True, as others pointed out, it is helpful to understand what motivates each of your sales people.
However in addition, as you develop your plan, be clear on: - your goals (lead generation, acquire/build market share, increase revenue, or customer retention etc.)
- what your target market may yield - you don't want to offer incentives that over generate then have to back pedal later, so consider if you need some caps.
- scalability; ensure the company can actually deliver on the sales generated.
- frequency to pay out; largely depends on the goal
- how you will measure results; keep it fair; make sure measurement aligns with business results.
- visibility to the metrics - nothing loses sales people faster than the perception of being cheated on commissions or bonuses.
- flexibility - as business fluctuates ensure your plan does too
- churn - very clearly state how people get paid if/when they leave.
Different roles on the team may require somewhat different incentives to carry out the right behaviour (ie. find new customers, sell more X than Y, deliver excellent service, sell widgets, retain customer) consider if you want some team goals as well as individual, depending on what exactly you are trying to grow.
A good plan 'incents' the correct behaviour of your team to go after the right type of business/qualified customer/lead to accomplish your business goals.
Lastly, consider how you will modify plans or implement interim spiff programs as the company/business grows, so you can build expectation with the team up front on how you might implement a change in future.
I have helped leaders think through different components of incentive plans, I don't do the math but I know how to think it through. Happy to help.
Don't complicate it. Your team is comprised of human beings, each of whom has their own unique set of motivators. Get to know them, really. Get naked. Figure out what makes them tick; one size shoe doesn't fit all.
A few other thoughts:
1) Carrot / stick mentality isn't a sustainable strategy for high-performing, kick-ass players. Throw it out of the window.
2) The secret to successful sales is rawness and empathy. Exemplifying this with your team, will motivate most of them to do the same.
3) Managing people: hire character; customize motivation; expect the world; believe unequivocally. Then, get out of the way.
4) Help people discover why they're doing what they're doing, and how that connects with your shared vision. Then rally them around it.
5) Take care of the person, not just the employee.
Then, watch them thrive. Hope this helps!
Incentive plans when created to motivate employees give out a meaning that the employees are underperforming. Underperformance is really a big issue these days in corporate world. Let us have a deeper look at it. The motivation factor was brought into force by Herzberg’s Hygiene Theory by Fredrick Herzberg in 1959 to investigate ‘satisfaction at work.’ The result of this research became known as Herzberg’s Hygiene Theory (or the Two Factor Theory) and showed that those factors that gave a person satisfaction at work and those that resulted in dissatisfaction are quite different in nature. Herzberg referred to those things that influenced job satisfaction as ‘Motivating Factors,’ whilst he called those that influenced dissatisfaction at work ‘Hygiene Factors.’ Motivating factors include achievement, recognition, challenge, responsibility, promotion, and personal growth. To prevent dissatisfaction, you should focus your efforts on hygiene factors. These include things like salary, benefits, job security, working conditions, supervision, company policy, procedures, and relationships with co-workers. His findings showed that these two sets of factors act independently of each other and that increasing your team’s satisfaction level will not automatically lead to a lower level of dissatisfaction. For example, if a team member is not motivated by the goals, they are set then this problem will not go away simply because they are given a pay rise. This is because the increased level of pay quickly becomes the norm. The same thing applies to improvements in working conditions, better relationships within their team, or any of the other hygiene factors already mentioned. The cyclical nature of these hygiene factors means that you cannot reap the benefit of improving any of them for exceedingly long. The best that you can hope for is to keep the dissatisfaction at a sufficiently low level to avoid excessive staff turnover and absenteeism. You can only make a lasting positive impact on your team’s attitude by working on both hygiene factors and motivating factors together on an ongoing basis.
J. Richard Hackman, a Harvard University Professor of Social and Organizational Psychology, has spent his career analysing team effectiveness. His research has shown that more often than not people work less effectively than one would expect. In many cases, team members have difficulty agreeing on the purpose of the team and the issues of coordination and motivation within the team erode the potential benefits gained from collaboration. Hackman believes that a successful team usually has a disciplined and committed manager who determinedly sets the team goal, allows the team to select their own members and then define their own structure and processes. Unfortunately, this approach is rarely possible for you as a manager. In the real-world senior management decide on a team’s membership, and their reasoning for including certain individuals may be influenced by politics or simply by who is available. In their recent research, Hackman and his colleagues James Burruss, Debra Nunes, and Ruth Wageman were able to disprove certain beliefs often associated with teams that perform well:
1. Harmonious teams are more satisfied in their work
2. Larger teams with greater resources perform better
3. Performance falls off as team members become more familiar with each other
In their book, Senior Leadership Teams, they explain that even though teams may not be totally harmonious the members can still feel satisfied after performing a task well and receiving recognition for it. They found that the satisfaction orchestra members felt after playing had more to do with how well their performance was received than how the members felt about playing together.
