4 necessary qualities of incentive

A major big box home improvement store recently changed the incentives program they use to compensate their sales staff. In the not-too-distant past, salesmen were given bi-weekly (that’s when the paychecks were issued) commissions and bonuses based on personal sales. What happened to or with another salesman did not matter. Each earned what each earned.

The company made a decision to change the incentive structure to a collective system. They call their new system SSEI – Sales Service Employee Incentive. When we asked a Human Resources manager to explain the system, he stumbled around using words like matrix, factors, and “other things.” He could not clearly work through the formula for it because it was an obscure mix of numbers lifted from various components of the business. But, the feature that dooms the system is its collective nature. The numbers are measured store-wide and depend on the top level performance of EVERYONE in the store. Fall short in one area and the entire incentive payout is lost. It is measured on tangibles like sales numbers, inventory shrinkage, and margin. But it is also measured on intangible and subjective criteria like customer satisfaction based on customer complaints and minimum wage mystery shoppers. In short, most stores never earned it.

The store managers are pretty good at looking disappointed, shaking their heads with not-too-sincere sorrow, and telling everyone, “You know, you almost made it. Just a little more effort and you’ll get it the next time.”

What happened to motivation in the sales force? It collapsed. What happened to sales? They fell off. There are some lessons here if you as a leader are trying to incentivize your employees. Here are 4 critical qualities in an incentive plan:

  • It must be personal. Collective systems depend too much on the performance of someone else. Group systems can work, but only if there is a genuine benefit as a result of individual effort too. Collectivism has never worked, has never yielded the productivity idealists say it should. Remember the oft-repeated acronym WIIFM – What’s In It For Me?
  • It must be relevant. The incentive must be based on some act or action directly relevant to the employee’s specific job. An incentive, if it is to ignite the fires of energy, must be directly and specifically related to the efforts and productivity of each individual person.
  • It must be controllable. SSEI fails because it depends too much on actions an individual employee cannot control, upon the behavior of someone else, or worse, the skill of the store manager. One thing that kills it in the above referenced store is margin loss brought on when store managers, anxious to boost top-line sales numbers, sell products and services at a margin loss in order to get the sale. The daily numbers look great, but the bottom line suffers badly because sales are made at the expense of profit. And SSEI is factored considering margin. The sales people learned to refuse to make margin loss sales. The customer finds a manager and complains. The manager makes the sale with margin loss. SSEI is missed again because the manager torpedoes it.
  • It must be reachable. The target numbers for SSEI are set by someone in some cubicle in the company’s headquarters. They are made with no knowledge of local conditions or local economies. It is easy to fix the equations so that SSEI bonuses can never or seldom be paid by setting sales budgets just high enough they are impossible to reach. Even if it isn’t done deliberately, the opinions of the company’s employees is that the company does do it deliberately. The result? The incentive fails.

Those four elements – personal, relevant, controllable, reachable must be the guiding elements when you devise an incentive program.

What system do you use? What have you tried that failed? What have you tried that worked? Leave a comment below and share it with the others.

NOTE: This is a holiday week here in the US. Most worked start to power down beginning today. Some are already traveling to family destinations. Normally I post each Monday and Thursday, but this will be my only post this week. Have a wonderful Thanksgiving.

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