers measured which ones made the biggest difference. Besides choice, two other actions stood out:
Pick an appropriate goal. Set your goal much higher than you expect to achieve, and it won’t motivate you. But set it too low, and you’ll slack off once you reach it, Hohenberg says. “The key is to find something you perceive as achievable but challenging.”
Make it all or nothing. Participants worked harder with a threat hanging over their heads: If they didn’t reach their goal, they’d get no bonus. Other participants who were promised a safety net — a lower bonus if they hit a lower target — were less productive. “When they have a fallback reward, their commitment towards reaching the next level is not as high,” Hohenberg says.
An added benefit to choice, he found, was that it didn’t cost extra money. Both firms in the trials paid similar amounts in overall bonuses for self-selected incentives as they did under quota systems. “They were spending about the same amounts in both groups but getting better results,” Hohenberg says.
For companies wanting to try out self-selected incentives, he recommends starting simple. Three options seem to be enough. “The ideal would be a different incentive plan for every person, but that’s not actionable,” he says. “This is a midpoint between having just one plan and having too many.”
The ultimate reward might not only be more sales but better salespeople. “We talk about the war for talent,” he says. “Experimenting with new approaches in steering your sales force might help to attract and retain top talent.”
“Self-Selected Sales Incentives: Evidence of their Effectiveness, Persistence, Durability, and Underlying Mechanisms” was published September 2018 in the Journal of Marketing.
Story by Steve Brooks