Salespeople are in it for the money! It’s a common belief and one you may think is true. If so, you might be tempted to construct a compensation plan that heavily favors pay for performance.
Of course, salespeople want to be paid well. Everybody does. And I wholeheartedly support compensating salespeople to reinforce the behaviors you want and need. But performance-based compensation plans may not work the way employers intend.
The Reason Why
Plans rewarding right behaviors with money do not resonate with all salespeople. If these plans did, all salespeople covered by them would perform because they want to earn the extra dollars associated with closed business. And we know that is not true because quota attainment is low.
According to HubSpot, only 24.3% of salespeople exceeded their quota last year. If salespeople were driven by commissions, wouldn’t quota attainment be better? Wouldn’t all or at least most salespeople meet or exceed their quota? So, it must be something else. And the data reveals what that is.
Low Extrinsic Motivation
I analyzed a recent database of 640,000 salespeople from all different industries, pay structures, and level of experience and discovered that only 13% of them are extrinsically motivated. In other words, they are motivated mostly by reward, external recognition, and money.
Conversely, 74% are intrinsically motivated, meaning they do things for internal reasons, like the feeling of doing something for a client, for the mastery of their craft, or because they want to be the best they can be. The remaining salespeople are driven either as a combination of the two types or for altruistic reasons – doing it for the good of the other person.
Even when you slice and dice the data into smaller sub-segments, the split between extrinsic (money) and intrinsic (not money) motivation does not change. It is the same for the top 10% of salespeople. It is the same for salespeople with 10+ years of experience. It is the same for salespeople between one and two years of experience. It does not matter.
If So, Why?
Why are so many compensation plans heavily weighted toward variable pay instead of salary? I think there are three reasons:
- It’s the way it has always been done.
- Managers don’t want to manage. They want the compensation plan to manage.
- Employers have been burned before by paying big salaries and not realizing the ROI on the individual. (This is an extension of item #2)
How to Change?
To correct the disconnect between how salespeople are inspired and how most compensation plans are structured will not be easy, but it is fairly simple. It takes a change of mindset. There needs to be a dedication to engage with salespeople to coach and lead them, and a strong focus on accountability.
If your managers are not geared toward a true coaching and accountability mindset, it will not work. Just hoping the compensation plan will drive behaviors will not work either. It really comes down to having quality sales management/leadership which can’t be left up to chance.
What you need are sales leaders with these core competencies: Coaching, Motivating, Holding Salespeople Accountable, Managing the Pipeline, and Managing a Repeatable Sales Process. Without managers doing these things, your sales team will likely flounder, especially if you are planning to add salespeople to the posse. However, with these abilities, if managers focus on inspiring salespeople based on what resonates in each salesperson’s soul as opposed to a one-size-fits-all approach, they will experience more success both in the ease of leading the team and in quota attainment.
Here’s the big caveat: Most sales managers have never been taught or trained on how to be an effective sales manager. They don’t even know what they don’t know. Expecting the compensation plan to drive the sales team’s success because of unknowledgeable or ineffective sales management is a recipe for disappointment.
Curious about the traits of a world-class sales manager? Take a peek at the ones that can be measured with the tools we use.
Source: Objective Management Group