The changing face of salesman incentives

COMPENSATION for sales staff is undergoing profound changes as companies fight the war for market share and talent. Incentives or variable compensation for salespersons is not a new phenomenon.

The concept flows from human motivational psychology, which postulates that achievement of a certain desired end (rewards in this case) drives human behaviour and action. Over time, this concept has not only been challenged but also shaped differently in the context of salesmen incentives.

In simple terms, organisations want to achieve more sales and this formed the basic metric for linearly aligned sales incentives. It is also referred to as the "insurance agency model" where agents get commission based on the value of policies that they sell and are paid up. However, this primitive thought did not account for the fact that more sales (at sometimes discounted prices) did not always translate to more profits, the key goal of most organisations. Organisations also realised that one person might not directly influence sales prospects as much as a team around him or her. This led to incentives oriented towards profits (or margins) and for groups. The group definition extended to beyond the "sales" role. For instance, the role of editors and writers of a newspaper cannot be any lower than that of the sales department in shoring up circulation. Similarly, customer service and backroom operations are important for many service industries.