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What Motivates Salespeople More?

By: Bill Shepard | Photo By: Camilla Klyve

Noah Lim

Noah Lim, associate professor of marketing

Designing the most effective type of sales incentive can be challenging. Should incentives reward individual success, or should they recognize the performance of the team as well? Which plans are most effective? How should they be structured? Which compensation levels are optimal?

These decisions should not be taken lightly—although incentives can help boost sales figures, the associated costs cut into the bottom line in a big way. U.S. companies spend billions on sales incentives every year.

Noah Lim, associate marketing professor at the Wisconsin School of Business, has shed light on sales incentives that could help managers devise more effective incentive programs with better returns on investment.

Lim and his co-author Hua Chen, an assistant professor of marketing at the University of Mississippi School of Business Administration, studied two-person teams and individuals, trying to answer a simple question: Do group incentives for salespeople actually work?

The answer might surprise you: Lim found that under the right circumstances group sales incentives can outperform individual incentives.

This conclusion flies in the face of conventional economic wisdom, which suggests that group incentives allow some sales agents to get a free ride on the efforts of others in the group.

“Salespeople are individualistic in nature, so group incentives often represent a big change for them,” Lim says. Salespeople typically push back against group incentive plans, uncomfortable when their commissions and compensation are contingent on others’ efforts. This individual resistance to group incentives would naturally seem to undermine the effectiveness of any program that relies on them.

But group incentives can actually work, according to Lim’s research, which found that their effectiveness depends on three important factors: the sales team’s social connectedness, the design of their incentives, and the type of informational feedback that they receive (or don’t receive).

Group incentives work better when individual performance counts more than the performance of the group.

Socialization: The ties that bind
The strength of social ties among group members is very important. When the two-person teams in Lim’s experiments were able to socialize briefly at first, they increased their sales efforts and commitment to the group incentives, leading to better sales results. These socialized two-person teams outperformed individuals, as well as two-person groups that did not initially socialize face-to-face.

Incentive design: Finding the right balance
Group incentives work better when individual performance counts more than the performance of the group. “You want to design a system where most of your reward still comes from your own work,” says Lim. His experiments demonstrated that a structure in which group performance accounts for 25 percent of a salesperson’s incentive is more effective than a structure in which group performance accounts for half of the incentive. Still, the group component must be significant enough for members to feel dependent on each other.

Sales feedback: Saving face makes a difference
The third factor that contributes to the effectiveness of group incentives is informational feedback. In this case, less is more: Lim’s experiments showed that access to a certain type of information actually decreased the effectiveness of group incentives.

When socialized group members had feedback that showed how hard their teammates were working, their own effort surprisingly diminished. Lim suggests that when feedback about effort is unavailable, group members may worry that their own contributions will be underestimated by their teammates. Consequently, they may work harder to guarantee better results to avoid the prospect of letting each other down.

This means that maintaining one’s reputation in the eyes of others is a key motivational driver in socialized sales teams. A company with group incentives in place will see improved performance if there are strong social ties among its sales force.

Group size matters
Lim made these observations about the effectiveness of group incentives by studying two-person sales teams.

He offers the caveat that in larger groups, individuals may not feel as connected to every single one of their teammates, which could decrease the incentives’ effectiveness. On the other hand, in a strongly cohesive group, individuals could be driven to work even harder by the fear of letting down a larger number of people.

Together Forward
Read the full paper on the Journal
of Marketing Research
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