Sales bonuses: Five ways to maximise middle performersby
What makes this year ‘bonus year’ and how do you get your bonus scheme working harder for you?
Firstly, the economy tells us it is. The UK economy is in a bit of flux, although we have seen stability over the last year or so with GDP at slightly above 2.4% and inflation pretty much flat. The volatile world economy, failing oil prices and the impending EU referendum is unsettling businesses and is tempering any chance of real growth. That results in cautious business leaders and low pay increases and pay review budgets for HR to manage. So with no big pay increases you need to look at other ways to reward your top talent.
Secondly, skills shortages are making talent acquisition difficult. Unemployment is predicted to be 5.2% this year, which means anyone who wants to work is working, so the pool of available workers is small. If you want to attract talent to your organisation you need to be creative.
Differentiating and articulating your employee deal in a cost effective or self-funding way is the answer – and that means the bonus. But how do you make your sales bonus scheme attractive and commercial at the same time?
A broken sales plan
We get the call with surprising frequency. “Our sales plan is broken – it’s just not motivating our people.” Often it’s because there is a huge focus on the top performers unlocking the scheme. But what if the big sales bonus secret is actually motivating ‘Malcolm in the Middle?’ A checklist for your sales bonus scheme is that it:
- Understands what success looks like for your sales team. What does good and great performance actually mean for your business?
- Understands your business aims, aspirations and DNA. What are the business goals and challenges and what type and level and of activity do you need from your sales team?
- Motivates the right behaviour and production among your employees which, in turn, drives success for the whole business. Sales high performers know that selling is about more than producing the numbers – it’s leaving a good taste in the mouth of your customers.
- Creates a bonus scheme which represents good value for the business and incentivises the sales team. Don’t give away the shop by poor planning and analysis. Make the sales bonus pay and make it self-funding.
The real problem with designing the sales bonus is that it is complex. Pulling together a multifaceted range of elements and translating them into an incentive plan that inspires team members is difficult. Calibration is key. A good plan incentivises at the point of incremental increase. That’s defined as the point where having a sales team makes a difference. For many companies we use the base point of...what would an intelligent internal sales team make just answering the phone for orders, knowing the product range and providing a central point of contact? Basically, with no external sales team at all, what would come in anyway?
Five point plan
Let’s start from the very beginning – it’s a very good place to start. Here is your five point plan.
- Analytics is key. Knowing your incremental point makes a difference – so does knowing how much £1,000 of sales costs you. Knowing how much a good sales professional earns in your market in comparison with a great performer helps. Understanding what you want to and can afford to pay for different levels of performance above the incremental level is crucial.
- Once you’ve got that base platform of analytics, then take a step back and assess your strategy. Most sales managers focus on making the best better – the performance of the top 20% of the team. But if you look at the spread of your team – 20% sales whisperers, 60% solid performers, 20% are struggling – a 5% increase in performance would have a much more significant impact in the middle group than just focussing on the top performers.
- Approach the problem from both sides: How much revenue will be generated and also how much you want your team members to earn. The on-target earnings for your median performers should be based in the pay market intelligence you covered in step one. Reference back to your affordability figures – can you afford to pay market rates for your revenue generation? Does that require a rethink? It’s surprising how often when Reward and Sales managers add up the figures – it just doesn’t work. Better to know that now than after you’ve launched the new scheme.
- Think carefully about how you can make that middle 60% more motivated. Depending on the size of your sales team – would a league for the middle group with promotion and relegation to upper and lower leagues be an incentive? Is there a special recognition scheme you can add to this group to encourage them to push a little harder? 60% of employees all adding 5% to their revenue figures makes a big difference to your overall success. It’s worth investing time and thought in this one.
- Finally – landing the aeroplane is the tricky bit. The closing eight minutes of any flight is the most dangerous part and it’s the same in launching a new sales plan; communicating how it works is key. Don’t mix up ‘simple’ with ‘understandable’. Often sales schemes are complex – the mix of revenue, profit margin, product and timescales all impact business success – and ensuring team members understand the mix and how it impacts their remuneration is critical. If they don’t understand it, it won’t motivate them to do their best.
So five points to redesigning your plan and maximising the middle.
It would be remiss of me to talk about bonus and not mention gender pay reporting. There really is no better time to be reviewing and redesigning your bonus with the Government’s recent draft regulations.
As well as reporting the headline average pay gap between men and women, organisations will have to include any bonus payments made during the previous 12 month period. The date the Government has given for reporting is 30th April 2017. So that means you will need to report on a snapshot of base pay on that date and bonus from April 2016 to April 2017. So this isn’t an issue to worry about sometime in the future. If you pay a variable pay/bonus to any of your employees, gender pay is an issue for you right now.
Bonus is typically the area of reward that has the least amount of rigour. The figures given by the Office for National Statistics show the national gender pay gap as 19.1% but the gender bonus gap is a staggering 57% and that will be a difficult one to explain to existing and potential employees.
Take the bull by the horns, review your bonus, getting it on track for gender pay reporting and maximise those ‘Malcom in the Middle’ performers - everyone wins.