The following is a question that a Sales Leader may pose while in the Learning Stage of a Sales Transformation, as outlined in the soon to be published book Leading a Sales Transformation.
Are non-quota measurements in place to facilitate coaching, training, and hiring?
“The foundation of changing behavior is linking rewards to performance and making the linkages transparent.” – Larry Bossidy, Execution: The Discipline of Getting Things Done Richard (VP of Sales at a large corporation) hosted a session with fellow sales leaders on culture, sales process/CRM adoption and driving behavior changes in a sales team.
Opening the session, he shared how at the beginning of his team’s Sales Transformation, they had added process improvement goals to the sales rep’s variable pay (commissions). The payment was based on the MBO philosophy, which he displayed on a slide:
Management by objectives was first popularized by Peter Drucker in his 1954 book The Practice of Management.
Management by objectives is the process of defining specific objectives within an organization that management can convey to organization members, then deciding on how to achieve each objective in sequence. An important part of MBO is the measurement and comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities. (Source: Wikipedia)
He followed with an explanation of how they had structured the quarterly MBO:
- It represented 5% of a sales rep’s quarterly commission target.
- At the beginning of each quarter, the team would announce the objective for the MBO, individual targets and how it would be measured.
- The MBO was used to reinforce internal CRM deployment and process changes, such as forecast consistency, updating contacts, competitive profiling and customer participation in the satisfaction survey.
- The MBO had only one focus per quarter.
George, a sales leader from a technology manufacturer, cut Richard off asking why he would approve such a program when sales reps are paid a salary? He emphasized the point with another question, asking why Richard would not use performance management to address non-compliant sales people?
Richard answered George’s question with a question;
How well is that working for you today?
The room got quiet quickly as they had all lamented the challenges with getting sales people to adhere to the processes they deemed necessary. George was no different, his efforts to drive process compliance with “the stick” had failed every time.
At an earlier point in Richard’s management career, he had shared George’s point of view; a salary was paid to the salespeople to compensate for doing the things that are important to the company, with commissions paid for closing deals.
The problem was that it had not worked well. He had always struggled to get salespeople to execute processes that did not retire quota. It seemed a perpetual battle between management and the reps.
Drawing on his 15 years as a sales rep, he had analyzed the problem from the rep’s perspectives. Richard came to understand what drove him as a rep and how that should influence his sales management style, a philosophy he shared with the group:
Great salespeople are motivated by two things: commissions and recognition.
Great salespeople never think about their salary except when there is an opportunity to ask for more (i.e. end of year review), a recruiter is trying to get them to leave or when they figure out that a peer has a higher base.
I look at a reps push for base salary as a potential red flag as I want the rep who is all about risk and reward, the rep who is all about the upside. This was driven home to me by one of my first managers after I bought a boat. When I told him about the boat, his only reaction was that I had not bought a big enough boat. It was a curious response, and I asked him why. He responded:
“I want you in a bigger boat. I want you to up-size the house. You should go buy the new BMW. I want you with a bigger mortgage and more debt. Those family and personal motivations are much stronger than anything I say or do. See where you want to be, pay for it with credit and drive hard. We both win.”
The hungry salesperson banks their salary and focuses 100% of their time on driving their commissions. They analyze their quota, commission accelerator rates and whether they can move the deal to scoop up a SPIF (Sales Performance Incentive Fund) or two along the way to beating quota. What gets paid gets done.
The second motivator is recognition. Reps focus on quota because that is how they get to President’s Club or win Rep of the Quarter. They like a SPIF, but it does not get them the recognition they desire.
They also know that if they want to keep working at the company, they need to hit quota. No one cares about how many SPIFs a rep won if they missed quota.
Richard explained that these two points, what gets paid gets done and helping the rep beat quota, are the reasons why he went the MBO route and not a SPIF. By making it part of the sales rep’s core compensation, it became part of their daily focus.
He shared that the MBO helped the reps understand what he thought was important. To further that understanding, he reinforced each quarter’s MBO with frequent communication. Richard believed that too many changes are made without explaining the WHY and HOW to salespeople:
WHY it is important to the company and HOW the company will train and commit to the process.
WHY it is important to the rep and HOW it will help them get to quota faster.
Richard shared that their first MBO was on forecast consistency. They rolled out automated forecasting within their CRM (Customer Relationship Management) system, and invested in explaining the why and how:
- Why for a Rep – Less Effort: Automated forecasts meant that spreadsheets would disappear. When a rep entered their opportunity into the CRM system, they would only have to do it once. No more confusing weekly manual entries into a spreadsheet that was always breaking. Just keep the opportunity up to date.
- Why for the Company and the Rep – Reduced Product Shortages: By automating and improving the consistency of the forecast, the product team could improve their ordering effectiveness. The salespeople were only paid when a product shipped to the customer, and many had complained about missing their quarterly bonus due to random product shortages. Proper product ordering would reduce shortages, helping more reps get paid while improving corporate profitability.
- How – Training: The team rolled out the new forecasting process by embedding it into the ongoing sales training and the new coaching training for the managers. As they up-skilled the teams, the trainers taught selling skills while reinforcing how sales processes would drive success.
- How – Management Consistency: Richard made it clear to the management team that he expected spreadsheets to disappear and that this was a condition of employment. A deal that was not in the system did not exist and would be last in line for product fulfillment at month end. Richard explained that great managers lead from the front, and he expected all of the Sales Managers and Directors (and himself) to use the forecasting dashboard and automated process. If there were process problems, he expected the leadership team to help drive improvement and if a rep was struggling, to dig in and coach.
They held the forecast MBO in place for two quarters until leadership felt confident that the managers were comfortable coaching and the sales reps had committed to the process. Over those two quarters, they eliminated all spreadsheets and it became their natural sales rhythm. The next quarter they dedicated the MBO to improving competitive profiling within accounts.
Linda, a sales leader from the chemicals industry, spoke up. She understood the logic and benefits of the MBO approach but believed that working with the compensation team was too daunting. She pushed Richard on using a SPIF instead.
This was an objection that Richard had to overcome with his boss to get the MBO implemented. His boss had said the same thing, pushing for short-term SPIFs that could be eliminated quickly. Richard had disagreed for two reasons.
- First, he believed that this program would not stop. His plan was to continue innovating on their CRM platform, always pushing for process improvements that would help field sales stay ahead of the competition.
- Second, he pointed out that a SPIF is optional, not mandatory. A rep can make their quota and get to President’s Club without a single SPIF. Richard did not see these goals as optional; they had to be part of core compensation to reinforce their importance.
He finished the sharing session explaining that the initial implementation of the MBO process had not gone smoothly. Even though they triple checked that they could measure the forecasting process and pay correctly, it had not worked. They had to pay everyone at 100% for the first quarter due to measurement issues. It was a tough lesson to learn, and a mistake they did not make again.
Compensating to drive behavioral changes is a useful training tool, driving focus and rewarding those who embrace change. Through the experience, the team will learn the value of the activities, and hopefully, it will become part of your standard operating rhythm and culture.