Compensation management is an extremely sophisticated endeavor. I routinely hear senior managers complain that their company’s compensation plan does not seem to properly motivate all or parts of their sales team. Attempts to drive motivation by tweaking the compensation plan often backfire with disastrous results. I have personally worked for a company that had the morale of its sales force destroyed by an ill-advised compensation plan created by a consulting company whose fees greatly exceeded its understanding of sales. Companies are constantly searching for just the right formula to ensure the entire sales team is properly incented so that the company can reach its objectives. Given the daunting scope of this challenge, it is with great pride that I can announce Mivation has finally determined the perfect mathematical formula to ensure greater production for ANY sales rep!
The formula below will give you the exact formula to 100% guarantee that every one of your reps will be motivated to perform at the highest level possible. Please see the included glossary for an explanation of the variables.
And there you have it! Please note that if any of the 19 variables change by more than 10% from month-to-month you must recalculate and reapply the new compensation plan (on a per rep basis).
I’m sure you realize, this is ridiculous! The strategy of motivating your team through the perfect mathematic formula is equally as absurd. While the math in my formula is nonsense, the variables are not. The sobering reality is that every single one of those variables, and MANY more, can impact the degree to which financial incentives influence motivation (in motivational terms “financial is fickle”). For this reason, it’s a fool’s errand to rely upon a formula.
People are not machines. You cannot simply program them to give you exactly what you want. Be grateful for this truth because if such a thing were possible, we wouldn’t need managers like you. Motivating a team takes a heck of lot more than a financial equation. It is attractive to think that we can simply use money to drive results, but study after study demonstrates that financial incentives are not a panacea. In many circumstances financial incentives cease to have any impact at all. Motivation is a very nuanced thing, but extrinsic rewards like money are not the only, or even the best, way to deal with those nuances. While designing the perfect compensation formula remains a mystery, the intrinsic motivators that reliably result in greater performance are both measurable and manageable.
In our study of over 25,000 individual producers in the insurance and financial services industry we discovered the following mechanisms draw upon intrinsic motivators resulting in a substantial positive impact on performance:
|% Greater Performance
|Daily Activity Plans
|Mastery, Progress, Autonomy
In comparison, variable compensation (OF ANY SORT) was associated with only a 10% difference in performance. However, the most amazing fact is that when the intrinsic motivators were combined with an extrinsic motivator (variable compensation), there was a whopping 43% difference in performance!
Please don’t think I’m mocking through my nonsense formula- I once believed that the secret to greater performance could be found in the right comp plan. In fact, I designed an incredibly sophisticated compensation system in pursuit of that goal. But after analyzing over 25,000 users I discovered that intrinsic motivators such as Accountability, Autonomy, Mastery, Progress, and Contribution had a significantly greater impact upon performance- especially when combined with an intelligent compensation plan. By all means align your compensation plan with your objectives, but don’t think that changing a percentage here or adjusting a threshold there will make a marked difference, it won’t. Neither will 45 performance levels coupled with 15 minimum production requirements. At a certain point, the more complex your plan gets the less likely it is to influence behavior. Once your team doesn’t understand the compensation plan, it ceases to be effective. Don’t lie to yourself like I did for so many years. You can’t reduce people to an equation. I’m not sure what the perfect motivational formula is, but I can tell you this…
Seth Preus is an advisor to Mivation, and the creator of both Racing Snail and Leaderboard Legends. As a thought leader, he uses his 25 years of experience in sales, software development and business ownership to change the equation from “How can I get my team to perform?” to “How can I get my team to WANT to perform.”