Questions and Answers
You begin your book, “Compensating the Sales Force,” with an affirmation that
“sales compensation works.” What are your thoughts on the pros and cons—the
rewards and benefits versus the risks? If it is true that pay for performance works,
why aren’t all companies adopting such a system?
Answer: Companies use a wide variety of incentive compensation programs for a diverse array
of jobs. Incentive compensation continues to be a mainstay of contemporary management
practices. Sales compensation holds an almost legendary status as an expected part of
the employment equation. However, sales compensation is a management choice. It’s
neither a birthright nor a requirement. In fact, in my view, sales compensation programs
are cross elastic with supervisory practices. Frankly, a well-supervised work force does
not need an incentive program to be effective, and that observation is true of sales
compensation. But its use is widespread and prevalent. Almost 85% of all companies
with sales personnel provide a reward program tied to sales results. A famous—if
somewhat inelegant—argument was made against incentives by the author Alfie Kohn in
his book “Punishment By Rewards.” But, generally, most sales management teams
believe that incentives help bring focus to the efforts of a dispersed workforce...the sellers
of the company.
Answer: Sales compensation is a very noisy device. It is hard to establish, keep current and
administer effectively. We find that sales compensation programs tend to fail due
to: 1) Obsolescence. Sales compensation plans must be continually updated to help
maintain strategic alignment with the company's goals. Most sales compensation
specialists consider an unchanging sales compensation plan as a failure of sales
management. 2) Complexity. Sales compensation plans are an easy “mark” when sales
management is looking to get the attention of the sales force. However, too many
measures—more than 3—doom a sales compensation program as it becomes overly
Answer: I consider spifs, contests and campaigns an integral part of the sales management’s
tool kit. Here are the rules for appropriate use of these programs: 1) Budget of all
programs should not exceed the total earnings of the sales force by 3%. 2) Spifs should
be used for “doing something new for the first time.” 3) They should not be used to spike
performance during a period. 4) They are narcotic in nature: The more you use them the
more you need to use them. Moderation of use with healthy hoopla is the best
prescription for success. And, 5) avoid the use of “chance” to determine winners and
payouts—it’s unethical to do so: This is an employment relationship, not Las Vegas.
P.S. You might want to check the spelling of “spiff.” I spell it with one “f.” It means Special
Performance Incentive Fund. However, others use two “f”s. Check Wikipedia for a nice
discussion on the spelling.
Answer: Here is the rule regarding sales segmentation: Sales organizations need to be
organized around buyer populations. The members of a buyer population should share
similar needs, respond in the same way to seller delivered value propositions and share
the same selling cadence. Sales segments define a sales organization.
Answer: Before you make the change; the ROI will be a guesstimate. Since no one conducts a
double-blind test to confirm the value of sales compensation, we live in the world of
anticipated behavior changes. My test of program effectiveness prior to introduction is the
degree of “alignment” between product divisions and buyer/sales segments. The sales
compensation program should ensure alignment of field efforts between these two moving
parties. However, you can conduct an after the fact ROI by evaluating performance and
payouts. This is a very helpful exercise.
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