Busting Incentive Myths Part III: Universal Goals

April 9, 2019 Tim Houlihan

Part III / Myth #2

Everybody needs to grow by 10% this quarter.

One size does not fit all – it only fits a few. That means that a general rule such as "everyone who grows by 10% will earn" breeds either alienation or mediocrity.

Top performers whose territory is already maxed out may find it impossible to grow that much and will find such challenges demotivating. (Who wants to piss off their top performers?) Bottom performers typically have more headroom and could produce at much larger percentages. (Why not challenge them?)

Imagine you're a runner who's confident with 5K's but is asked to sign up for a marathon that happens to be tomorrow morning. One might wonder why you'd opt into something so apparently irrelevant to your skill set. Wouldn't a 10K or 5-mile race would be more appropriate?

The same is true with reps: asking all of them to stretch to a common, fixed position lacks relevance for most of them and diminishes results.

However, asking reps to stretch beyond their current capacity (or run rate or baseline) is more likely to get the reps engaged, give them the confidence to go to the next level, and deliver results. Hence, the most effective incentive tool eliminates universality and focuses on individuality. It combines individual baselines with individually-tailored levels of achievement. Individual performance metrics generate greater increases especially when they're tied to relevant positions such as an individual baseline or run rate.

The BS (Behavioral Science)

The core reason why rules that leverage individual baselines are so effective is referred to as the Expectancy Effect. The Expectancy Effect occurs when an individual's confidence around a particular goal/target/objective is strong because it is perceived as achievable. The more achievable it appears, the more likely the individual is to have a strong commitment to it. In other words, the more we expect to succeed, the more likely we are to achieve.

A highly relevant incentive rule will deliver more significant results, even if the reps don't achieve at the level they desired.

Secondary to why individually-based rules are so successful, is that they take advantage of Idiosyncratic Fit. Idiosyncratic fit is identified as a situation where a rep believes they are in the unique position to take advantage of the rules. An incentive rewarding the "Top 20%" only gives the top 20% feel a sense of idiosyncratic fit. The rest languish. By using individual baselines with relevant growth figures, idiosyncratic fit can happen with nearly all the reps.

An Anecdote

A sales VP required all reps to reach a minimum level of territory sales regardless of the territory they were assigned. However, the territories were divided by geography, without regard for the opportunity. The incentive caused pandemonium. Reps in territories where they maintained extremely high market share unable to reach the goal and the low-market-share territories breezed through to earn. Frequently, the low-market-share territories were the homes of the worst performing reps, so the incentive had the effect of rewarding the bottom performers and ignoring the top performers. After noticing the effects and receiving all sorts of complaints from the field, the sales VP acknowledged that the territory borders were created for easy administration, not accuracy. The incentive rule was never tried again.

Once changed, morale improved, and sales increased year over year.

PRO: It's essential to have a number (a target, a goal, an objective) that the sales leadership agrees to aim for, and to have goals and plans to achieve those goals. Dividing up the numbers that comprise those goals must be done on a case-by-case or territory-by-territory basis. Sales leaders need to assess opportunity at the same time they're evaluating actual performance when it comes to determining territory goals.

CON: One-size-fits-all translates into one-size-fits-a-few. Spreading goals evenly across the entire sales force debilitates some and causes others to slough off. Doing so will deliver unexpected and unwelcome results and probably not approach the objectives that sales leadership had in mind from the start. Even worse, such an incentive diminishes the credibility of the sales manager. It works against the reps, and it works against sales leadership.

About the Author

Tim Houlihan is the founder and chief behavioral strategist of BehaviorAlchemy, LLC, a consultancy using a behavioral lens for improving the actions of workers, customers and policymakers. He co-founded Behavioral Grooves, a meetup and podcast with listeners in more than 80 countries. Previously, Tim was Vice President of Reward Systems at BI WORLDWIDE where he was responsible for a $300 million global portfolio of reward systems, acted as the firm's thought leader in behavioral sciences and was the chief liaison to research partners around the world. Tim believes people underestimate the role of the unconscious in our behaviors. The application of good behavioral science can remedy that.