In tough economic times businesses are at pains to cut costs wherever they can. Reducing staff turnover is one fundamental way to make savings and increase operational efficiency.
Nurturing a motivated workforce that desires to achieve company results can help reduce turnover. In a bid to retain staff, more businesses are adopting a systematic approach to rewarding employees - through incentive compensation management (ICM). At a time when economic growth is negligible, a strong sales team constitutes your front line of defence in the battle to retain market share. How then, can ICM boost your sales teams’ moral and motivation and help to secure the business’s bottom line?
Businesses that mismanage staff incentives lose, on average, 5% of annual revenue. ICM is a cornerstone of a successful sales performance management (SPM) strategy but is too often overlooked by business leaders. Today, incentivising staff is not all about commission or bonus payments. In fact, for forward-focused companies, incentivisation takes a holistic form – combining both financial and non-financial strategies. A keen balance between the two approaches can electrify the performance of a sales team and avoids unwarranted bonus payments.
For ICM to be effective, it must influence a company’s wider working culture. Financial incentives such as cash or share-option bonuses are attractive and effective but are just one component of holistic ICM. Non-financial ICM can become part of how a business operates day-to-day. The most basic, yet effective, ‘human’ initiatives include verbal praise and public acknowledgement. Other forms include half-days or extra holidays; travel incentives, parental leave, or simply time to drop the kids to school.
It is vital to understand how ICM must align the employees’ objectives with the company’s sales targets. Sales teams whose results fall in line with business objectives are generally found to work under some form of financial ICM scheme. Even so, commissions or bonuses are usually infrequent payments with little impact on everyday working culture. This is why combining monetary with non-financial incentives can do so much to invigorate the everyday performance of sales staff, motivating them to engage with company objectives, raise their game and deliver greater results.
For example, when a business needs to diversify its product offering or market focus, sales staff can find themselves having to go above and beyond with little or no additional rewards. If employees become discouraged it benefits neither them nor the business. So when sales staff are required to dig in and ‘give their all’ to promote a new product or carve out a new market, an effective ICM strategy can encourage their re-focused efforts. Crucially, compensation should carefully align with the key products of the business and reward positive attitude as well as measurable results.
By enhancing employee performance, a well- implemented ICM strategy has the added benefit of improving job security for sales staff. This is because employees, benefitting from an ICM scheme, are more engaged with company objectives, are more target focused, and, through the delivery of results, will find their position strengthened and the value of their role increased. Job security is naturally an incentive in itself. In turn, a company’s reputation for quality ICM and employee retention will help it to recruit and retain top sales staff.
Given these benefits and today’s challenging business climate, many savvy firms are now cultivating ICM strategies that engage ‘human’ initiatives. A recent survey of best-in-class sales companies in Aberdeen underlines the merits of using non-cash incentives in motivating B2B sales staff. In the survey, 55% of respondents reported that non- financial incentives are a ‘vital component of their sales performance management’.
The same study also indicates that good old-fashioned professional recognition and praise are among the most fundamental and effective rewards. Of the businesses surveyed, 57% reported that for them ‘internal recognition for positive performance’ is an essential non-financial motivator. Regular verbal recognition by management is a simple but highly effective form of incentivisation for employees. Beyond day-to-day operations, this can take the form of public and peer-to-peer recognition – perhaps by entering external formal awards, creating internal leaderboards or annual prize-giving initiatives.
Sales teams using ICM initiatives have a quota attainment that is 14.8% higher on average than those without. But statistics indicate that as many as 66% of companies are still without an effective ICM system. For those contemplating an ICM strategy, the first rule-of- thumb is that ICM initiatives should align with the business’s goals. Furthermore, they should not be overcomplicated but attractive to employees in their simplicity.
When incentivising employees, a simple approach is often best. ICM solutions can eliminate the inefficiencies of many traditional incentivisation practices. For example, the confusion and time wasting that often accompanies ‘shadow accountancy’ – whereby employees are required to calculate their own entitlements – sometimes without the guarantee of return. In fact, systems of this nature can be detrimental to the business when employees become distracted from following leads and actually achieving targets. OpenSymmetry client Hertz adopted its ICM solutions to eliminate this very problem. It realised that its traditional sales compensation system, which required staff to undertake complex calculations using a number of sources, had innate inefficiencies and often led to incorrect or delayed payments. This is where that elusive 5% extra revenue often slips away.
While financial remuneration is just one aspect of ICM, it is one that must be run efficiently and fairly as part of a wider ICM strategy – an essential aspect of the company’s employee-focused culture. First and foremost, the company, not the employee, should ideally undertake the administration of financial ICM. The required data should be processed via a transparent, streamlined sales performance management (SPM) system. This results in the accurate calculation of individual entitlements and the timely distribution of payments, hence encouraging compliance and trust among employees. The system should be sufficiently transparent that the level of reward received by employees is seen as fair and open, irrespective of the seniority of the recipient within the organisation.
The implementation of an ICM initiative to underpin your SPM strategy goes beyond just the calculation and administration of payments. An integrated SPM system, when utilised effectively, is in itself a means of motivating staff. Too often, incentives are awarded without sufficient attention to performance. Paying everyone equally, irrespective of effort, can be demotivating to high-achieving employees and encourage laziness in less proactive sales staff. This is why a well designed, transparent and easily adaptable ICM solution can act to concentrate minds and focus resources.
For companies keen to realise an optimised ICM culture, it is recommended that SPM solutions be integrated as a means of tracking individual staff performances against targets – calculating rewards accordingly. This recommendation is not intended as a means of policing staff but as a way of nurturing their confidence in the system. We often encounter clients with a fundamental lack of integration and visibility in how rewards are assessed across the organisation, to the detriment of staff moral. In the case of Hertz, they found that a lack of transparency between sales activities and incentive payments actually led to a reduction in employee confidence and increased staff turnover.
With budgets under pressure, it is imperative that compensation is effectively managed as a component of SPM. ICM is just one aspect of overall performance management but it is a crucial tool in ensuring that employees are engaged with company goals.
Modern ICM is a multifaceted concept. Financial incentives are a potent motivator and, when combined with ‘human’ initiatives, can elevate sales performance to the next level. It helps employees identify with the company and marry their career goals to that of the business. This can begin by employers simply acknowledging the value of employee efforts on a day-to-day basis. ICM ensures that employees are treated as an essential resource worthy of long-term investment and not as a cheap and readily replaceable commodity.
Because, as any sales department in today’s market should know, the loss of valuable staff and the cost of replacing them can mean the difference between success and failure.
OpenSymmetry is a global sales performance management (SPM) consulting firm, which delivers both strategic and technical services. OpenSymmetry has helped transform its customers’ sales performance solutions, delivering over 700 projects globally. OpenSymmetry has offices in London, Austin, Sydney, Johannesburg,