Why do I need a sales incentive programme, staff get paid don’t they?

So sayeth an ex-client.

Unfortunately, the client missed the point. His staff were paid to deliver 100% – they were not paid to deliver 110% or more. That’s what successful sales incentive programmes do; extract the extra 10% of productivity whilst providing clients with a means of paying for the programme out of incremental business. That is to say, the incentive programme is FREE, as the cost comes out of the incremental business gained.

I also believe that everyone in a company is in sales (some employees may not thank me for saying so), which means that a sales incentive programme should not just be offered to sales people but to HR, Accounts, Marketing etc. The only difference is the way in which these employees are measured.

In the current economic climate, many businesses are demanding more for less – an interesting proposition against which Full Circle Motivation is ideally placed to deliver. However, to make the journey from improved performance to consistent excellence requires a cogent understanding of how to approach ROI analysis and use it (and the many other Full Circle tools of excellence) to deliver productive change.

But, let’s step back a yard (or in 2018 that’s 0.9144 of a metre) for a moment.

Lies, Damn lies, and Statistics?

Extracts from the 9 month old CIPD’s Annual Reward Management Survey showed:

  • ‘short-term bonus awards for achieving/exceeding specified targets are most common in manufacturing and private sector services.’
  • ‘The UK’s productivity puzzle . . . . it may be that employers are responding to this concern by looking at using reward to boost output or reduce production costs.’
  • ‘91% of respondents assess employee performance against individual goals.’
  • ‘Overall, it would seem that, while performance assessment is becoming a more complex activity, organisations in general remain committed to ensuring they attract, retain and develop talented employees through a balance of appropriate performance and reward strategies that are fit for purpose in a continuingly uncertain and competitive market.’

Previous survey extracts highlight:

  • ‘41 per cent of the firms sampled were running staff recognition schemes and 31 per cent were offering employees non-cash rewards.’ However, even non-monetary schemes can have positive financial implications or firms wouldn’t bother to run them.
  • ‘an increasing area of concern in many organisations is that of ‘engagement’: ties between workforce members and those employing them do appear to be weakening.’
  • ‘where profit-share and similar pay-based recognition processes apply, individualised pay-setting may be complemented by . . . the kind of annual partners’ rewards linked to corporate performance in the John Lewis Partnership.’
  • ‘The most effective organisations, it may be reasoned, will be those which can overcome the adverse consequences of disengagement or at least strike an instrumental bargain where employees commit to deliver what the organisation needs in return for more explicit guarantees on reward outcomes, provided these can be fully accounted for.’

Sales improvement – the Holy Grail

Do this, get that. This type of incentive programme died an eon ago. Today’s enlightened company understands that to be effective the programme also needs to:

  • fire the imagination
  • at least self-liquidate but preferably deliver a sizeable ROI
  • embed values and build long-term loyalty
  • motivate the individual without reward if necessary (however reward is part of the package because often it isn’t just the thought that counts)

Staff need to be motivated to be able to give 100%. Arguably they need to be incentivised to give that extra 10%.

A successful sales incentive programme requires a little tension between participants – that is measurement against peers, against a tiered set of attainable goals. This competition is contained within different performance / turnover bands so that each group of performers in an organisation can be awarded and encouraged amongst their direct peers – irrespective of whether the combatants are in the same district or region. The playing field needs to be level.

According to the 80-20 rule, twenty per cent of sales people make eighty per cent of a given company’s sales and profits. Conversely, the bottom 20% do very little for the company, may not effectively be motivated to improve (they are happy with their comfort level) and therefore may need to move on – natural wastage permitting. All this means is that if a company can motivate the middle 60% of their workforce to do better, the overall results can be exponential. We argue that if a company plans for attainable goals against target for top, middle and under performers, then each group can be motivated to reach their own set goal level. Whether the underperformers make the grade is open to scrutiny and decisive action.