Larger teams may have greater resources at their disposal, but they also have a far greater number of potential communication paths between members. The third misconception that Hackman and his team dispelled was the belief that newer teams outperform well-established ones. There is a lot of research that shows that performance does not fall off as the team members become more familiar and comfortable with each other. A study conducted by NASA showed that fatigued or tired crews that had a history of working as a team made around half the errors of a team made up of fresh pilots who had not flown together before.
Mike Beer, a Professor of Business Administration at the Harvard Business School, has identified six ‘silent barriers’ that cause teams to underperform. People working within the organization recognize these barriers, but they cannot be tackled because they result from issues that senior management prefers to ignore. These silent barriers are:
1. Unclear strategy and values, and conflicting priorities
2. An ineffective senior team
3. Leadership style is too top-down or too laissez faire
4. Poor horizontal coordination and communications
5. Inadequate leadership, management skills and development in the organization
6. Poor or closed vertical communications
Beer says, ‘In organizations that exhibit these barriers, you see that the leadership team members are coming with their own agenda, and there is no effective senior team in place that is committed to the same strategy, priorities and values. The lower levels don’t know what the top is trying to do and upper levels don’t know what they want done. And there is silence; the lower level teams can’t speak honestly with the top about what the problems are that block their efficacy – clear and common priorities and strategy or their pattern of management.’
Beer’s conclusions are based on the work he and his colleagues have completed with several organizations, using a method called the Strategic Fitness Process, which utilizes organizations’ employees as ‘researchers.’ In their work, Beer and his colleagues ask senior management teams to define their strategic direction in a two or three-page statement and to appoint a task force of 8–10 people who will go out and interview 100 employees across all parts of the organization. Beer believes that solving the problems that these barriers create is the main issue for many managers. The process of reviewing and setting priorities is a continual one, which with careful monitoring shows when and where adjustments need to be made to ensure teams perform well. Without these changes coming from the top levels organizations that have cross-functional teams will continue to be ineffective and show poor performance. This is especially true for global corporations where the need to coordinate across different business and geographic regions is essential. Ultimately, senior management should aim to create a culture that allows constructive discussion on difficult issues without the need to find ‘someone to blame.’ To achieve this, the executive needs to define priorities, ensure the right employees are assigned to the right teams, and ensure that each team knows what is expected of it. The findings of these research studies illustrate that some team performance problems may originate from cultural factors that you have no control over. Nonetheless, being aware of these issues should help you to understand why a team may be underperforming despite your best efforts.
These general symptoms will indicate that your team, or a member, is not performing as well as you would expect:
i. Absences from the team and its activities that are lengthy and cannot be explained
ii. More frequent displays of conflict and frustration, often unjustified
iii. Lack of enthusiasm and motivation to perform tasks
iv. Rumours and gossip heard on the organization’s grapevine about your team are on the increase
v. A clique develops so that these people protect themselves from the stigma of poor performance
You will need to be constantly monitoring and observing how each of your team members is performing and look for signs of reduced productivity. Assessing how well your team’s performance compares to other teams in your organization is also an essential part of your role. If you notice a reduction in performance, understanding why this has occurred and addressing it are essential.
The most common reasons teams or individuals underperform are:
1) Lack of clarity and focus
2) Lack of ability
3) Lack of confidence
4) Lack of direction
5) Lack of motivation
1. Lack of Focus: If team members keep on asking exactly what they should be doing, by when, and how they should perform the task then this indicates that their responsibilities have not been specified clearly enough. This type of behaviour may also imply that they need more feedback from you so that they understand how well you want them to do the job. Many jobs can be expanded to fit the time available, and you should regularly review the team’s work to prevent this from happening. It is quite common to see team members spending a lot of time ‘perfecting’ things that do not really need it rather than doing an adequate job and then moving on to another task. For example, if a team member is preparing a document for use within the team, then you might consider accepting a less polished format than if it was going to be more widely circulated.
2. Lack of Ability: One of your members, or the team itself, may be underperforming because they have been assigned a task that they are not skilled or knowledgeable enough to undertake. To prevent this situation arising, you should have an appreciation of each team member’s capabilities. You can assess how much additional training and coaching you can offer to help develop their skills, but in the end, you need to make a judgment on how well their skills match the task requirements. This inability to perform the task may also be due to a lack of resources, whether it be in terms of people, materials, or funds. In your role as team leader you need to ensure that higher levels of management are made aware of the skill level of your team, manage their expectations of what tasks your team can accomplish, and feedback when constraints exist. Finally, to ensure you only have capable members added to your team you should take an active role in the selection and induction of new members.
