Incentivizing behavior

It’s tempting, especially in a salesdriven organization, to design a compensation plan that drives the kinds of behaviors you’re looking for. You want to align the incentives of your salespeople with business growth, opening of new geographies, designing of new logos and selling more of the new product line. In other words, the more new business they bring in, the more money they can earn, so this should all work. A simple win-win scenario.

But that’s typically where things go off the rails. And the reason is that complexity leaks into the works.

Downside of complexity

I’ve written before that when people don’t understand what drives their bonus or how much they can earn, it fails to motivate them. When the compensation is too complex and sophisticated, then you lose the opportunity to leverage it in helping you manage.

For example, let’s say you want to design a sales commission plan based on a new product. But then you add in a multiplier or kicker for selling that new product into a new vertical market. And then you add another kicker for selling it into a new geography. Perhaps a kicker for higher margin sales would be good, too. Before long, as you keep adding these modifiers, no one other than your accountant can calculate how much commission a salesperson earns from any sale.

The general rule is that you want to aim for having a commission plan that a salesperson can calculate in their head on the two-minute walk back to their car after closing a sale. If they can’t do that on their own, then your commission plan is too complicated.

Bonus plans made simple

This same principle also holds true for executive bonus plans. While you might be tempted to pepper your bonus plans with kickers based on elements like their 360-degree review results, the performance of their team and the company’s profit levels, you’re only muddying the waters.

You’ve ended up making the plan so complex that they don’t know how to achieve it. Therefore, you haven’t changed any of the behaviors you were hoping to achieve.

The lesson, then, is to keep your incentive plans simple and easy to understand — and then do the job of managing the behaviors you want your people to emulate. While money can be a powerful incentive to get people to change their behavior, sometimes you can’t just delegate that job to your bonus program.