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Team Vs Individual Incentives
performio.co
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“The key to the influence principal is not just the nature of what an employee does — whether a person is doing individual work or team-based work — but how individually measurable their success in performance is.” Under the influence principal, if a person’s individually measurable performance captures 80 percent or more of their contributions towards the company’s profitability, then their sales compensation plan should focus entirely on their individual performance. On the other hand, if a person’s individually measured performance is hard to capture, and instead their performance is collectively part of a team such as participating in all sales in a region or a vertical, then a team-based approach to an incentive compensation plan is the right choice. What are some of the pros and cons of each program for sales compensation? Team-Based Incentives Pros: Team-based approaches have a few different advantages. Creates an environment that supports a team-based approach to selling. Helps to focus employees on the needs of their customers, rather than their individual paychecks. Sales reps sometimes clash over who should take credit for a sale. Using a team-based approach resolves many issues of who should get the credit for which sale. Cons: Of course, any approach also has its disadvantages. It equally rewards employees who do not work as hard as others on the same level as top performers. It can undermine the idea of pay-for-performance. If not handled properly, it can drive top performers from the company. Management is not able to diagnose as quickly what factors most affect performance. Individual Performance Pros: An individual performance program has its own advantages. It drives performance and rewards top performers for their results. It draws a clear line between people who produce and those who don’t. It provides the best line-of-sight for sales compensation plans. It creates a culture with a strong emphasis on sales. Cons: But focusing too much on the individual can cause some problems. It can create an “everyone for themselves” mentality within the company. When a team sales approach is needed, an individual plan can undermine that effort.
For many years, the standard strategy when a company wanted to design a top-flight sales compensation plan would be to focus on individual performance. Team Versus Individual Incentives: Which Is the Most Effective Sales Compensation Program? In the past few years, however, more and more companies are moving towards a team-based incentive approach as it better reflects the way they market and sell their products to their customers. A vigorous debate has emerged over which is the best approach for a company to take — base your sales compensation plan on individual incentives or take a team-based approach. This is vital when deciding what compensation plan is right for your company. It was with this question in mind that Performio's Founder David Marshall spoke to Josh Miller, a leading consultant on incentive compensation for more than two decades for Performio’s latest webinar. Aside from being its CEO, Marshall is also the co-founder of Performio and has been an expert in the field of sales compensation for many years. Miller, the managing principal of OnTarget Incentives, has been working in a consulting capacity as well as in an executive capacity for companies around the world. He is currently based out of Arizona. Defining Our Terms: What Are Team Incentives and What Are Individual Incentives? When deciding which is the best sales compensation plan to use with individuals within your company, the most important factor to consider is “the influence principal” or “prominence.” The key to the influence principal is not just the nature of what an employee does — whether a person is doing individual work or team-based work — but how individually measurable their success in performance is. While employees should always be able to work both as individuals or as part of a team, properly targeted compensation incentives provided to them according to their roles in helping to make the business successful often determine their overall performance. “Under the influence principal, if a person’s individually measurable performance captures 80 percent or more of their contributions towards the company’s profitability, then their sales compensation plan should focus entirely on their individual performance.” It can create fiefdoms. It can result in crediting issues among sales reps. Sometimes results in arguments over sales territories. As you can see, each approach has pluses and minuses. Both Marshall and Miller believe that the key to finding the best one for your company is to look closely at how you define each employee’s role. How Do You Determine Which Plan Is Best for Your Company? So now that you’ve got an idea of how both methods work, which one is the best to choose for your company? It’s not easy because you don’t always have a clear bucket “A” or bucket “B,” or a black-and-white separation between team-based performance and individually-based performance. There are gradients between each, both concerning what the work is and how to measure success. For instance, take the role of a business development rep, someone who works on leads that are ultimately passed over to a sales representative to close the deal. You can measure success for that role in different ways, and you don’t have to choose one or the other. You can measure success by how many leads that business development person passes onto a sales rep. You can also separately measure the number of deals that were closed based on the leads that were created by the business development rep. So it is occasionally appropriate to have a higher grade of compensation plan where you measure some of both of these factors when determining the business development rep's incentive compensation. And you always want to give the greater weight to the piece for which the employee has more direct control over, which in this case would be how many leads to they generate. Why do you need a secondary component for such a role? They need to have a line of sight on the end result and understand that the end result is not just generating leads, it is securing sales. But let’s return to the point made above.