3. Lack of Confidence: Your team may find itself performing a new role or task following a reorganization or merger. This may result in a lower level of performance as the change causes the team to lose confidence in their abilities to handle the new tasks and processes. Sometimes as a manager you will notice that an individual, despite having the right qualifications, just does not seem to perform as well as you expected. This can be because they do not possess the required behavioural skills, or they lack the interest to adjust and learn the new skills that are necessary for their role. This person could also just not fit into the social make-up of your team even though they have the right skills. In this instance often the individual begins to feel unappreciated, and they may even feel ostracized by the rest of the team. Therefore, their performance declines, and the situation deteriorates because the rest of the team resent carrying an underperformer.
4. Lack of Direction: This is probably one of the most common reasons for underperformance. As a manager you should make certain that the goal and task descriptions you provide are as clear as possible. If your own goals are poorly defined it will not help the performance of your team. This could be due to one of the ‘silent barriers’ described by Beer and his team of researchers. Often these results from senior management having hidden agendas, which undermine performance and bring about a culture of mistrust.
5. Lack of Motivation: Some of your team may just not care about doing a good job, and they may even avoid working altogether. This lack of motivation can have a variety of causes, including personal problems, lack of career development opportunities, and increased pressure because of reduced resources. Motivating your team will often be handled as part of their appraisal system, but this is not enough in itself. You also need to be monitoring and feeding back to each individual how well he or she is doing on an ongoing basis. If the team is involved in boring or repetitive work, then motivation may be your number one priority.
I will share with you an incentive plan that I created as an HR in a company in India. I hope it will give you some clue as to how to create an incentive plan. Do have a look:
Incentive plans for low-level employees include those at the bottom of the organization's hierarchy, such as staff and first-line supervisors.
There are Two Types of plans:
Type # 1. Individual Incentive Plans
Type # 2. Group Incentive Plans
Type # 1. Individual Incentive Plans:
Under individual incentive plan, individual employee is paid incentive based on individual performance or output. The employers are liable to pay incentives to those employees who are producing more than the standard output.
Some of the time-based incentive plans are:
I. Halsey Incentive Plan: In this method a standard time is fixed for the completion of the job. A minimum base-wage is guaranteed to every worker. If a worker completes his job in just the standard time, he will not be given any incentive. If a worker performs his job in less than standard time, he is given incentive. The incentive will be equal to 50% of the time saved by the worker.
Formula: W=TR+(S-T) R%
Where
W=Total Wages
S=Standard time
T=Time taken to complete the job
%=Percentage of wages of time saved to be given as incentive
Example: if rate hour is Rs.3 standard time for completion of job is 10 hours.
A worker completes the job in 8 hours, his total wages will be:
W= 8x 3+ (10-8)3×1/2
= Rs.27
In the above example, worker is given an incentive of 50% (1/2) of time saved.
II. Rowan Incentive Plan: This plan is quite like Halsey plan. It differs only in terms of calculation of incentive for time saved. The worker gets the guaranteed minimum wages. The incentive for completing the job in time lesser than standard time is paid based on a ratio, which is time saved over standard time per unit standard time.
Incentive or Bonus=S-1/SX T x R
Total wages=T x R+ incentive
=T x R(S-T)/S x T x R
Where,
W=Total wages
S=Standard time
T=Time taken to complete the job
R=Rate;
Example: if rate per hour is Rs.3 and standard time for completion of job is 10 hours.
A worker completes the job in 8 hours, his total wages will be:
W=8×3+ (10-8)/10x 8x 3=Rs.28.4
III. Emerson Efficiency Plan: In this plan, a minimum wage is guaranteed to every worker on time basis and incentive is given based on efficiency. Efficiency is determined by the ratio of time taken to standard time. Payment of bonus/incentive is related to efficiency of the workers. Incentive will be given to those workers who attains more than 2/3rd i.e. 66.67% of efficiency. No incentive will be given at 66.67% efficiency. At 100% efficiency incentive is 20% of the hourly rate. For efficiency exceeding 100%, 1% incentive/bonus is paid for every 1% increase in efficiency.
Example: if standard time for a job is 6 hours and hourly rate is Rs.3. If a worker completes a job in 6 hours, the efficiency of worker is 100%. His wages will be 6 x 3 + bonus @20% i.e. Rs.18 + 20% of 18 = Rs.21.6
IV. Bedeaux Point Plan: Bedeaux system also called units or point system also guarantees a minimum base wage. Under this plan, the standard time and time taken for each job is reduced to minutes. Each minute is referred to, as ‘B’ i.e. one hour is the same as 60B’s. The workers who complete the job within standard time are paid at a normal time rate.Those who complete the job in less time are paid bonus. The bonus paid to the worker is 75% of the wages for time saved. The time saved is divided between workers and management.
Formula: W=TR+75% (S-T)R
where,
w= Total wages
S=Standard time
T=Time taken to complete the job
R=Rate;
Example: For example, if standard time for a job is 6 hours i.e 360 B’s and wage rate is Rs.3 per hour. If a worker completes his job in 5 hours i.e 300 B’s, he saves 60B’s.
