By Tom Castley, Managing Director, Xactly EMEA
Incentives should be a positive tool, brought about by a desire to inspire performance and motivate a workforce towards a goal, in exchange for a reward. However in some cases incentives can have the opposite effect, encouraging bad behaviour and causing rifts in the workforce.
In his recent book, Game the Plan, Xactly’s founder and CEO Christopher Cabrera identified the top compensation plan mistakes to look out for, and in the first of two pieces on bad incentives we look at six of the most common mistakes to look out for:
1. Failure to understand commission splits on a deal– Surprisingly many CEOs have no idea how many employees are paid out in a single sales deal, how the payment is determined and whether commissions complement the level of contribution. Xactly’s empirical data tells us on average every sales deal is split across 14 different people. These splits often fail to take into account levels of contribution in a deal, and sometimes even pay people who are no longer involved, creating flimsy ties between the incentive and the action. If a company doesn’t correctly understand how commission is spent on a deal, then it’s difficult to drive specific behaviour.
2. Inaccurate, outdated measurements – Ensure all data is accurate and up to date to help motivate success and deliver the results you want. Simply put, if you’re using the wrong metrics to drive behaviour, you’ll end up driving the wrong behaviour.
3. Tracking too many metrics – When it comes to measuring employee performance, less means more. If you’re using more than three metrics to measure performance, your organization may be suffering from ‘incentive plan obesity’. Too many metrics results in a lack of direction and leave employees wondering what’s really required to receive rewards and accurate pay-outs.
4. Poor territory recognition – Territory management can be tedious, but if sales resources across territories aren’t aligned and managed in real-time, then business challenges won’t be met. This can damage teamwork between sales, finance and operations causing late or inaccurate payments. The risk? Losing sales opportunities and also frustrating your best employees.
5. Delayed gratification – A long a lead-time between effort and payment leads to poor focus, lack of engagement and dissatisfaction. When employees feel their rewards are taking too long to pay out, the risk is that those rewards are no longer driving positive behaviour.
6. Failure to change with the times – When it comes to incentives, leaders often stick with what’s worked in past, blaming employees when plans no longer motivate like they used to. However internal changes, such as new products or changing customer needs as well as new competition, changing technology and shifting economies all call for a change in company strategy and, therefore, a change in compensation plans.
Ultimately, incentive plans should be bringing out the best in your employees. So, if you notice that some of them seem disengaged or demotivated perhaps you should check that none of your plans include ‘bad incentives.’