Sales reps and rewards go hand in hand. Managers use rewards because they reliably deliver recognition to top performers and motivation in incentive programs. However, program designers often overlook the signals that rewards generate and doing so could lead to faulty plans.
This came to light in a recent conversation[i] with Jana Gallus, PhD, from UCLA’s Anderson School of Management. She and I, along with my Behavioral Grooves podcast co-founder, Kurt Nelson, PhD, were attending a behavioral science workshop at the University of Pennsylvania in Philadelphia. We got to talking about her work with Bruno Frey, PhD from the University of Zurich. Their research reveals new insights into the signals[ii] that managers and reps experience with rewards.
“When sales managers use rewards, they send signals to their teams and organizations.”
We discussed two critical aspects of rewards with Dr. Gallus. First, we talked about the ways that rewards send signals and, second, we discussed how precision impacts the effectiveness of awards. Her research points to important aspects of how rewards, the signals they carry, and their efficacy, are affected by precision.
In Part I of this two-part series, we discuss signaling for managers as the givers and for the reps who receive the rewards. What signals do awards send and how might they be received? In Part II of the series, we’ll discuss the role of precision in getting the most out of your rewards budget.
But first, a couple of definitions.
Rewards
Rewards are not compensation. At their best, rewards complement and enhance a meaningful compensation package. Non-monetary awards (such as merchandise, experiences, or travel) are more effective at engaging and motivating reps. Simply speaking, non-monetary rewards lead to better results. The reason is that they (a) are genuinely separate from compensation, so they are not easily combined with cash for paying bills, and (b) amp up the emotions of the reps, rather than their logical and rational desire to cover their expenses.
Signals
Signaling is the effect when one thing conveys a message about another thing. For example, a resume showing a person’s many years at a single firm can demonstrate loyalty, or how a university degree indicates ability or potential in a job candidate. Signals are sent consciously and unconsciously throughout the business day and rewards can give off potent and positive signals, if executed properly.
Rewards as Signals for Managers
When sales managers use rewards, they send signals to their teams and organizations. Among the various messages they can communicate, awards can signal the sales manager’s current priorities, or they can help build their team’s culture.
A friend who manages a sales team at a manufacturing firm told me she uses discretionary rewards to signal and reinforce management’s objectives. Rewards help her say, “This is important to me.” (A discretionary award is one that a sales manager can give to a team member without relying on a specific rule.)
“As author Roger Dooley notes, consistency reduces friction by allowing the reps to do their jobs with less effort in thought.”
And a sales manager from an ag distributor told me he’s using rewards to improve his company’s culture. He uses explicit do-this-get-that rewards to communicate transparency and fairness. He posts clear rules for earning and shares results as they come in so that everyone on the team knows how the rules are implemented. He uses discretionary rewards to inform his reps of the informal rules of his team, like how he wants them to treat each other. For instance, he gives out small rewards to reps when they discover and turn over leads in each other’s territories.
Sales managers should be intentional with both discretionary rewards and incentives. Knowing that the awards will send signals to the reps, sales managers can design programs that align with their strategic objectives. Such clarity of alignment makes it easier for reps to be successful. Sales managers with strategic objectives to grow sales and margin revenues can design very transparent and explicit incentive programs to reward individual growth on both of those scales. And, they can build in discretionary awards for activities that lead to improved revenues or margin growth. For example, sales managers could offer discretionary awards to reps for making appointments with makers, building well-reasoned proposals, and delivering well-thought-out presentations to the influencers.
The signals that reps receive from awards can build strength in the team and increase the engagement of the reps by sheer clarity and continuity of the messaging. As author Roger Dooley notes, such consistency reduces friction by allowing the reps to do their jobs with less effort in thought.
As the designers of rewards and incentive schemes, sales managers carry the responsibility of deciding what they want to signal with their rewards. Dr. Gallus confirmed that sales managers optimize their results when they design programs knowing which signals their awards will send. Intentionality in design is critical and can make for great results if used properly.
