The changing face of sales incentives - have they reached their sell-by date in their current form?
11 April 2017
We have seen the traditional sales model being re-shaped, leading to a significant change in how salespeople are paid. Companies are exhibiting a greater desire to alter the underlying behaviours driven by sales incentives with a move away from a profit based approach to a more customer focussed approach.
We conducted a survey in collaboration with Silent Edge, with companies across a range of sectors, to understand the current approach to sales incentives and how they continue to evolve.
Sales incentives are changing
Our survey showed that sales incentives have become more varied and complex, with 40% of our survey respondents confirming that they had recently added or were planning to add one or more features to their sales incentives.
Key changes include more team based measures, a move from a formulaic approach to greater use of discretion, and more safeguards including clawback and compliance gates. And we think there will be further change on the horizon, as companies look towards rewarding their sales teams based on their sales approach and behaviours.
The difference between industries
Interestingly, but perhaps not surprisingly, we found a marked difference emerging in companies in two main industries - those in Financial Services (FS) and those outside of this.
The primary performance measure in sales incentives continues to be individual financial performance. Sales targets still account for a significant majority of non-FS company incentives – making up 71% of respondent incentives on average. In stark contrast this figure is 24% in FS companies where there is a shift towards a “balanced scorecard” model with use of team metrics and non-financial metrics, such as customer satisfaction. It's no longer just about how much a person can sell, but how they do it.
Effectiveness of sales incentives
These differences have been driven primarily by the regulatory push in the financial sector to put the customer first. Interestingly however, when asked how effective companies considered their sales incentive arrangements to be, FS companies considered their incentives to be materially more effective across the board.
And when asked what they actually want their sales incentives to achieve, non-FS companies rated the top three objectives as increasing profit, increasing revenue and attracting talent. The FS companies said the primary objective was to increase customer satisfaction.
Altogether this demonstrates three key things; 1) that sales incentives are increasingly playing multiple roles beyond that asked of the traditional commission structure; 2) that regulation has shifted the core purpose of sales incentives in FS companies; and 3) that FS companies believe that rewarding the right behaviours, not just achievement against sales targets, can lead to overall financial success.
So what does this mean for your business?
Given the emerging shift in the environment, it is worth considering whether the structure and effectiveness of your sales incentives remain fit for purpose and motivates your employees in a way which is aligned to your company's culture. This can be impacted by not just the amount you pay, but also when and how often you pay, as well as how it is delivered.
We believe that the businesses that get this right will be poised to outperform their peers with greater returns in the years ahead.
For more on PwC can help, please contact Phillippa O’Connor at email@example.com.