In the past 12 months, companies have had to recalibrate their goals and rethink expenditure to contend with more challenging market conditions. Often, that process has involved taking an extremely close look at sales revenue and individual performance to determine who really delivers when the chips are down.
Now, with the prospects of economic recovery getting brighter by the month, employers will be looking to drive growth and grab market share. To do that effectively, they will need to apply the lessons of the past year. In many cases, that means establishing a new system of incentives for the sales force that will fairly reflect each person's value to the company and allow for increased personal rewards as the market enters a cycle of growth.
Coming out of a recession is the time to implement new strategies and retool others. In terms of sales compensation, the focus should be on aligning incentives with business needs and, where possible, to make the link between enhanced performance and higher reward transparent and non-arbitrary. This is the way to motivate individuals and push for success, no matter whether the incentive comes in the form of a bonus, commission, extra allowances, better base pay or even share options.
Employers can come up with all kinds of approaches but, conceptually, the incentive mechanism should be simple. It is designed to reinforce a mutually beneficial relationship between the salesperson or team and the company. The complexities of matrix organisations, with their multiple lines of reporting and global business processes, can complicate things. If so, the challenge is to figure out what works best locally, limit the number of permutations and give salespeople a business-related target they have a chance of achieving.
Staff involved in other areas - from product development to after-sales service - all play a part in the broader sales process. For clarity and results, though, it is generally best that any incentive programme for them is separate from that designed for employees in strictly sales roles and is tied to a distinct set of goals.
As consultants, we deal with the regional offices of multinationals headquartered in different parts of the world, in addition to locally based enterprises, and in most major industries. What we see is that in-house incentive schemes don't always keep pace with changes in corporate strategy or developments in the business.
This problem is particularly noticeable in Asia, where companies tend to operate in multiple markets with different tax regimes, standards of living and levels of competition. Difficulties then increase if it is necessary to justify any changes to compensation policies that have been set by an overseas headquarters half a world away, where the economic environment and basic business circumstances may be totally different.
Some organisations begin the process of reviewing sales incentive schemes by asking: "What is market practice?" Their first step should be to look at what they have now, to ask themselves objectively whether it is working and to find out what staff think. Of course, market practices are a useful point of reference, but each company must find out what will get results in its own context with its own staff.
This usually requires innovation and a degree of flexibility so that, while clear rules exist, they do not have to be absolutely rigid. Also, the practices put in place have to adapt as the business situation evolves. In Asia's dynamic environment, nothing remains static and no employee wants to feel that he or she is expected to achieve more for no extra reward.
Therefore, it makes little sense to impose strict caps on the incentive element in remuneration packages. Logically, if someone can keep securing orders and winning extra business that benefit the company, they should have the financial encouragement to surpass whatever monthly or annual target was set and to keep on going.
Some employers are resistant to the idea of sales staff potentially earning an unlimited amount. But if someone has a proven record of bringing in new business and a pre-agreed sliding scale that ties remuneration directly to performance, it is hard to see why that should be a problem for a forward-looking firm.
When advising clients, we generally caution them against adopting sales incentive plans wholesale from a business primer or a head office model. This is not to cause dispute or spark dissent but simply to give the company and its sales teams the best chance to shine.
Sometimes, importing an external model is just not feasible. The targets may be too dependent on factors such as pricing controlled by managers based overseas with no real feel for day-to-day practicalities. Or there may be no accounts in the local market big enough to hit the incentive thresholds decided on a regional or global basis. The predictable result is that even the most enterprising salespeople will feel no sense of "buy in".
With suitably localised incentive plans, it is still possible to respect the wider corporate ethos while exerting controls and spurring performance. The key is to find the right alignment between on-the-ground business realities and individual incentives and to address any thorny or technical issues up front.
By considering a couple of alternative approaches, you can see how differently companies of similar size and competing in the same sector can handle their sales incentive schemes. For the sake of the example, we will call one GlobalCo and the other RegionalCo.
The former pays a base salary at market median rates, with a sales incentive of about 10 per cent of base salary even for exceptional performance. This is defined in terms of sales team and overall company performance, and it is measured by the regional human resources (HR) department.
The latter's strategy is markedly different. It pays lower base salaries but offers a more aggressive incentive plan. Top-performing staff can earn more than 200 per cent of base salary and there is no cap for those who exceed targets. Assessments and rewards are largely based on individual achievement versus personal targets, with local managers monitoring progress and outcomes.
The purpose of the example is not to say there is a right and wrong. It is to illustrate that organisations have different underlying philosophies and contrasting attitudes to risk and HR management. They should therefore ensure their sales structure, remuneration and incentives are a precise fit for their culture, strategy and objectives.
Here, GlobalCo appears to believe its interests are best served by focusing on long-term relationships that guide clients towards purchasing decisions. It wants "sales farmers" who have the patience to build and retain business over a longer sales cycle. This sees sales as more of a team process and, along the way, makes it easier to standardise administration and limit individual incentives.
In contrast, RegionalCo's strategy requires "sales hunters". They must be more aggressive in their approach to finding new clients and will generally make smaller sales but to more customers. With this strategy, there is greater scope to react quickly and take advantage of market opportunities. The upside for individual sales executives is that rewards are potentially much larger but earnings may well be more volatile. While such an operating environment does not suit every organisation, it does remove limits, attract high performers and encourage decision-making at the local level.
The key lesson, though, is that the incentive programme for sales staff should never be an afterthought or adopted without very careful reference to local circumstances and the business realities of each market. Having a flexible, customised plan is the best way to support growth, strengthen the company and capitalise on the recovery.
Written by Justin Liu, principal in Mercer's human capital business in Hong Kong, and David Heazlett, principal in human capital business and global head of sales effectiveness at Mercer, a global provider of consulting, outsourcing and investment services.
