November 3, 2009

Are Bonuses the Best Sales Motivation Reward?

I recently talked with a salesperson who was working towards a record sales quarter for the year. He explained that his manager had offered a bonus to the salesperson that made the most sales for the final quarter of this year. The bonus was more than the sales person usually made in a month of commissions. So the salesperson was drastically cutting prices in order to make a lot of sales in a shorter amount of time. He was willing to cut his commission some in order to get the sales and of the course the bonus.

I’ve heard similar stories in the past, as this is a typical sales management strategy when there seems to be a need to make a lot of sales in a short amount of time. The plan is to boost profits or possibly look better to upper management. However, is this the best motivational practice and does it really bring the desired rewards to the organization? Is giving a recognition bonus to one person and encouraging internal competition the best way to achieve the goal? Yes there may be more sales as a result, but are the smaller profits per sale adequate to meet
company goals? If the salesperson is cutting their commission to near cost, is there really any profit once labor is paid? Is the spirit of teamwork or company loyalty compromised by such contests?

As I talked more with the salesperson, he explained his manager made this decision and offered this “most sales” contest based on the previous month, which had the lowest sales in the company history. However, this particular industry has a record of increased sales in the final quarter of every year due to the holiday season. The salesperson I talked to revealed that so far sales were up as usual for this quarter even though the overall numbers for new customers were still smaller than previous years. He assumed this was due to the current economy making a slower comeback than expected. Not only are the numbers going to be smaller due to the economy, if every salesperson is thinking the same as the one I talked with, then the reduced prices will also result in less dollars coming in for the sales the company does get.

I believe before starting any rewards program to motivate employees, management needs to review what it is they wish to accomplish and what will actually motivate the desired performance. To start with managers should review the 3 P’s of
reward and recognition. Then once they have determined to proceed, managers need to ask these questions of each other before making the final decision and communicating the program to employees:
  • What is the best way to do our reward and recognition program?
  • What should the performance level be in order to get rewarded?
  • How is this program expected to affect both profits and morale?
  • Now that the program design seems ready, is this really the best method for our organizational goals?
Have you experienced any mismatches in company reward and recognition programs to the organizations goals? How did it affect the bottom line? What did or will your company do to change the process and programs to get more desirable results?

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