Another good rule of thumb for a successful sales incentive programme is to have the entire promotion take place over a short period of time – three / four months is optimum and six months is the maximum, without a change of emphasis / structure. Incentive programmes work because they reward desired behaviour. Generally, the quicker individuals attain reward, the more it reinforces the appropriate behaviour. So if an incentive programme is designed to last twelve months, the recommendation is always to break it up into 4 quarterly contests and in addition introduce monthly or even weekly spot prizes. Getting onto the prizes ladder early should be very easy at the beginning; otherwise down the line your sales people may lose interest.

Sales incentive programmes – the key features

Consultation and buy-in. We never impose a sales improvement (incentive) programme.

Incentive programme theme. Needs a powerful theme to motivate, under which the entire programme will hang and develop.

Cascade launch. The most efficient because as each level of management presents to the next, they must really know and understand the programme in order to present it convincingly to a subordinate level.

Measurement currency and targets. The unit of currency for participants will depend on the theme – it could be ‘points’ ‘miles’etc. To create a level playing field, participants will be measured on percentage over target performance.

Measurement structure. Measurement and reward structure is usually something like this: Individually by branch / site; Individually by performance band, across the business; Individually by district / region; Teams by district / region; Individually nationally.

Registration into the programme. Participants are required to register into the programme – this process cements their commitment to take part and to adhere to the terms of the programme.

Incentive launch pack. In a cascade launch, it is vital that each manager presents to his reports in exactly the same way, so each manager receives exactly the same pack.

Awards. Everything comes down to money, so in order to establish an overall budget, the client needs to agree the number of Points they can afford to issue over a period and the eventual value of each ‘Point’. Only over target performance is rewarded.

Recognition. The ‘best amongst equals’ may not be monetarily rewarded but they must have their day in the limelight, through recognition.

Reporting. Every participant has his / her own page on the incentive programme website. There they can view their performance against their direct peers, their performance across the region and nationally. They can also access their bank account to review their points totals and awards purchases during the incentive programme.

Distance learning. Every programme has a distance learning element in order to reinforce good habit.

Programme duration. Incentives should be short and sharp, typically 3 – 4 month of intense sales activity.

Recognition within incentive programmes

Incentive programmes are increasingly incorporating peer-to-peer recognition. Many Sales Managers request that their online programme provides for participants to log in and submit nominations to recognize the outstanding behaviour of peers. Encouraging positive feedback among peers has been shown to be a powerful motivator for employees as noted by Joan Klubnik in her article The Power of Peer-to-Peer Recognition. She reports “…Recognition is probably one of the most powerful job motivators that we have available to us; its simplicity, impact and availability are almost boundless.”

Performance measurement of sales recognition programmes for internal sales employees also yielded strong results. Firms using these programmes demonstrated team quota attainments that were 14.8 per cent higher than firms which didn’t, and customer renewal rates which were 5.9 per cent higher. Constant communication of performance, recognitions and awards, throughout the life of the scheme, is critical to participant momentum.

Best-In-Class companies were also 75 per cent more likely than less successful firms to offer their sales force incentives in the form of company-sponsored events. Furthermore, a key finding was that these highly successful firms were very canny about how they set up their non-cash incentive: Top-performing firms outsourced the management of their incentive scheme to expert providers. This should come as no surprise; specialists in the incentive industry use tried, tested and measureable programme structures.

Companies that outsourced incentive management showed substantially higher lead conversion rates than those that didn’t (30.4 per cent versus 23.9 per cent).

A cautionary note. Do not assume that reward is the most important thing in a sales improvement (incentive) programme, it isn’t. The most important thing is communication, followed by measuring and monitoring.

Incentive awards and tax – let’s just flash the cash?

