Log inToo complex, too frustrating: When incentive systems lose their appeal - how incentives should be ideally designed
Bonn, December 4, 2018 - Most incentive systems contain too many variables and thus cause inefficiency and frustration for sales employees. Companies should limit themselves to a maximum of four variables. This was the result of a study by Simon-Kucher & Partners in collaboration with Prof. Dr. Christian Schmitz from the Sales & Marketing Department of the Ruhr University Bochum.
The three core results of the Simon Kucher study "Salesforce Incentive Systems 2018", in collaboration with the Sales & Marketing Department of the Ruhr University Bochum (infographic: Simon-Kucher & Partners) Incentive or incentive systems can be a very effective tool to control the behavior of sales people. However, the systems should not be too complicated. As could be demonstrated in the online experiment with 180 sales employees from different industries, they are able to deal with a maximum of four variables in the incentive system; their performance is highest with three variables.
"This study underpins for the first time with concrete results that incentive systems only increase sales performance sustainably if they contain only a few well-thought-out variables," explains Philipp Biermann, sales expert and head of the global logistics and business services department by Simon-Kucher & Partners. When designing sales incentive systems, companies want to include all variables that reflect their corporate goals. However, these systems often fail or do not bring the desired added value because they are too complex for the individual sales employee. "Because of the variety of criteria, sales managers are often forced to play complicated mind games: In order to achieve my goals, I first have to sell product X and service Y but not together with product Z. This leads to confusion and frustration, not to do so sales targets achieved, but it is usually difficult for companies to assess when their incentive system is becoming too complex. The new Simon Kucher study finally gives a tangible answer to this question, "says Biermann.
The core results and instructions for action:
1. Limit company goals to three variable incentives
As the study shows, sales employees can handle a maximum of four variables in the incentive system. If they have to take more variables into account, their motivation wanes and they stop trying. But the achievement of goals drops with just four variables. The sales performance is highest with three variables.
2. Avoid conflicting, ambiguous, and subjective goals
The complexity of incentive systems is not just about the number of variables, but also how easily these can be estimated and evaluated by the sales staff, especially during a direct sales conversation. It should also be ensured that the different criteria do not contradict each other.
3. Confidence in the intrinsic motivation of the sales staff
As the study shows, salespeople have an intrinsic motivation to achieve the best for the company and the customer. In the experiment, the study participants worked in an incentive plan that depended 100% on their sales, but they also aligned their sales activities with the overarching corporate goals, such as profit. However, this intrinsic motivation can be undermined by an excessive focus on financial incentives. If the incentive system becomes too complex, sales primarily considers the simplest and most effective variables and ignores other goals such as customer satisfaction or margin. In order to facilitate intrinsic motivation, simple incentives should be paired with transformative leadership behavior: If the employee receives trust and responsibility, the identification with the company increases and thus the intrinsic motivation.
Simon-Kucher study "Salesforce Incentive Systems 2018", in collaboration with the Sales & Marketing Department of the Ruhr University Bochum, online experiment with 180 B2B sales employees from all industries.
