Capuchin monkeys are starkly averse to inequity, according to a 2003 study. When offered a cucumber slice for doing a task, 95% of monkeys completed it. But when some monkeys were offered a more appealing reward, a grape, the percentage willing to perform the task for a cucumber slice dropped to 60%. And when one group received grapes for doing less or no work, the fraction of monkeys willing to do the task for cucumbers dropped to 20%.
The experiment can teach us something about human behavior—or more importantly human sales behavior: When incentive compensation is unfair (or judged as such), the sales force’s motivation shrivels up.
Comparing and Complaining
By definition, good salespeople are social creatures, extending openness to the workplace. They often reveal how much they earn to other salespeople.
Not surprisingly, such transparency can lead employees, rightly or wrongly, to judge the fairness of their incentive compensation. Their perceptions and reactions can cause problems within a company.
Salespeople who feel they are being paid unfairly will complain openly about "poor" treatment. Their motivation may drop. In more drastic situations, they may defect to a competitor. This dynamic can exist at all levels within a sales organization and in virtually every industry.
Consequently, sales compensation professionals must design sales incentive plans that are equitable internally, regardless of each salesperson’s relative territory size, market opportunity, market share and selling environment. And they must convey the rationale behind their plan to the entire sales organization.
Four Fairness Factors
What is "fairness"? First and foremost, it means that incentive pay is a function of each salesperson’s efforts and abilities. Three other factors that can influence pay include the geographic makeup of a territory, the number of accounts assigned and the territory’s sales potential.
A salesperson has little control over these variables, so seeing peers rewarded due to "unearned" advantages breeds resentment among the entire sales force—as with the monkeys.
To understand perceptions of fairness, talk to salespeople and managers. If management can foster open dialogue, salespeople will usually specify what they consider unfair about the current incentive plan. They will speak up if they think quotas are equitable, which territories are perceived as the best and, given the choice, which territory they believe would maximize their income.
False Bias? Fix It.
Use this feedback to test payouts to determine the veracity of perceived unfairness. Salespeople may say that territories with high baseline sales are treated unfairly. Or that urban territories receive advantageous treatment compared with rural ones.
For each variable, management needs to validate data at a territory level. If the perceived bias is real, they must dig deeper to discover and correct the cause.
Often, the perceived bias is false. Regardless, sales leadership must manage expectations, because perceived bias has negative effects—even if false. The true degree of equity must be validated and communicated to the field.
Benchmarking your sales force to the external market is no longer sufficient. By testing your plan to ensure fairness and then communicating the results, you will increase field engagement, improve retention and make your company more competitive and profitable.
How has perceived unfairness influenced your sales force? And what strategies have you undertaken to correct it?