iStock_000050485380_SmallPayout ranges for a team of managers came up during a recent discussion of mine with a sales compensation director who oversees the compensation plans for about 5,000 sales reps. The idea of risk versus reward arose, as it always does. Most of the time, however, risk versus reward is focused on the top performers versus the bottom performers:

  • How much do we want to pay our top 10%?
  • How much do we want to pay our bottom 10%?
  • In order to give more to the top, we have to take from the bottom.

Not much new there. But this time, we dug more into the middle performers. Specifically, we zoomed in on the managers who all end up tightly distributed around 100% attainment to goal. (This often happens due to the averaging effect as goals are set at higher-level geographies.) As such, the managers also end up tightly distributed for their payouts. Per the table below, in a team with four managers, there was about a $500 difference in earnings from the top performer to the bottom performer. We began sketching out some more aggressive options and drew up the payout table to the far right, where that difference in earnings would now be $4,000.


Manager

Goal Attainment

Current Dollar Payout

“Aggressive Dollar Payout”

1

102.5%

$10,300

$13,000

2

101.5%

$10,200

$11,500

3

99.5%

$9,900

$9,000

4

98.5%

$9,800

$8,000

 

Partway through our conversation, another colleague of ours joined us and immediately said that it did not seem fair that a couple percentage points would lead to a $4,000 difference in payout. This is very similar to what I have heard from many sales leaders as well. However, the compensation director spoke words of pure gold. He said: “True. But what motivation is there to try and be the best if only $500 is at risk? If we put $4,000 at risk, then there is more motivation to be at the top, and isn’t that what we want?”

I couldn’t have said it better myself.

Topics: incentives, rewards, Sales Managers, Mike Martin, performance, sales team, risk