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Incentive Insights: Paying for Grades and Your Sales Force

With schools having just issued year-end grades, I find myself pondering recent articles about the merits of paying high school students for good marks. Do these incentives work? What are the unintended consequences?

Most importantly, what are the parallels to salespeople, and what can we learn from schools participating in this practice?

The idea of paying for grades has been tested mostly in urban areas, with the intent of encouraging teenagers to stay in school and do well—something a sizeable number of students in these locales would not otherwise be doing.

Because some of the poorest-performing schools nationally are in economically distressed areas, the logic is that paying for grades serves as an alternative to these students dropping out before graduating in order to earn a living and provide for their family.

Pay-for-grades programs are intended to provide a short-term economic incentive steer kids toward a better long-term outcome—a high school degree, and perhaps the opportunity to attend college.

Detractors of paying for grades focus on the need for students to develop intrinsic motivation. Shouldn't we be teaching kids to set a goal for themselves and to strive toward it? Why are we paying them for something they should be doing, anyway? And what happens when they're asked to do something for no money?

How does this relate to sales incentives? Well, we hear stories of companies with "vending machine cultures," meaning if a company wants the sales force to do any activity, it must put the activity in the sales incentive plan and pay salespeople for it.

Want them to fill out the CRM? Pay them for it. Want them to stay within the expense budget? Pay them for it. This leads to criticisms just like those of pay-for-grades detractors on blogs: Should we be paying for every single thing we want them to do?

For example, when companies implement a new CRM system, they often follow one of three paths with regard to incentives:

1. They establish a permanent incentive to reward salespeople for CRM input.

2. They establish a temporary incentive until CRM behavior is well established.

3. They don't establish any incentive, instead opting to drive behavior through managers.

Some of our clients would argue going with the first option is the equivalent of paying for grades. Sales representatives earn a base salary (around 70 percent of total pay across all industries) that should require something in return.

If you begin paying incentives for a single aspect of doing their jobs, will they begin expecting incentives for every single thing they are asked to do? And if you do that, why have a base salary at all?

In addition, when salespeople want to be paid for every activity, senior management will question their commitment to the company. Is this the kind of sales force easily swayed by more money from a competitor? Are they dedicated to the company, and do they want to contribute to both their personal and the company's growth?

Then you have the first-line managers. These individuals are getting paid to drive behavior, as well as manage and coach their employees, and they should be held accountable for instilling positive behavior and activities.

Yet if incentives are what truly affect the sales force's behavior, it brings into question the whole need for sales managers in the first place.

Many managers would argue they need the first option to align field force incentives with what managers are asking their salespeople to do. When you only pay on results, these managers argue, the field will only do things leading to results. The field believes administrative activities such as CRM entries will benefit upper management and not them.

As a result, sales managers want incentives to support them in delivering the message that these activities must be done—even if it keeps sales representatives out of the field.

So what is the ultimate connection between paying for grades and sales incentives? Pay-for-grades is usually most effective when parents are dealing with difficult social and home situations. Because teachers and administrators cannot control students' home lives, they try to appeal to children's economic needs, eliminating that as a barrier to attending school.

With sales forces, companies often view paying salespeople to complete non-sales activities (even when results are clearly measurable) as a sign of poor first-line sales management. Managers can't (or won't) control their salespeople's behavior without accompanying incentives.

To be fair, there are some circumstances where it isn't the manager's fault, such as a span of control that is too high (greater than 12) or when the sales force is on 100 percent commission. But these are not the predominant situations where this problem occurs.

As you look at your own incentive plan, ask yourself several questions to assess your company's position on this issue. Do you see a lot of metrics paying for activity? If so, are your managers stretched too thin? Managing too many people? Too much administrative workload? Are they up to the task?

When students are paid for grades, it can be justified to some degree. Schools cannot control parental behaviors, nor can schools control their students' socioeconomic status.

On the other hand, sales executives do control the culture of their sales force—and control who is in the manager's chair.

Chad Albrecht is a principal and a sales compensation practice leader with ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. He can be reached at chad.albrecht@zsassociates.com.