Management by Objective (MBO) plans can be very useful additions to any incentive plan for a variety of reasons:
• Lack of “comp-grade” sales data
• Long selling cycle
• Company philosophy dictates it
However, many sales teams face challenges when working under an MBO plan. Common complaints include: “Everyone is paid the same” and “They are too subjective”. The question we would all like to answer is: How can we build an MBO-based incentive compensation program that drives the business, rewards appropriate behaviors/results and is not a drain on internal resources? In other words, how can we design our MBOs to have an IMPACT?
Individualized – Start by customizing objectives to each rep. It will increase ownership and buy-in into the program. Customization can range from completely different objectives to simply different payout weights.
Motivational – Next, be sure to put enough target sales bonus against each objective to ensure reps pay attention. I typically use $1,000 per objective per payout period as the minimum amount.
Purposeful – Objectives should be tied to business objectives as much as possible.
Actionable – Objectives also need to be such that reps can make significant progress during the time period being measured.
Communicated Clearly – Rollout of the objectives is as important as the objectives themselves due to high reliance on first-line sales managers for success. A smooth rollout will save time during the rating phase because managers will have a starting point and already be more calibrated.
Tracked – Once the objectives are set and communicated, progress should be tracked on an ongoing basis, ideally through a transparent and automated process.
MBO programs that follow the IMPACT framework can help to avoid many of the pitfalls that you may have experienced in the past and better ensure positive results in the business that we ultimately want to drive.