Incentive Plans Every Sales Organization

Incentive Plans

Every sales organization has specific objectives that it wants to achieve. These can be measured in sales, market share, profit or other measures. In order to encourage the sales people to meet these objectives, organizations turn to incentive plans. These plans not only impact on the force of the motivation but on the direction of the motivation as well. This paper will analyze the role of incentive plans and how they can help or hinder a sales organization in its quest to meet its objectives.

There are multiple types of incentives plans, and each serves a unique purpose within an organization. For example, a sales organization can utilize individual incentive plans or it can utilize team-based incentive plans. Both serve to motivate individual workers, but where as individual plan orients the salesperson towards meeting personal objectives the team-based plan serves to oriented the salesperson towards team-based objectives. An individual incentive plan relies largely on extrinsic motivation to be effective. Therefore, it must be structured in such a manner as to provide effective extrinsic motivation -- a plan that is too stingy is unlikely to be a sufficiently strong motivating factor.

The time orientation of the plan is also important. For seasonal or cyclical businesses, the plan should be structured around the business cycle. For businesses without such fluctuations, management can be more flexible. No matter when the plan is individual or team-based, the results must be achievable. If the business is seasonal, then the sales targets must match the seasons -- slow seasons should have figures just as attainable as those prescribed for the busy seasons. It is also worth considering the that company may need to retain some degree of flexibility in its plans, as it can be difficult to pay incentive bonuses during difficult times, but the company will want to retain its top earners and keep them motivated.

The way in which the plans are administered also needs to be considered. Some plans are peer-reviewed, which carries different political considerations when compared to a supervisor-review (Sunshine, 2010). Some plans are based entirely on quantitative measures, which others are based on qualitative measures or even subjective assessments. For any incentive plan to be at its most effective, it must be viewed by the sales force as equitable and administered fairly.

A team-based incentive plan relies partly on extrinsic motivation -- the team reward -- but also on intrinsic motivation. Sales people are motivated by the desire to contribute to the team. In addition, the team members will influence the performance of each other. This added element of team policing can cause friction in the sales force, but peer pressure can also be a significant motivator for underperforming sales reps as well. That said, it can be more difficult to identify underperformers with a team-based incentive plan, depending on how organizational performance is measured in the assessment of that plan. The team-based incentive plans with the best results are those that are paired with managerial control initiatives to facilitate cooperation and monitoring among teams (Roman, 2009).

It is also worth considering that the effectiveness of a team-based incentive plan is dependent on the size of the team. Some companies will utilize an organization-wide incentive plan. Such plans can be too far removed from individual performance to be an effective motivational tool. For example, if a company with national scope has an incentive plan that is also national in scope, it can be difficult for employees in a particular region to see the impact of their work on the firm's total productivity.

The decision of which of these plan types is more desirable will be dependent on a number of factors, including the independence of the sales force, the degree of cooperation that is required to generate a sale and the degree to which the members of the sales force may potentially cannibalize one another in the course of their work. If there is high risk of cannibalization, then an individual incentive plan would need to be structured in such a way that this does not occur. A team-based plan may be appropriate to ensure that the sales force is at its most efficient collectively. If there is little risk of cannibalization and the sales force members can handle the sales task with relative independence, then an individual plan may be more appropriate.

The types of incentives offered will also serve to orient sales force behavior. This concept relates to the direction of the incentives. The incentives are always tied to an objective or a set of objectives. In choosing the objectives, the company must determine what behaviors it most wishes to reward. For example, if the sales organization has two products -- one a high profit but low volume and the other high volume low profit -- then the sales force may be equally motivated by a profit-oriented plan. However, if the objective is not net profit but operating profit, then the sales force would be specifically oriented towards sales of the high profit, low volume product. Similarly, if the incentive is based on revenue, the sales force may choose to emphasize the low-hanging fruit (low profit high margin product), particularly as the incentive measurement period end draws near.