Compensation Plans Don't Manage Performance

There is a misconception that sales people are 'coin operated' and that paying commission or bonuses creates motivation. Many managers wrongly behave as if a sales compensation plan is a substitute for managing the inputs that actually create the success that the compensation plan is designed to reward.

Financial incentives or sales targets do not equate to 'performance management'. There are many examples of financial incentives actually driving poor behavior that creates massive damage to the corporation's brand and balance sheet

Money is the reward, not the reason for giving everything in a cause to create success. All lasting and worthwhile motivation comes from within. Dan Pink summarizes the research that proves and this video makes for compelling viewing... watch it now and let me know what you think by commenting at the bottom of this article.


Managers today are spread thinner than at any other time in history and any external pressure they apply evaporates the moment they walk away from those they seek to direct. Sustainable team performance instead comes from great leadership and healthy culture. Counter-intuitively, people actually lock-in to generosity rather than greed and Enron versus Herschend Family Entertainment (HFE) is a powerful case study.

Trust between management and staff needs to go both ways. Alignment in both purpose and values is the foundation on which performance can be effectively managed. Personality matching is not the same as cultural fit and the worst mistake a manager can make is to hire the wrong person. Hire based on cultural fit even though it is the toughest thing to get right when hiring sales people, then focus on managing by inputs rather than by results.

Performance management is not about the rewards, it's about the why, what, how and when of execution

Without doubt, the best book written on sales management in the last ten years is Cracking The Sales Management Code by Jason Jordan and Michelle Vazzana. The book details a framework for leadership by coaching and managing activities that deliver against objectives which are measured with KPIs (Key performance Indicators), which in turn creates business results that are rewarded through a well conceived compensation plan. Jason and Michelle make some important points:

  • You cannot manage results, only people and activities. In my opinion we must therefore provide clarity of task and context for emotional connection to what is being pursued as an outcome.
  • You cannot manage what you don't measure BUT you cannot manage everything you measure. Amazing, according toCracking The Sales Management Code, 83% of what is measured (typically in CRM systems) cannot be managed at all.

You cannot manage revenue in a CRM and compensation plans are no substitute for leading a team and managing the inputs that create success. Professional selling is changing at a terrifying rate and up to one-third of sales roles will be gone within five to ten years. To succeed today we need to drive human-to-human (H2H) engagement with outstanding customer experience that is power by, not replaced with, technology.

Compensation plans don't attract and retain the best talent; great manager's do. Those with vision, mission and values that connect their team to a worthwhile cause and where they have a positive and connected culture

Vision, mission and values have always been important because they create the 'why' in what we pursue. The who, what, how and when are the detail:

  • Vision for our aspirational place in the world and markets within which we operate.
  • Mission for the difference we want to make in the lives of others – our purpose and cause.
  • Values for how we operate – the behaviors we expect from everyone in our team.

Take the time to design incentives that motivate as well as reward. Dan Pink's video at the top of this article is thought provoking.

If you valued this article, please hit the ‘like' and ‘share’ buttons below. This article was originally published in LinkedIn here where you can comment. Also follow the award winning LinkedIn blog here or visit Tony’s leadership blog at his keynote speaker

Main image photo from Flickr: ffaalumni - Business man shows success abstract flow chart