I was recently working for a client who had gone through some tough times. The government had accused some in the sales department of deceptive practices that ended up cheating the company’s customers and lining the pockets of those same salespeople due to the structure of their incentive plan. This is not the first time that I’ve seen this happen. That led me to wonder, What is the role of the sales incentive plan as it relates to ethical behavior?

If you have a lot of pay at risk in the incentive plan, weak managers, and a culture of no ethics (or worse, a decidedly unethical culture), you will eventually have a problem with people acting unethically to maximize their earnings. It’s not a question of “if,” but “when.”

Most of us work in organizations that try to be ethical, yet many companies have fallen victim to rogue employees gaming the sales incentive plan. So how should you think about ways to reduce or eliminate the risk that this can happen to you? Here’s how:

  • Implement controls. Depending on the infraction (or likely infraction), sometimes putting controls in place is enough. For example, controls on pricing, contract entry, independent customer order validation, multiple sign-offs, finance oversight and other mechanisms have all been used to reduce or eliminate the possibility of unethical behavior.
  • Train or replace your managers. Managers who either encourage this behavior, or look the other way cannot be tolerated. Training should be considered, but you will likely need to clean house. If it’s a fundamental problem of ethics, you won’t be able to fix it with training. You hire for character and you train for skills. Ethics simply isn’t something you can train.  
  • Remove the incentive plan. This generally isn’t recommended except in extreme cases where the offense has already occurred and management wants to take radical action to “right the ship.” This should be a last resort—and a temporary one at that, while other safeguards can be put in place. Studies have shown that a financial incentive can have significant positive impact on the effort and results from salespeople. Giving that up may make sense in the short term but likely not in the long term.
My client did some form of the first two resolutions. The company put controls in place that wouldn’t allow one or two rogue employees to game the system. They also cleaned house within the management team (and the sales employees, as well). They did remove some employees from sales incentives who could most easily game the system and who weren’t directly accountable for driving customer revenue. But for the “core” sales role, they put in a sales incentive plan that, along with the new controls and better managers, is leading to highly profitable sales results while mandating a culture of ethical behavior.

Topics: Chad Albrecht, ethics, incentive plans, compensation plans, unethical behavior