October is great month to be a sports fan in America: Hockey and basketball seasons are starting, baseball playoffs are in full swing and the football season—both professional and college—is well under way. Although it’s more common before the season starts, this is also a time when we hear a lot about player contracts. Contracts in professional sports are typically negotiated on three main components: the length of the contract, the guaranteed portion of the contract, and the incentives that allow the athlete to earn more money. Contracting decisions are made with two pieces of information: historical performance data and expectations of future performance.
It’s likely that the sports contracting process sounds familiar to the sales compensation practitioner: It involves using historical data to estimate future performance and inform decisions around incentives. But while sales compensation plans are typically designed with shorter time periods in mind—often quarterly or annually—the physical toll on athletes leads them to seek longer, multiyear contracts with as much money “guaranteed” as possible. It’s not uncommon to hear of three-, five- or even seven-year deals.
As I listened to news of many ongoing contract discussions (debates?), I started to see a parallel between sport contracts and sales incentives, specifically around the perceived “value” of a player. This thought resurfaced when I was talking to one of my clients about his “best” salespeople. His perception was that the best reps were the best reps over time, and that something must be wrong if a person who has won the annual recognition trip the past three years suddenly doesn’t qualify. Yes, the person who’s on the qualifying fringe may drop from the President’s Club winners’ pool in subsequent years, but this shouldn’t happen to our best reps, right? I’ve heard the same comments, anecdotally, from the salespeople: “I’ve won President’s Club the past three years. If I don’t make it this year, something must be wrong with the data (or the sales comp plan).”
Looking at this from an athlete’s perspective, it’s like saying that a top pitcher, quarterback or goalie will continue to be a top performer (barring the inevitable decline with age). However, many examples exist of players who have done well in past years only to see their performance drop significantly in the next. If the person bounces back in a subsequent year, we call the down year a fluke. If the performance continues at a lower level, we wonder how good the athlete really was.
Given the longer contracts typically in place with athletes, sales incentives should be somewhat self-correcting. Each year starts fresh, and every salesperson has the opportunity to succeed. Yet salespeople—much like athletes—are sometimes saddled with the perception of how they performed in the past, whether good or bad. Companies fret about changes to the compensation plan and the impact that it will have on their “top” performers.
Is this the correct way to think about high performers, or are we creating a self-fulfilling prophecy in which our perception of salespeople remains locked in narrow bands based on a pre-existing categorization? In some cases, I’ve spoken with companies that want to make adjustments to a comp plan to ensure that their “top performers” are kept happy.
Here are five questions—influenced from sports contracts—that you should ask when you see changes in performance in certain sales people historically considered to be your best:
- Does the salesperson have a demonstrated history of high performance? Unlike an athlete looking for a large, long contract extension after a single breakout season, your best salespeople should have a demonstrated history of consistent over-performance. Analysis can help determine if any year-to-year fluctuations are environmental or salesperson-related.
- Has something changed in your business that could affect individual performance? A running back in football—once a dominant position—is becoming less critical in a quarterback- and passing-driven league. Successful running backs are still important but may not provide the same value in a changing game. Similarly, your top salespeople who excelled at driving revenue may not be your top salespeople when it comes to driving margin.
- Will any perceived issue (such as a drop in ranking) self-correct? An athlete may underperform when injured, but once healthy, he could return to his previous levels of performance. A salesperson may just need time to “recover”: time to learn new customers, new products or a new sales process. In such cases, companies may take the approach of providing some earnings protection to keep the sales force, and the top performers, engaged.
- If your company is considering “earnings protection,” are you looking at the situation equally across all salespeople? A rescue payment or action to protect earnings (for example, providing quota relief) shouldn’t be applied only to the “top” salespeople unless other salespeople have the same solution applied to them. This would be analogous to a team having a terrible season but not holding its best players accountable.
- If a situation, such as an event that impacts a narrow set of accounts or a certain geography, is localized to a historical high performer, would you apply the same solution if it only impacted a lower performer? If not, you’re probably providing preferential treatment to certain individuals and using their past performance as the rationale. This may or may not be appropriate given the specific situation.
An athlete’s performance isn’t fixed over time. The same player on the same team can see her performance increase or decrease over time based on a number of factors. Similarly, when considering your best sales performers and making compensation decisions about them, historical performance alone shouldn’t drive your decisions or your perception of current “top” performers.
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