SALES STAFF
Sales incentive plans failing to deliver
Less than half of employers surveyed by Mercer Human Resource Consulting feel their sales incentive plans are effective.
None of the 40 large UK companies that took part in the survey said their plan was highly effective in increasing sales performance. As Mark Edelsten, European Partner at Mercer, explains: "Many incentive plans are far too complex which makes them difficult to explain to staff. If employees can't see a simple relationship between their performance and pay level they are unlikely to achieve their potential."
Performance measures
The survey found that the majority of companies -- 67% of respondents -- have between two and four performance measures in their incentive plans. As many as 13% use less than two while 20% operate five or more. Measures include sales revenue, gross profit and number of units sold.
"Performance measures should be directly related to business goals," says Edelsten. "To be effective, sales incentive plans need to be flexible and not too prescriptive, otherwise they won't work if the business changes direction."
Team or individual performance
Two-fifths of employers base reward on a combination of individual and team performance. As many as 33% base variable pay on individual performance while 27% measure against individual and company performance.
"The sales process has become more complex for many companies, with teams of employees involved rather than just one individual. Reward structures therefore need to encourage a team-based approach," says Edelsten.
Target setting
Effective target setting is essential to the success of any sales incentive plan. As Edelsten explains: "If targets are too easy, the plan will overpay and the sales force will become complacent. If too difficult, the staff are likely to give up."
According to the survey, nearly half the participants (48%) felt their target setting process was ineffective.
Performance thresholds
Most employers set performance thresholds below which no commission is paid. The vast majority -- more than eight in ten -- require staff to achieve above 75% of target, of which nearly two-thirds require at least 90% of target.
As many as 41% of companies surveyed dictate that staff must achieve 100% of the target performance before any commission is paid.
| Mercer's five principles of an effective sales incentive plan |
| 1. Align the plan to business goals. |
| 2. Understand the markets you're operating in and your customer base. |
| 3. Make the plan design simple, with a maximum of five performance measures. |
| 4. Clearly explain definitions to staff make them consistent across geographies. |
| 5. Set specific performance targets for each region. |
Source: Mercer Human Resource Consulting.
A final word
"Sales force effectiveness is a hot issue for most companies. There is now more pressure than ever on price and market share, so employers need to ensure they're ahead of the game. Sales staff are motivated by commission, but overly complex incentive plans only cause confusion. A clear, simple plan design will pay dividends." -- Mark Edelsten, European Partner at Mercer Human Resource Consulting.
Want to know more?
Copies of the survey report cost £300 and are available from Aliza Pinczewski at Mercer Human Resource Consulting on tel: 020 7423 5585 or email: aliza.pinczewski@mercer.com
Mercer Human Resource Consulting is the "largest consulting firm of its type in the UK, helping organisations create business value through their people". It employs over 3,000 staff in 17 office locations in the UK. To find out more visit www.mercerhr.com
Posted 26 January 2004