The intersection between HR strategy and HR technology

, ,

The ROI of Sales Incentives

systematicHR Avatar

Online Conversion recently referenced a great study from Northwestern University that surveyed the economic impact of $1 trillion of sales incentives annually.

What does not work as well as managers hoped are non-cash incentives. The study found that:

“What employees most desire might not be best for optimal business results. Employees indicate a preference for cash incentives, while managers think recognition (noncash) awards are more effective in producing the desired results.” ((Watlington, Mal. September 29, 2006. “Sales Incentives and ROI.” Retrieved from on December 28, 2006.))

What I find interesting is the definition of a sales incentive. True enough, an incentive is an additional carrot that is supposed to inspire people to reach a goal. The truth of the matter though, is that sales incentives are vary rarely actual incentives. Instead, the sales incentives most of us talk about are not incentives at all, but rather standard parts of an overall sales compensation methodology. The “incentive” is just another way to get a salesperson to reach their target compensation. Salespeople might be inspired to increase productivity based on sales “gates” that accelerate earnings, but the bottom line is that the salesperson probably has a high level of risk/reward tied to his comp package.

Mal smartly points out something that the study did not:

While non-cash rewards may work well in other parts of the company, sales people are a different breed. They recognize the transactional nature of the relationship with the organizations that hire them, and for the most part (correctly) believe that if sales drop, they are gone. ((Ibid))

Why are cash incentives more effective for salespeople? Because a cash incentive is in place of a salary or hourly wage. If they don’t earn the incentive, the take home less money for the year. Salespeople are not a different breed necessarily because they are different people, but also because we design their compensation structures in a way that dictates the way they behave.

I thought that the study was an excellent validation that for the most part (depends on the company and their compensation program) sales incentives are on the right track.

Tagged in :

systematicHR Avatar

One response to “The ROI of Sales Incentives”

  1. […] En este blog siempre he hablado de la importancia de ampliar el abanico de elementos que forman el paquete retributivo, la subjetividad del salario, etc. Este artículo podría cerrarme la boca… o recordarme que la hipoteca no se paga con palmaditas en la espalda. if (typeof window.Delicious == “undefined”) window.Delicious = {}; Delicious.BLOGBADGE_DEFAULT_CLASS = ‘delicious-blogbadge-line’; Artículos relacionados con éste: […]