Several years ago, ZS Principal Mike Martin wrote an entry for this blog about why it’s important to have an incentive plan for sales employees. He laid out three reasons:
- Incentives drive more sales.
- Incentives drive desired behavior, helping salespeople exhibit behaviors in line with company values.
- Incentives help gauge success: The more you get paid, the more successful you’ll feel and the harder you’ll work.
The first of the reasons listed above, driving more sales, is clearly part of the role of a salesperson. But what about the latter two? Are they unique to salespeople? Shouldn’t all employees be compensated for doing what’s best for the company and for expressing the appropriate behaviors and attitudes? Shouldn’t all employees feel proud when they’ve done a good job?
Mike’s blog was sparked by a client’s suggestion to move the sales force away from a traditional sales incentive plan to a home office plan. However, I believe that incentive plans are just as important for non-sales employees. In fact, most companies already have them. The bonus and raise that each employee receives, and potentially things like stock grants/options, are usually linked to an employee’s performance on an internal performance assessment. This is, in function if not form, an MBO. But the objectives set for each employee are often broad and difficult to discern. The connection to a bonus or raise is almost always opaque, if not expressly hidden. Employees know that how much they make is determined by their performance reviews, but they usually don’t know how. We aren’t thinking about our home office plans the same way or putting the same amount of rigor into their design and execution.
I remember, shortly after a promotion, getting a raise that was lower than I was expecting. My manager told me everything was going well, and my reviews, both upward and downward, looked good. I was both stumped and a little distraught, so I asked a senior manager in the firm to explain. He took a look at how my raise was calculated and said it had been the upward reviews from my team that had brought it down. I thought I had good upward reviews, but this depended on the definition of good. On a scale of 5, I received an average rating of 4, but the standard when calculating raises was 4.5. This was my “aha moment.” I may have thought I was managing my teams well and my teams may have thought I was doing a good job leading them, but compared to the expectation, I was well behind. Had my manager not shared this with me, I would have kept doing things the same way and continued to be frustrated. This story highlights two key learnings:
- The standard to which an employee is being held needs to be clear.
- When that standard is aligned with company strategy and expectations, it will drive employee behavior in the appropriate direction.
Incentive plans, when effectively designed and managed, can be a valuable tool for motivating every employee, not just those working in sales. It’s important that we put just as much effort into designing, communicating and tracking appropriate incentives for all of our employees.