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Interrogated

An increasing number of business experts are asking questions about the motivational power of cash

Faced with a sagging stock price and an even steeper decline in the morale of its sales force, Andrew Mason, Chief Executive at Groupon Inc., extended a dinner invitation last summer to roughly two dozen veteran sales representatives. According to a Wall Street Journal report, Mason was prepared to hear their complaints about changes to the sales organization.

The dinner was scheduled for the company’s sixth-floor cafeteria. Rumors began circulating a few days prior to the event that Mason was planning to dole out special perks at the dinner. Some speculated he would divvy up extra shares of stock among the company’s top reps.

But they didn’t get any perks. In fact, they almost didn’t get dinner. The Wall Street Journal reported that Mason forgot to have the food ordered and instead brought in pizzas at the last minute.

The Journal article focused on the online deal deliverer’s struggle to retain key salespeople in the face of declining business. Groupon went public in November 2011, but now is seeking to recover from financial missteps and a stock that is more than 70 percent below its initial public offering price of $20.

Groupon is not alone, of course. Businesses across all industries continue to wrestle with a roller-coaster economy. Tough decisions are still being made about staffing levels, compensation, promotions and all of the other factors that help a company keep its employees engaged and motivated.

There is a loud battle cry from people who have spent decades studying the factors that go into leading successful businesses. One point of emphasis, couched in terms suitable for this election year: It’s your workplace culture, stupid.

The human element

Employee engagement is the foremost human resources issue for HR leaders, according to a 2012 survey by the Society of Human Resource Management (SHRM) and Globoforce, a leading employee recognition company. Numerous studies show that higher levels of engagement translate to increased profits. In fact, a study by Towers Watson found that a 15 percent increase in employee engagement correlates to a 2 percent increase in operating margin.

One of our favorite sources on the ROI of establishing a strong workplace culture — above and beyond paying people well — are Bill Catlette and Richard Hadden, aka The Contented Cows (contentedcows.com). In their 1998 book “Contented Cows Give Better Milk,” Catlette and Hadden established a direct correlation between being a business with a well-earned reputation as an employer of choice (“Contented Cow” companies) and enjoying financial performance. In July, the authors released an updated version, “Contented Cows Still Give Better Milk: The Plain Truth About Employee Engagement and Your Bottom Line.” In it, they reiterate their original message, identify several new Contented Cow companies, and support their argument with bold statistics.

“People have asked periodically if we thought it might me time to update the story. In general, we have resisted (okay, Bill has resisted), largely on the grounds that once you know that 2+2 = 4, there is no need to continually reprove it. Moreover, the basic tenets of leadership are virtually timeless,” the authors state in the book’s first chapter.

It became clear, they add, that readers aren’t so much interested in a rejustification of the Contented Cows axiom; instead, they are asking for some fresh examples and fresh stories, with maybe a little reaffirmation of the original premise.

“Admittedly, there is a good deal of subjectivity involved in first defining what an employer of choice actually is,” the authors state. They have a minimum of three standards that must be met to be considered for Contented Cow commendation:

Sustainability: Have a business model and track record that signal they will be around for a while

Continuity: Have been in business for at least five years

Desirability: Are generally and demonstrably regarded by the people who work there as a good place to work, with positive, affirming, sensible and affordable employment policies and practices.

“In an age when speed, flexibility and flawless execution have become the primary markers for competitive advantage, human factors are mission critical,” Catlette and Hadden state. “As managers careen wildly from one tool or tactic to another, many lose sight of the fact that the critical difference between a brilliant strategy and one that gets successfully executed resides in the hearts and minds of people — specifically, the members of your workforce.”

Cash gets bashed

At the crux of this discussion about what really motivates people to excel is a growing belief that money is not as significant of a factor as many once believed. Researchers Thomas Steenburgh and Michael Ahearne stirred up several conversations online with a July/August cover story in Harvard Business Review that argued the effectiveness of sales incentive programs is directly related to how they are structured and not how much money salespeople stand to earn in them.

“A few progressive companies have been able to coax better performance from their teams by treating their sales force like a portfolio of investments that require different levels and kinds of attention,” Steenburgh and Ahearne state.

