This blog post is the second in a three-part series analyzing important sales compensation research.
In my previous blog post, I weighed in on the efficacy of offering cash vs. non-cash incentives based on several studies and published research. Here’s a look at some of the latest findings on team incentives.
A June 2014 Journal of Marketing Research article highlights research showing that there may be a case for incorporating team incentives into your sales comp program. The researchers conducted several different experiments, varying the proportion of the pay dependent on team performance (how much of an individual’s pay is dependent on the performance of the team), and varying the degree of socialization among the team members (how well the individuals on the teams knew each other).
The research shows that team incentives can work better than 100% individual incentives under very specific conditions:
- The team incentive has to be the minority of the total target incentive. In the study, the weight of the team incentive was 25%. When it was equal to or higher than the individual incentive, overall productivity declined (meaning that they would have had higher productivity/sales under a 100% individual incentive plan).
- The team has to be small and have strong social ties. In the experiment, for the team incentive to be effective, the team size had to be both small (the team size from the study was two individuals) and had to have developed social ties prior to the experiment (two-person teams with no social ties had worse results than a 100% individual incentive).
This study actually provides compelling reasons against team incentives in most cases. The rationale is two-fold:
- Most team sizes are larger than two people. Most companies interested in trying team incentives do not have teams of two. Outside of key account teams or inside/outside sales team pairings, the most common level of team is a “one level up” team, meaning my performance is combined with all of my colleagues that report up to our manager (usually called a district, region or area). Often, managers push for these team goals in their salespeople’s plans so that the reps’ plans and managers’ plans are aligned. The issue is that in most organizations there are typically eight to 12 reps reporting to the manager. Also, “aligned” shouldn’t be interpreted as “identical,” which is essentially what the manager is asking for.
- Unless we’re talking about an account team that regularly works together on the same accounts, the team will not have strong social ties with each other. Assuming that a team incentive consists of a “one level up” team incentive, these colleagues will virtually never see each other, and it’s unlikely that they will have strong social ties. This, combined with the team size associated with a “one level up” team incentive, leads us to believe that team incentives will not be effective in most sales environments.
This research, combined with past research, shows that there are a few situations in which team incentives can work better than 100% individual incentives. The researchers worked hard to find a team structure in which the team incentives could be useful. In sales compensation, we come at the issue from the opposite perspective: We start with the sales force structure, including any required teaming, and develop the optimal incentives from there. Unless you happen to be in small teams where individual salespeople are dependent on each other for success, then this research points you away from team incentives, much like past research has also done.
For more on the latest research, please join the ZS keynote session at the 2018 Spotlight on Sales Compensation conference in Chicago on Aug. 21.
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