For many years, the standard strategy when a company wanted to design a top-flight sales compensation plan would be to focus on individual performance. Team Versus Individual Incentives: Which Is the Most Effective Sales Compensation Program? In the past few years, however, more and more companies are moving towards a team-based incentive approach as it better reflects the way they market and sell their products to their customers. A vigorous debate has emerged over which is the best approach for a company to take — base your sales compensation plan on individual incentives or take a team-based approach. This is vital when deciding what compensation plan is right for your company. It was with this question in mind that Performio's Founder David Marshall spoke to Josh Miller, a leading consultant on incentive compensation for more than two decades for Performio’s latest webinar. Aside from being its CEO, Marshall is also the co-founder of Performio and has been an expert in the field of sales compensation for many years. Miller, the managing principal of OnTarget Incentives, has been working in a consulting capacity as well as in an executive capacity for companies around the world. He is currently based out of Arizona. Defining Our Terms: What Are Team Incentives and What Are Individual Incentives? When deciding which is the best sales compensation plan to use with individuals within your company, the most important factor to consider is “the influence principal” or “prominence.” The key to the influence principal is not just the nature of what an employee does — whether a person is doing individual work or team-based work — but how individually measurable their success in performance is. While employees should always be able to work both as individuals or as part of a team, properly targeted compensation incentives provided to them according to their roles in helping to make the business successful often determine their overall performance. “On the other hand, if a person’s individually measured performance is hard to capture, and instead their performance is collectively part of a team such as participating in all sales in a region or a vertical, then a team-based approach to an incentive compensation plan is the right choice.” It can create fiefdoms. It can result in crediting issues among sales reps. Sometimes results in arguments over sales territories. As you can see, each approach has pluses and minuses. Both Marshall and Miller believe that the key to finding the best one for your company is to look closely at how you define each employee’s role. How Do You Determine Which Plan Is Best for Your Company? So now that you’ve got an idea of how both methods work, which one is the best to choose for your company? It’s not easy because you don’t always have a clear bucket “A” or bucket “B,” or a black-and-white separation between team-based performance and individually-based performance. There are gradients between each, both concerning what the work is and how to measure success. For instance, take the role of a business development rep, someone who works on leads that are ultimately passed over to a sales representative to close the deal. You can measure success for that role in different ways, and you don’t have to choose one or the other. You can measure success by how many leads that business development person passes onto a sales rep. You can also separately measure the number of deals that were closed based on the leads that were created by the business development rep. So it is occasionally appropriate to have a higher grade of compensation plan where you measure some of both of these factors when determining the business development rep's incentive compensation. And you always want to give the greater weight to the piece for which the employee has more direct control over, which in this case would be how many leads to they generate. Why do you need a secondary component for such a role? They need to have a line of sight on the end result and understand that the end result is not just generating leads, it is securing sales. But let’s return to the point made above.
For many years, the standard strategy when a company wanted to design a top-flight sales compensation plan would be to focus on individual performance. Team Versus Individual Incentives: Which Is the Most Effective Sales Compensation Program? In the past few years, however, more and more companies are moving towards a team-based incentive approach as it better reflects the way they market and sell their products to their customers. A vigorous debate has emerged over which is the best approach for a company to take — base your sales compensation plan on individual incentives or take a team-based approach. This is vital when deciding what compensation plan is right for your company. It was with this question in mind that Performio's Founder David Marshall spoke to Josh Miller, a leading consultant on incentive compensation for more than two decades for Performio’s latest webinar. Aside from being its CEO, Marshall is also the co-founder of Performio and has been an expert in the field of sales compensation for many years. Miller, the managing principal of OnTarget Incentives, has been working in a consulting capacity as well as in an executive capacity for companies around the world. He is currently based out of Arizona. Defining Our Terms: What Are Team Incentives and What Are Individual Incentives? When deciding which is the best sales compensation plan to use with individuals within your company, the most important factor to consider is “the influence principal” or “prominence.” The key to the influence principal is not just the nature of what an employee does — whether a person is doing individual work or team-based work — but how individually measurable their success in performance is. While employees should always be able to work both as individuals or as part of a team, properly targeted compensation incentives provided to them according to their roles in helping to make the business successful often determine their overall performance. “Creates an environment that supports a team-based approach to selling.” It can create fiefdoms. It can result in crediting issues among sales reps. Sometimes results in arguments over sales territories. As you can see, each approach has pluses and minuses. Both Marshall and Miller believe that the key to finding the best one for your company is to look closely at how you define each employee’s role. How Do You Determine Which Plan Is Best for Your Company? So now that you’ve got an idea of how both methods work, which one is the best to choose for your company? It’s not easy because you don’t always have a clear bucket “A” or bucket “B,” or a black-and-white separation between team-based performance and individually-based performance. There are gradients between each, both concerning what the work is and how to measure success. For instance, take the role of a business development rep, someone who works on leads that are ultimately passed over to a sales representative to close the deal. You can measure success for that role in different ways, and you don’t have to choose one or the other. You can measure success by how many leads that business development person passes onto a sales rep. You can also separately measure the number of deals that were closed based on the leads that were created by the business development rep. So it is occasionally appropriate to have a higher grade of compensation plan where you measure some of both of these factors when determining the business development rep's incentive compensation. And you always want to give the greater weight to the piece for which the employee has more direct control over, which in this case would be how many leads to they generate. Why do you need a secondary component for such a role? They need to have a line of sight on the end result and understand that the end result is not just generating leads, it is securing sales. But let’s return to the point made above.