His total wages will be:
W=5×3+75 %(6-5)x3
=15+75% of 3=Rs.17.25
Type # 2. Group Incentive Plans
A group incentive plan scheme is designed to promote effective teamwork, as the bonus is dependent on the performance and output of the team as a whole.
Some of the group incentive plans are:
I. Priestman’s Plan: In this plan workers are not considered individually but collectively. This system considers the productivity of all workers. Bonus is paid in proportion in excess of standard output per week. If in a year, the output increases either above the standard output or the output of the previous year, the wages are increased in the same ratio.
Example: For example, if in 2009 the output per worker per unit time is 10 units and in year 2010 the output per worker per unit time comes out to be 12 units, the wages in 2010 will be 20% more than in 2009. The drawback of this system is that individual efficiency is not considered.
II. Scanlon’s Plan: A Scanlon plan is a type of gain sharing plan that pays a bonus to employees when they improve their performance or productivity by a certain amount as measured against a previously established standard. A typical Scanlon plan includes an employee suggestion program, a committee system, and a formula-based bonus system. A Scanlon plan focuses attention on the variables over which the organization and its employees have some control.
Rowan Incentive Plan:
I. Chief Technical Officer
II. Technical Head
III. Project Manager
IV. Project Lead
V. Team Lead
VI. Senior Software Engineer
VII. Software Engineer
VIII. Programmer
IX. Developer
Scanlon’s Plan:
I. Chief Financial Officer
II. Vice President
III. Head (Department)
IV. Senior Manager
V. Manager
VI. Associate Manager
VII. Senior Executive
Emerson Efficiency Plan:
I. Chief Marketing Officer
II. Vice President
III. Business Head
IV. Business Development Manager
V. Senior Sales Executive
VI. Sales Executive
If we look at the Rowan Plan, we find the following disadvantages:
a. The workers find it difficult to understand.
b. Discourages workers to over-achieve.
c. Workers may not like sharing of profit for over-achievement.
Also, with Emerson’s Efficiency Plan we find the following disadvantages:
a. Incentive after attaining standard is very low which means MSS are assigned as benchmarks of minimal fulfilment of organization operation and implemented under Government Regulation is very low. MSS is are the minimum requirement standards for organization throughout India used as a basis of planning, implementation, and supervision in support of quality services at national level for civilized and educated Indian citizens.
1.Taylor’s Differential Piece Rate System: This system was introduced by Taylor, the father of scientific management. The main characteristics of this system are that two rates of wage one lower and one higher are fixed. A lower rate for those workers who are not able to attain the standard output within the standard time; and a higher rate for those who are in a position to produce the standard output within or less than the standard time. Example: For example, if standard production in 8 hours is fixed at 10 units. The lower piece rate is Rs.3 and higher piece rate is Rs.3.5. If a worker produces 9 units, his wages = 9 x 3 = Rs.27. In case a worker produces 10 units, his wages = 10 x 3.5 = Rs.35.
2.Merrick’s Multiple Piece Rate Plan: To overcome the limitations of Taylor’s differential piece rate system, Merrick suggested a modified plan in which, three-piece rates are applied for workers with different levels of performance.
These are:
a. Workers producing less than 83% of the standard output are paid at basic rate.
b. Workers producing between 83% and 100% of standard output will be paid 110% of basic piece rate.
c. Those producing more than 100% of the standard output will be paid 120% of basic piece rate.
3.Gantt’s Task and Bonus Plan: This plan is based on careful study of a job. The main feature of this plan is that it combines time rate, piece rate and bonus. A standard time is fixed for doing a particular job. Worker’s actual performance is compared with the standard time and his efficiency is determined. If a worker does not complete the job within standard time i.e he takes more time than the standard time (efficiency below 100%), he will not receive any bonus but he is given wages for the time taken by him. If a worker completes the job within standard time (100% efficiency), he is given wages for the standard time and bonus of 20% of wages earned. If the worker completes the job in less than the standard time (i.e. efficiency more than 100%), wages are paid according to piece rate.
Halsey Incentive Plan:
1. Chief Technical Officer
2. Technical Head
3. Project Manager
4. Project Lead
Rowan Incentive Plan:
1. Team Lead
2. Senior Software Engineer
3. Software Engineer
4. Programmer
5. Developer
Gantt’s Task and Bonus Plan:
1) Chief Financial Officer
2) Vice President
3) Head (Department)
4) Senior Manager
Scanlon’s Plan:
1. Manager
2. Associate Manager
3. Senior Executive
4. Executives
Emerson’s Efficiency Plan:
1. Chief Marketing Officer
2. Vice President
Merrick’s Multiple Piece Rate Plan:
1) Business Head
2) Business Development Manager
3) Senior Sales Executive
4) Sales Executive
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
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