The folly of managing performance of sales people through sales targets and commission payments


– and it seems an environment most resistant to being scrapped.

Strangely enough, it also seems to be one area of management’s follies that is most damaging to actual performance, not only of an individual sales person, but to whole sales teams and even sales organizations – abstracting for the moment and for clarity from the performance of the overall organization.

Let’s start with sales targets. Setting sales targets for individuals, teams, or even sales organizations can be at best only  a crystal ball gazing affair, no matter how sophisticated or quasi scientific the method seemed with which these were constructed. Even more damaging is the fact that these sales targets are actually bad for the organization as a whole because they often under- or overestimate the capabilities of the organization, besides showing scant regard for sustainable high performance environments.
Quite apart from the doubtful underlying framework, giving people ‘performance’ targets is per se a very dodgy approach. People will strife to reach these targets, especially if rewards are linked.  People will do that by any means available, whether it is beneficial to the organization or not. And they will destroy, or at least try to destroy, everything that and everybody who stands in their way.
Cooperation, team work, ethics all go out of the door if the going gets tough, and often long before that.
Unfortunately cooperation, team work and ethics are crucial for high performance in complex sales environments, which includes the majority of modern sales environments. In addition, the resulting competitiveness among sales people of the same organization will destroy any chance at sustainable high performance that organization has ever had. The setting of sales targets will create competition even more damaging if these targets are not on individual but so called team performance.

Now to sales commissions. If the organization has a sales target environment, linking commission payments and flexible remuneration portions and reward systems to their achievement will make the resulting environment pure poison. Period.
Organizations with that environment, and yes I know there are a great many, are and will continue to seriously under-perform vis-à-vis their capabilities and potential. For example, by eliminating this folly client organizations achieved sustained performance improvements of prior unimagined proportions and they achieved that predominantly without the change of a single sales person.

In general, reward environments, pay-for-performance, incentive payments, etc. whatever one calls it – linking money to the achievement of preset targets, KPIs, etc. – has never been proven to improve performance.
Despite a vast drive in many organizations to install these environments and the communal gut feeling that this is the correct way, all empirical evidence points to the extremely detrimental performance effect of this approach.

We believe it is high time to fundamentally rethink the way organizations manage and reward their front line people, even if one is still of the belief that sales people are just that.

Following gut feeling, especially if shared, may give you severe indigestion.

A suggestion for an alternative follows in a subsequent post.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: