Managing Sales Performance – The Fairness Factor
Financial incentives in the form of bonus or commission payments have long formed the backbone of company’s efforts to motivate sales people. Smart sales managers have also long understood that certain conditions need to be in place for the financial incentive to deliver optimal motivation.
Fairness – A Key Condition
One of the most important conditions is the sales person’s trust in the system that “keeps score”, and their trust in the integrity of sales management to deliver the promised financial outcome when the sales target has been met. They must believe in the fairness of the measurement system. Throughout the latter part of the 20th Century a particular feature of sales targets has enabled strong financial motivation of sales people, even as it became more difficult in other functional areas.
Sales targets have traditionally been defined in highly quantitative terms (sales revenue, volume, margin etc) so assessing their achievement has been less a matter of judgement than is often the case in other functions, where softer, qualitative measures abound. This means that sales people are less likely to feel that assessment of their performance is unfair because the measures are “subjective”.
However, in recent years companies have been adding qualitative elements to their quantitative sales targets (examples include quality of customer relationships, customer feedback, or behavioural elements such as teamwork, innovation or integrity). These require much more nuanced, qualitative judgements by sales managers than the traditional measures of sales performance. While these additional qualitative elements are adding value – reflecting today’s complex challenges in both winning and retaining customers – their measurement depends much more on observation and judgement on the part of sales managers – and demand greater trust by salespeople in the competence and integrity of their managers to do so fairly.
However, as we progress through the 21st Century, research on the Millennial generation (those entering the workforce after 2000) highlights several clear issues that make this more problematic:
- Millennials are less trusting of institutions and figures of authority than any previous generation.
- They place financial outcomes at a lower priority than any previous generation.
- They value fairness (even) more than any previous generation.
More and more companies have come to recognise that in this context, they need to rely on the quality of the relationship between managers and their people to a far greater extent than in the past in order to secure the necessary levels of employee-perceived fairness.
Recent McKinsey research (1) has identified employee-perceived fairness as the most significant driver of effectiveness in people management, and has confirmed management capability as a powerful influence on employee perception of fairness. The researchers concluded that not only is effective coaching the strongest driver of perceived fairness but there is a direct relationship between effective managers and the effectiveness of a company’s performance-management system. When managers effectively coach and develop their employees 74% said their performance management systems were effective, and 62 percent said their organisations’ performance was better than that of competitors.
Where respondents did not see managers as effective coaches, only 15 percent reported effective performance management, and just 30 percent (of that 15%) reported company outperformance relative to competitors. On specific coaching methods, the McKinsey results suggest that ongoing development conversations between managers and employees also support better outcomes. Respondents who said that ongoing discussions take place were ten times likelier than others to rate performance management systems at their companies as effective, and they were nearly twice as likely to say their companies have outperformed competitors.
It is easy to see why this is the case – Millenial research shows that while the value they place on financial incentives is dropping, the value they place on their own growth and development is increasing. A manager willing to invest time to meet the growth aspirations of their people is in the best position to win their trust and be perceived as fair.
Building Manager and Company Capability
The McKinsey researchers recommend that if organisations do nothing else to improve performance management, they should “invest in managers’ coaching capabilities, and communicate their expectations for having high-quality coaching and development conversations with employees”. These management capabilities are vital soft-skills, and as such do not lend themselves readily to on-line training solutions. There is no substitute for training involving actual practice of the skills in a safe environment, guided by capable facilitators.
In addition to providing high quality training, many companies are now also investing in feedback technology (mostly apps). This technology allows managers to sustain a flow of ongoing development conversations remotely, for example when they are managing field salespeople and have limited opportunity to provide face-to-face feedback and coaching. This type of simple intuitive app technology also allows the company to measure the frequency and the quality of their manager’s efforts to provide development-oriented feedback, and therefore enables the company to make data-driven decisions about improvement initiatives in this mission-critical capability. In the words of William Thompson – “If you cannot measure it, you cannot improve it.”
About the Author:
Jim O’Brien is CEO of Irish consultancy firm People Partners, and a co-founder of Tandem, a feedback technology company. He is the Irish representative of Global Growth Group