Rewards as Signals for Reps
Sales reps use rewards as signals, too. Dr. Gallus notes that sales reps who receive awards stockpile the signals that “amplify their beliefs and their ability to contribute,” as she commented in our conversation. Rewards are powerful at reinforcing key behaviors from the manager’s perspective, but also powerful at conveying confidence, credibility and success for the reps.
Receiving a reward such as President’s Club or Sales Rep of the Month builds confidence. To that point, Dr. Gallus said, “It tells them, ‘I’m doing the right thing,’ which has positive effects on effort and performance.” Established rewards, such as President’s Club, allow reps to signal to their peers, “I’m here,” or, “I’ve arrived,” or “I’m going to President’s Club again!”
Those messages are culturally acceptable to send over social media (contrary to boasting about a big bonus check) or to include on a resume, LinkedIn page, or even in a conversation at a block party with neighbors. In cultures all around the world, non-monetary rewards are more agreeable to air in public. People find it more acceptable to discuss an award such as a trip, an experience or a flat-screen television than it is to brag about the cash value of such an award. Broadcasting awards on social media can also benefit the company’s image, too, as it sends a message that they have happy and successful employees.
“...managers generate loyalty among their reps by using rewards strategically.”
It’s also important to note that reps are like all other humans when it comes to feeling validated and valued within the team. Anthropologically, humans survived because they were able to work together and demonstrate value to other people in ways that are critical to our wellbeing. Awards help reps build confidence and wellbeing by receiving awards.
And there’s one more surprise element to signaling that is new to the discussion.
Dr. Gallus’ work also reveals that when sales managers give rewards, their reps bond to the team and the manager. Her research uncovers how managers generate loyalty among their reps by using rewards strategically.
She specifically calls out the importance of sales managers using rewards that are (a) selective about the frequency and the relative number of awards they give out and (b) consistent in their approach. Rewards can become wallpaper when given too frequently, and can lose their effect if done too infrequently.
While it’s essential to be selective, she says that “Being selective doesn’t mean being stingy.” Instead, selectivity means rewarding for appropriate behaviors, effort, and results, and should be done regularly and consistently. Using rewards can build loyalty that will benefit the cohesiveness of the team. Effectively, results like these can reduce turnover costs and the pain of hiring.
When considering the signals that are sent and experienced in the sales world, Table 1 provides an overview of the considerations.
Table 1: Signaling for Managers & Reps
Context Matters
Dr. Gallus reinforced how context matters in giving and receiving rewards. Doling out rewards the right way, she notes, “impacts motivation, social recognition, and how peers judge [other reps’] work.” And of course, the opposite is true: earning rewards without proper context can fall flat.
Recipients of awards must merit the honor. She notes that “[a] signaling failure arises when the award is given to undeserving employees.” Reps typically know who is worthy and who’s not, so sales managers must be careful not to misstep. Also, rewards that are not right-sized for the effort (too small or too big) indicate that the manager doesn’t know what they’re doing.
Rewards are excellent for reinforcing and motivating behaviors. They can signal the priorities that managers have and shape the culture of the sales team. Rewards can also help reps gain confidence and loyalty to their boss and company. However, using rewards carelessly can cause reps to cry foul and negatively impact the team.
Before you start issuing a new reward, consider the signals it will send. Give some thought to how the award aligns with the strategic initiatives of your team. Consider the way the reps will use those signals – for better and for worse.
Let me know about your designs and what signals you’re giving (and getting) from your rewards.
About the Author
Tim Houlihan is the founder and chief behavioral strategist of BehaviorAlchemy, LLC, a consultancy using a behavioral lens to improve how workers, customers and policymakers act and make decisions. He co-founded Behavioral Grooves, a meetup and podcast with listeners in more than 100 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 and ethical behavioral science can remedy that.
www.linkedin.com/in/tim-houlihan-b-e/
Sign up for the newsletter: https://www.behavioralchemy.com/contact
Endnotes
[i] Gallus, J., Nelson, K., and Houlihan, T., at the Norms and Behavioral Change Conference in Philadelphia, Pennsylvania on Thursday, October 17, 2019.
[ii] Gallus, J., & Frey, B., “Awards as Strategic Signals” Journal of Management Inquiry (2016), 1–10.