Rethinking Sales Incentive Management

Sales is often associated with competition, which, in a sense, negates the idea of cooperation. But recent research from the University of Wisconsin-Madison School of Business suggests that incentives offered to teams might be more effective than those offered to individuals, when members of those groups have established a social connection.

Noah Lim and Hua Chen, both marketing professors at the school, were unsatisfied with existing research on incentives. Much of it suggested that groups enable freeloaders to thrive.

"Previous studies didn't take into account that those working in groups may not only care about how much money they make, but also about how much money their partners make and how they are perceived by them," Chen says. "If a person really cared about...a team, they could work as well as they would individually, or even harder."

So the professors set out to investigate the matter by taking into account how salespeople performed when they'd chatted with their partners a bit before getting to work. They compared three groups: individuals who would work on a specified task alone, two-person pairings that didn't have any contact before they started to work, and teams of two who socialize for five minutes before ever looking at their assignments.

The results indicated that the groups that socialized for about five minutes before proceeding, thus establishing a connection, were more likely to perform at a higher level. Surprisingly, however, the research also found that those who socialized but were kept in the loop about their partners' performance throughout the task performed at a lower level.

These results led Lim and Chen to conclude that the effectiveness of group incentives depends on the degree of social connectedness within the team, the ways in which the incentives are designed, and the feedback teams receive.

The professors expected the outcome to be different for groups of two or more, given that sales has been making a consistent shift toward a collaborative model. Sales cycles have become more complex, making it increasingly unlikely that workers would be limited to groups of two.

Nowadays, the selling model of the company plays a large role in determining the types of social interactions that take place, according to Patrick Mosher, managing director of Accenture Strategy. "The type of social connectedness matters, because there are different kinds of people in each organization," he says. If, for instance, cooperation is to occur between a Millennial and a Baby Boomer, there will likely be different sets of values at play that affect the situation.

Similarly, Mosher points out that collaboration does not always occur on a peer-to-peer level, where each participant is at an equal standing. One must take into account that junior-level salespeople are often dependent on those who hold senior positions, which changes the entire dynamic of their relationships.

Another thing to consider is that many—if not most—social interactions do not occur in closed rooms. Jim Dickie, managing partner of CSO Insights, notes that an organization might have one engineer working in one state and another in another state, both interacting every day with a third person in another country. In this case, the people who carry so much of their partners' weight might never even meet face to face. "[Companies have] got to figure out how to create that virtual feeling of being part of a team," Dickie says. "They can set up something like Chatter, Jive, or Jam so that salespeople can network together and build camaraderie."

But camaraderie is not the only motivator salespeople need. Though they might not be the lone wolves they once were, they still like to have control over their income. Incentives must be given thoughtful evaluation and preparation if the right balance between personal motivation and team motivation is to be reached.

The formula, the academics and analysts agree, should give more weight to individual performance than that of the group. However, it's still likely to be a challenge to convince a salesperson that the team is worth sweating for if there's not enough to be gained from the process. The group component should have a significant enough impact on the individual.

Unfortunately, striking that balance is not always simple. "Whenever you propose a group incentive design...there are a lot of options," Mosher says. "That's a good thing, but it adds a level of complexity that's really hard to get exactly right." Managers need to look into their organizations and consider what the most important metrics are in driving collaboration.

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