“Incentive Plans To Get What You Paid For”

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“Senior management’s job is to pay people…If they &#%!@?!”a hundred guys out of a hundred grand each, that’s ten million more for them. They have four categories: happy, satisfied, dissatisfied, disgusted. If they hit happy, they’ve screwed up: They never want you happy. On the other hand, they don’t want you so disgusted you quit. The sweet spot is somewhere between dissatisfied and disgusted.” Quote from the book The Big Short.

That quote hit home for me. Like many of us I have been on the receiving end of some interesting incentive goal setting rationale. In one case, the payout started once I was 10% above last year’s numbers, while the organization’s projected annual sales growth was set at 3%. A real disconnect in goal setting. I didn’t see a dime until I made my case to my boss’s boss for a plan modification. One of my clients was planning to offer a commission they couldn’t afford: the payout was higher than projected revenue growth. Consider the following suggestions in setting up a plan for your staff:

1. Start with your organization’s strategy and what your want to achieve and link sales efforts to established strategic objectives.
2. Develop sales goals in the context of the projected revenue growth for your business to sync sales performance.
3. Do homework to determine what your production has been. Sales goals set without any historical analysis is like  “shooting in in the dark” with goals too high or too low based on past results.
4. Make goals realistic and attainable with a performance stretch. If you desire higher production, set additional performance tiers and pay accordingly. Unrealistic expectations demotivate, while easy goals won’t allow you to attain the growth you want.
5. Put the incentive expense in the context of the financial benefit to your business. Yeah, you paid some big bonuses but how does your bottom-line look.
6. Run the program for a test period to learn where you may need modifications.
7. If a new plan, start out with a fair payout that you can always modify as you gather more data. You want to avoid reducing an amount in the future. That will hang over your sales people like a dark cloud; a real motivation and trust killer.