Hevel +Co E-News

Incent or Lead? Do Both for Sustainable Results

I've developed and managed incentive plans on and off for more than 15 years and if I can apply only one learning to my work with clients, it's this - employees focus on the activities, skills and behaviors they're frequently assessed and coached to focus on. A common issue I've seen over the years is the laziness (or lack of training or accountability) of managers when it comes to their primary function - leading!

Incentive plans are often relied on to be the driver of most employee motivation and growth. Quickly, this approach leads to unintended consequences - two of which are quite common:

1. The middle ~80% of performers, an important and large set of the sales and service force, are "lost" in the shuffle. Many of these middle performers have high potential for growth and performance improvement, yet lack training, coaching, experience or something other than (or in addition to) money to get on a continuous improvement track (see this issue's article below on the power of scorecards).

1. Additional incentives become the expected response to improvement needed in any area of performance. When a particular product or service is lagging in sales, or an activity is not being done, the alternative to managing performance/leading is "hey, let's just double the commission or add it to the incentive plan". Focusing on incentives (especially cash commissions) every time a particular activity needs more or different focus very often starts the organization down a slippery slope hard to climb back up without a major overhaul to the compensation and incentive structure at some point.
   

The Right Mix of Cash and Non-Cash Incentives

I'm frequently asked about this. Over the years, I've seen a variety of non-cash rewards achieve their objectives in one situation and fail miserably in others. No one wants to hear "it depends on..." yet there truly are several key factors to consider. What IS finally clear? After years of being "sold" on non-cash rewards by the companies that make their profit on them, and the corresponding skepticism and mixed results, the PhDs have done their research and it's compelling. What sales employees say they want (cash) is quite different than what ultimately motivates and produces greater improvement in individual results - awards they wouldn't buy for themselves, recognition, respect, development opportunities, etc.

If you're interested in understanding perceptions of the value of tangible non-monetary incentives and a study that showed results of that higher value perception, go to http://www.salesdriver.com and see the white paper/research done by Dr. Scott Jeffreys.

In my experience, a few of the factors to consider are:

• What percentage of the specific job function is focused on purely proactive sales activities (or direct collection of revenue, such as the role of a collector)? The higher the percentage, the greater the percentage of incentive dollars paid should be in the form of cash.
• How much opportunity is there in your existing pay-for-performance plan to recognize outstanding performance and stroke the egos of your top performers?
• Are the job function responsibilities too broad in scope to make the variable portion of compensation at least 10%?
  

Would an assessment of your current incentive plans be a worthwhile
investment? Let us help! An initial consultation, free of charge, may very
well identify some priorities for you to consider.

Best wishes for a wonderful holiday season!

To explore your sales & service performance improvement opportunities further, contact us at 614-882-2315 or via e-mail at dhevel@hevelandco.com. Visit us at www.hevelandco.com to subscribe to future newsletters.

It Starts With Role Definition...And The Scorecard

When designing incentive plans, I can't stress enough the power of great job design, clear communication about areas of focus, and an effective scorecard from which to assess performance and plan for future activities. A couple of my clients do these things extremely well in conjunction with maximizing the outcomes of their incentive plans and it's paying off. The
golden nuggets?

1. Evaluate your prospecting, customer expansion and retention processes within the sales and service function, and look for opportunities to segment both the customer types and priority contributions necessary from each job function. Example: One of my clients, a business-to-business sales function of a consumer goods producer, was experiencing employee turnover and stagnant sales from existing clients. They had beefed up their commission structure, yet over six months saw no increase in overall business. After assessing their processes and job functions, we segmented the functions and responsibilities, slightly changed the organizational structure, and established key activity measures for the specific functions. They had a record-breaking sales year and productivity per employee went up on all levels. And, they paid out slightly LESS in incentive dollars! (My client ultimately decided to award the unused incentive dollars budgeted to payout supplemental bonuses.)
2. A scorecard for each individual job function must coincide with the presentation of the incentive plan. A clear picture of the key result categories, assigned weighting for those categories, and specific measures (1 - 3 max) under each establishes the foundation for understanding what the base pay is earned for and for action planning and future performance assessments.
3. Quarterly (at least) performance assessment conversations, 1-on-1 with each employee, using the scorecard updates and activity plan review as a basis, keep the team focused on what their total compensation is based on. When productive conversation is about overall performance, activities necessary to continue or improve it, and developmental coaching to support it, the incentive dollars simply become icing on the cake or a carrot dangling out there as an opportunity.
   

Of course, the entire incentive package (including pay-for-performance, special rewards and recognition programs) must align with the scorecard in many ways. Not every component of the scorecard however, needs to be paid an incentive on when you do steps 1, 2 and 3 effectively.

Diahn Hevel is the Founder of Hevel +Co. You may reach Diahn at
614-882-2315 or via email at dhevel@hevelandco.com.

Wishing the happiest of holidays to all of our clients and colleagues!

A proven rule-of-thumb for a sales contest reward: the incentive for meeting or exceeding the goal should be worth 3 to 5 percent of an employee's annual compensation. Ex: A program for a sales force whose annual compensation (base plus average commissions) is $40,000, the reward
for achieving the stretch goal should be valued at approximately $400 per quarter.

Tip: Approximately 85 percent of prize points redeemed from a reward catalog are for home and family items. Take advantage of this by leveraging the family and/or spouse to motivate the sales person. Include the family in the announcement of the program and send updates to the home. "Friendly" encouragement boosts interest and helps participants see that the benefits of the program are professional as well as personal.

Watch for our next issue in January, 2006.