They group salespeople into three categories — stars, laggards and core performers. Stars knock down any incentive target (but may stop if a ceiling is imposed); laggards need more guidance and prodding; and core performers fall somewhere in the middle.

A growing body of research suggests that each group in the sales force is motived by different facets of the compensation plan, yet few companies focus on getting the most out of the full range of their salespeople. “Most firms zero in on their stars even though it’s their core performers whose improved performance will move the middle,” Steenburgh and Ahearne say.

The most effective incentive programs feature a tiered structure with rewards at each tier so that both stars and core performers are recognized for hitting stretch goals. “The key is to offer gifts (not cash) for the lower-level prizes that can be seen as equal, or even superior, to the top-level prizes on some dimension,” the authors say.

In the same issue of Harvard Business Review, author Daniel Pink also spoke to the limited motivational power of cash. In his 2009 book, “Drive,” Pink states that “everything we think we know about motivation is wrong.” In his summer HBR article, he rattles some more cages by suggesting that paying salespeople commissions is rooted more in tradition than logic.

Pink relays the story of Mitch Little, who began questioning the conventional wisdom on sales commissions in the late 1990s, shortly before he became vice president for worldwide sales and applications at Microchip Technology, a large semiconductor company based near Phoenix. Little oversaw 400 salespeople whose compensation plan was the industry standard — 60 percent base salary and 40 percent commissions.

“That made sense 40 years ago, when the Fuller Brush salesman went door-to-door,” Little told Pink. “But the world of business-to-business sales has shifted fundamentally. He killed commissions completely and established a new plan in which salespeople received 90 percent of their compensation in a high base salary and the other 10 percent was linked to corporate (rather than individual) measures such as top-line growth, profits and earnings per share.

The cost of sales stayed the same while total sales increased. What’s more, attrition dropped. Microchip, a $6.5 billion public company (one of the top performers in the semiconductor industry, according to Pink), maintains its commission-free 90/10 system, not just for its sales force, but for almost everyone who isn’t an hourly worker, including Little himself.

Measuring more than revenue increases

In step with reducing the focus on cash as an incentive is the notion that a company’s success should not be solely measured by revenue increases. “Sales incentives that reward reps strictly for their revenue contributions fail to focus on the steps and behaviors critical to successful selling — targeting, prospecting, planning, messaging and negotiating,” says Mike Ryan, Senior Vice President of marketing and strategy for Madison Performance Group, a consultant in Internet-based work force engagement and sales incentive marketing.

Ryan contends that the pressure to hit quota — and the contests that strictly measure that — compel salespeople to take detours, bypass critical steps and rush to the close prematurely.

“Shortcuts can do damage on many levels and chief sales officers — along with their cohorts in marketing — know this. Reps that conduct their business in an unfocused or opportunistic manner rush to cut deals instead of working to craft solutions,” Ryan says. “They rush the order before they have gained the client’s trust.”

Sales managers recognize that most of their underperform­ing reps (on average, about half of all sales forces miss quota) have fallen into this speed selling pattern. These managers are looking for tools to reemphasize the importance of winning behaviors throughout the sales cycle.

One tool that sales managers are increasingly embracing is gamification, which in this case can be loosely defined as incorporating video game elements into a business application. Bob Marsh is the general manager of Sales Contest Builder (salescontestbuilder.com), the developer of a gamification app that gets salespeople to complete sales cycle tasks built into the ubiquitous Salesforce.com customer relationship management software system (see stories on page 40 and 48).

“Salespeople are hypercompetitive by nature,” Marsh explains. “It’s not always about winning a [real] prize. People get sucked into the competition of it.”

Let them know how much you care

In the end, caring about your people does not mean lavishing them with money and expensive benefits or increases and extras they haven’t earned, Catlette and Hadden (the “Cow Guys,”), state emphatically.

“In fact, we submit that inordinately high wages, salaries and unwarranted benefits not only aren’t the answer but they are often a large part of the problem,” they add. “Companies often use or view them as a way to counterbalance or compensate for serious deficiencies elsewhere. Granted, no organization can expect to maintain esprit de corps by paying substandard salaries, but a lot of damage is done when people see money being thrown around. Once this occurs, pay loses its meaning, because people assume that the money must have been easy to get.”