Team Based Incentives – Do They Work?

by Linda Kuritzkes

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“We created a team, we’re paying a team bonus, but we’re not seeing any improvement in our results. Something’s wrong with the incentive system.”

You’ve probably heard statements like this before; perhaps you’ve said them yourself. One of the recurring themes among managers today is how to reward teams.

Take the example of a sales organization where each district is selling products Black, White and Red:
Black and White are commodity products, but Red is a specialty product. The sales force is meeting its targets on Black and White, but sales of Red are low.

Sales management decides that Red is too difficult for the regular reps to sell on top of their other products, so a specialty rep position is created. The specialty reps are going to exclusively sell Red to the key accounts and the regular reps are going to continue to sell all three products. The specialty reps will work with the regular reps to optimize sales of Red. One specialty rep will have the capacity to cover several districts and will report to a separate specialty district manager. The only other change being implemented is in the incentive plan: instead of being based on individual sales, 25% is going to be a team incentive based on sales of Red and shared by the regular reps in the district and the specialty rep.

After several months, sales management is frustrated that sales of Red are still below target. The regular reps are still focusing on their key products-Black and White. They’re upset that, because of the team bonus, 25% of their incentive is being diverted to Red, which is not selling well. In the past, they could compensate for the low Red sales by exceeding their targets on Black and White and still earn a full bonus, but now they can’t. They could spend more time with the specialty rep selling Red, but feel that their time is better spent selling their own products. They now have two managers telling them what to do, and each has different priorities.
Why isn’t the new plan working? There are several issues here and compensation is only one of them. Taking a group of individuals and asking them to work as a team is often harder than it seems. When recruiting individual sales people, companies usually look for strong individuals, with “killer” selling skills, who are motivated by personal achievement. As with our example, the organization is often structured in silos-each district stands on its own and competition between districts is encouraged. Managers are usually compensated based on the results of their direct subordinates, and are not often encouraged to “play nice” with their peers. The team itself may not have a team manager driven to help the team succeed. Rather, each team member has his or her own boss, with his or her own goals.

What can you do to make your team more effective? First of all, make sure that there are some true synergies to be achieved by the team that cannot be matched by individuals working separately. In our example, do you really need both regular reps and specialty reps selling Red, or do you just need regular reps in some areas and specialty reps in others? Effective teamwork is tough and takes training, management, and lots of communication, so you need to determine whether or not your business will truly benefit from teams. Modify your hiring practices to recruit people who are receptive to working with others. Create a management structure that complements the team organization. This may mean that individuals have more than one boss, so make sure the managers are working together. A team needs clear direction in order to be effective-it can’t serve as both the players and the coach.

Finally, create a compensation plan that includes a team component. This does not need to be one-size-fits-all. Team members may have different mixes of team and individual incentives and their incentives may be based on different measures, depending on the functions of the individual team members. They also may have varying percentages of pay at risk based on how much influence their activities have on the company’s results. Keep it simple enough so that everyone can understand it and the measures can be easily tracked.

How do you actually create the compensation plan? Here is one approach that you may find effective, using the Black, White and Red example:

1. Determine which components are going to be rewarded for each individual-creating a table to capture the specifics is often helpful.

	Regular Sales Reps	Specialty Sales Reps	District Manager
Individual sales of Black	Yes	No	No
Individual sales of White	Yes	No	No
Individual sales of Red	Yes	No	No
Overall district sales (Black + White + Red)	Yes	No	Yes
Overall district sales of Red only	Yes	Yes	Yes

2. Decide how much weight to place on each component-this should correspond to the level of effort you expect a competent representative to devote to each, and should correlate with your business plan.

	Regular Sales Reps	Specialty Sales Reps	District Manager
Individual sales of Black	30%	–	–
Individual sales of White	30%	–	–
Individual sales of Red	20%	–	–
Overall district sales (Black + White + Red)	10%	–	70%
Overall district sales of Red only	10%	100%	30%

3. Meet with the District Managers to review the plan specifics. You may find that they have some good ideas as to how to make it more effective.

4. If at all possible, test the new plan for a few months before rolling it out-nothing destroys teamwork faster than a broken compensation plan.

5. Meet with each district individually to discuss the new plan. Include the regular reps, the specialty reps and the District Manager. If you have tested the new plan, share the results of the test, even if the results were not all positive. You will gain credibility with your sales force by having done your homework.

There are a couple of points to consider with this example:

In this scenario, the individual rep would earn a higher incentive than the specialty rep within a given district because the specialty rep covers several districts and can earn under each of their incentive plans.
The incentive for the District Manager represents only a portion of her total incentive plan. Managers need to have incentive plans tied to their overall business objectives; the district sales target is just one of the objectives.

Team based incentives do work, provided there is a compelling business need for teamwork, the appropriate individuals have been selected and trained, and the compensation plan reinforces the business goals and motivates the team members.