No let’s not. Money is a poor motivator and there’s more to this than meets the eye:

  • Money has no display value (unlike an iPad or overnight hotel stay)
  • Money only has face value. That is, if I reward you with £200 you may well buy the weekly shopping, cigarettes and some bottles of wine – hardly memorable. However, with that £200 I could buy the participant and partner overnight accommodation in a reasonable hotel, with dinner and breakfast PLUS the participant will remember the experience and the company that provided it
  • By law, cash awards have to be given via payroll and that means that a participant is taxed in the month that it is awarded. Employers must include the award in the employee’s gross pay when working out both PAYE tax and NICs. This also applies to vouchers which can be exchanged for cash. However, if the award is made in kind (e.g. an iPad) the tax still has to be paid by the employee but in the year following the year in which the incentive was given. That means a participant may have 1 ½ years grace before the tax has to be paid (by which time he or she will be earning more and can more easily pay the benefit in kind tax)
  • If another business provides a non-cash award to one of your employees and makes all the arrangements, it’s up to the employee to report this to HMRC – the other business does not  have to report or pay anything to HMRC
  • But if a cash award is made to your employee by another business, then you must calculate and pay the NICs due on the award – the other business must deduct PAYE tax from the award.
  • If you provide a non-cash award, find out if you have to pay either Class 1 or Class 1A NICs for a specific type of non-cash award by checking the Expenses and benefits: A to Z.
  • The costs of incentive travel programmes can be deductible for the company as a business expense, as long as HMRC doesn’t consider the award to be too “over the top” relative to the incentive programme results. The value of the trip however is taxable for each individual as part of the recipient’s compensation
  • Some rewards from employee incentive contests are exempt from income tax. … Such rewards are not classified as income, but only up to a certain value (contact the Incentive Award Unit). For any rewards above this amount received in a single tax year, the amount over the threshold must be declared
  • Direct employers and third parties providing incentive awards can enter into special accounting arrangements with the Inland Revenue for non-cash awards. These arrangements are called taxed award schemes (TAS). The providers have the option of accounting for employees tax at either the basic rate or the higher rate on the grossed up value of the awards they make.

Incentive tax is a complex thing, particularly where non-cash awards are made. My best advice is, contact the Incentive Award Unit, National Insurance Contributions and Employer Office, HM Revenue and Customs BX9 1BX or telephone: 0300 200 3200.

How to calculate your return on investment – in advance

Now there is the Full Circle Motivation ROI Calculator for the sales incentive market, a unique tool in providing estimates of output in advance once the following information has been input: Present company turnover (as a benchmark), Number of participants, Anticipated turnover increase.

The new unique Calculator will then provide the following information as guidance, instantly:

  • Cost per participant
  • New turnover figure
  • Budget for the programme
  • Turnover per participant after the programme
  • Turnover benefit to the company per £ spent

The benefits for the busy executive

The Return On Investment Calculator: takes the guesswork out of budget allocation; highlights whether an investment in a particular programme should or should not be undertaken; helps in the decision-making process prior to committing to a course of marketing action; and most importantly:

  • calculates the expected spend on the programme and presents an itemised cost spreadsheet.

As always there are caveats. The prospective incentive programme:

  • is designed for upwards of 50 sales staff
  • should be for a period of 3 – 4 months (longer programmes will be segmented into 3 or 4 monthly periods for maximum interest, involvement and output)
  • requires a heavyweight amount of communication
  • measures and monitors peers across the business and within area / region
  • always includes an element of distance learning
  • and finally, includes an element of reward because sometimes it isn’t just the thought that counts

Through our feedback processes we help to improve service standards and pinpoint those who would benefit from training, recognition, award and reward.

We deliver statistics as a matter of course and also interpret these to help focus effort on revised strategies and tactics. Our measurement techniques include:

  • Sales measurement (volume or value)
  • Motivational Maps (our self-perception inventory)
  • Mystery shopping: by regional, demographic and psychographic segmentation
  • Customer feedback: postal, telephone, online and face-to-face
  • Key task assessment
  • Distance learning performance

From our website hub, we are able to provide individuals with feedback via paper, email, SMS, and the web. Management can elect to receive their summaries via these methods too.

The big what if. What if, through our incentive programmes, we could virtually guarantee a minimum +13% on business targets?

Here’s the pay-off. There are no cast-iron guarantees in business BUT in over 25 years we have never failed to deliver less than +13% over target for any client.