Incentive Compensation: Ineffectiveness Of Tipping Model For Sales Teams

What is your company’s mindset when designing a sales incentive plan? A) Company should win because of sales reps, OR B) Company might win regardless of sales reps.

Personally, I recently instituted a No-Smile-No-Tip policy. I love coffee shops. But I am often disappointed at the robotic and uninterested interactions I have with the staff. Then, they turn the credit card processor around for a minimum of $1 tip for an expensive cup of coffee. So, I have decided to vote with my wallet! Yes – it’s evil to not tip – or is it?

Without going into the depths of sales incentive compensation design, let me share some food for thought. It should not be secretive or sensitive that a small minority of best people should take home most of the available incentive compensation.

Simplistically, there are two ends to the spectrum of sales rep incentive design. The type of design can be evidenced in the psychology of sales reps:

  • Are you attracting and keeping strong sales reps with a hunter mentality? Are they driving incremental value to the company beyond product and marketing effectiveness? OR
  • Are you attracting sales reps with an order fulfillment mindset?

Let’s use two simple extreme day-to-day examples to think about how sales reps are incentivized and their resulting psychology:

  • Server Incentive Mindset: Unwritten societal rules entitle all manner of service roles to expect a 15-20% additional tip. How well does this really incentivize good performance, incremental sales, or repeat customers? As a consumer, how many establishments do you return to primarily because of the service?
  • Broker Incentive Mindset: Real estate agents work under brokerages that take a portion of the commission from home buyers and sellers. If you have purchased real estate, you know that people choose the agent, not the agency. How likely are these agents to make any money if they don’t have buyers and sellers choosing them? How likely are these agents to go the extra mile and stay in the buyers’ and sellers’ good graces?

We can overlay the same mindset while designing sales rep incentives:

Server Mindset

Sales teams are not motivated and operate closer to order fulfillment

Leadership is too focused on creating a level playing field in-terms of sales rep compensation

Product and / or marketing masks sales ineffectiveness, leaving value on the table

Sales effectiveness is hard to measure independently of product and marketing

Leadership is not objective about involuntary attrition of poor performers

Upskilling and grit are not encouraged or expected. Reps prefer non-quota carrying roles

Company’s success is not driven by sales reps and is capped by product and marketing effectiveness

Broker Mindset

Attracts top reps who have a hunter mindset and adds customer value

Leadership internalizes that top reps want disproportionately strong rewards for being the best

Sales incentives are designed accounting for product and marketing effectiveness

Company has tailored leading metrics that tie behaviors to positive outcomes

Sales and company leadership is objective about performance and involuntary attrition

Self-motivated upskilling and drive to go the extra mile are expected; Reps prefer quota-carrying roles

Sales Reps drive customer value and close deals despite strong competition and product gaps that require closing

Additional read: Here are more thoughts on compensation for small- and mid-sized companies.

Published By

John Oommen