October 9th, 2008

What's a Little Money Between Friends?

Posted by Brian Sommer @ 10:16 am

Categories: Current Affairs, HR, expense management, expense reporting, negotiations

Tags: Incentive, Commission, Joe, Sales Force Management, Sales Strategy, Sales, Brian Sommer

Gaming Incentive Systems

Joel Spolsky (www.inc.com/keyword/spolsky) wrote a nice piece in the October 2008 issue of Inc. magazine. The article, Sins of Commissions, provides a cautionary tale to executives who are contemplating the addition of or changes to sales incentives in their workforce.

What Joel zeroed in on is that tried-and-true axiom “people will do what they are incented to do”. Joe offers a number of examples where well-meaning executives designed systems that employees quickly figured out how to game to their own advantage. In the end, the employee usually benefits and the company does not.

Much of my work career was in a meritocracy that focused a lot of attention on each individual and their adherence to business policies. Sure, you might be able to sneak something through from time to time, but if you were ever caught abusing or distorting the generally accepted rules of behavior, you would be drummed out of the firm. That applied to incentive pay as well.

But that experience is not universally followed. In fact, a mercenary attitude of employees towards corporate expense and commission systems is actually widespread. To some, incentive compensation is viewed as a perk that is to be stretched to its widest possible limit. Over the years, I have found it to be the rare sales person who doesn’t keep their own personal set of books to validate the commissions or incentives owed to them. (And, personnally, I don’t blame them in many cases!) Second, it is a rare sales person who does not frequently argue the incentives paid to them with their employer. But, while those prior activities may be just and justified in many cases, the salesperson who views incentive compensation as a perk to be used and abused is inexcusable.

For a case in point, I remember interviewing a woman from an East Coast research firm. During her interview with me, she regaled me with stories of how she researched every little nuance of her firm’s travel policies and commissions systems to seek out loopholes that she could skew to her advantage. This individual was a shameless, self-centered money grubber who cared not one bit for the company that employed her, the services she sold or her clients. She only cared about herself and obviously lacked the self-awareness to realize that her view of compensation would result in her failing to receive an offer from my firm.

One of the more maddening aspects of sales compensation that I have witnessed occurs when a salesperson does their own pipeline leveling to achieve specific personal compensation or perks. Years ago, I saw a sales person intentionally delay deals in the third quarter because they anticipated special year-end incentives to be offered by management in the critical fourth quarter. In this case, a senior sales exec stalled a major deal so that it would book in the next quarter and guarantee him an automatic President’s Club slot.

The expression “be careful what you wish for, you just might get it” rarely applies with incentive systems but it can if one has a particularly well thought out approach.

Several software companies make incentive management solutions and many of these are pretty good. One of these, Varicent , does a good job of providing sales management tools that eliminate much of the arguments between Sales, Accounting and the sales force. One Global 1000 payroll executive shared with me that commission disputes are one of her staff’s biggest time sinks. Worse, her firm’s sales management group changes incentive plans too frequently and without fully understanding the consequences of these new initiatives.

Finally, I remember an old boss of mine who strongly counseled me against the creation of an incentive program. He found them to be a bear to administer and a real morale problem for those employees who do not qualify for (or succeed in) the program. Given the history of one of that firm’s incentive programs, I can certainly understand why he felt the way he did. Nonetheless, incentive programs and commissions are here to stay and are undoubtedly a necessary component to many sales organizations. The message today is not to eliminate these but to tread carefully so that one gets, absolutely, the consequences they intended.