Tag Archives: MBO

How do we reward salespeople for strategic sales activities?

In many sales roles, there are important results to be achieved this month, this quarter, this year, and in addition there are activities and results required which will not result in orders or revenue until next year or sometime in the future. If the comp plan focuses exclusively on immediate results, making progress for the long run may not seem very important to the salespeople.

To focus some of the sales effort on more strategic results, flexible incentive components focused on Strategic Sales Objectives (SSOs, also known as MBOs, KPIs, KSOs) may be used. The goals for these objectives are generally communicated in sentences, not numbers. To get the best results, we would recommend:

  • Put enough of the incentive opportunity against these objectives to make them meaningful to the salesperson, ideally in proportion to the amount of time people spend on them in the year. For example, a salesperson who is expected to spend 70% of their time closing deals this year and 30% of their time laying the groundwork to close longer-term opportunities in future years should have 70% of their incentive at target available through in-year results and 30% available for success with SSOs.
  • Limit the number of objectives. These are supposed to provide focus, which means there should probably be five or fewer of them for a year.
  • Focus the objectives on prospect action, not salesperson action. A good objective might be for a salesperson to obtain a commitment to a field trial, or a limited first order, or a visit by a prospect to a current customer. Avoid objectives which are salesperson activities, and focus on objectives which can only be achieved when the prospect objectively demonstrates deepening commitment to your company’s solution.
  • Offer limited upside. A good guideline for motivating compensation design is “No risk without upside.” However, allowing salespeople to earn twice the target incentive for SSO type components is probably not a good idea. Ideally, the upside on these components is delivered when the deal is closed and the large check associated with the numbers comes in. Nonetheless, it may be appropriate to define some over performance criteria, and offer as much as 150% of the target amount to those who “over perform.”
  • Monitor objectives and ratings across the organization to ensure consistency. Require some level of approval of the objectives before they are communicated to the salespeople, reviewing them to ensure that all sales managers are approximating “equal stretch” as they deploy these objectives. Then after the objectives are assessed and the payments are made, check to make sure that the payout distribution seems sensible for the amount of progress that has actually been made by the sales team.

Strategic Sales Objectives are hard to do well. They take significant organizational discipline, and require thoughtful review to ensure they are being used appropriately. In long sales cycle businesses they can be vital, but recognize that doing them well is a significant investment for sales leadership and for those administering the plans.

Our sales managers would like the flexibility to design a comp plan that rewards for different results in different quarters, but based on numbers.

This type of component puts the ability to very directly manage pay, including potentially managing upside, in the hands of sales management. The availability of this sort of management discretion to directly design incentive components and determine payout amounts generally results in widespread direct management of pay levels and a decoupling of payout amounts from market value and productivity.

We generally recommend MBO-type components only for sales roles in startup mode or with very long sales cycles (over a year) for which solid performance this year will not show up on this year’s income statement. When we do design an MBO based incentive opportunity, we limit the flexibility and payouts to a few specific amounts (e.g., pay 0% at Unacceptable, 50% at Below Goal, 100% at Goal, 125% at Exceeds Goal, and 150% at Excellence). While it is mathematically possible to interpolate and pay a little bit more money for a little bit more performance, this suggests a degree of rigor and accuracy in goal setting and incentive design that is not likely to occur with multiple components changing each quarter and focused on one person. The more constrained type of MBO that we generally recommend, in contrast, says, “Generally do what we expect of you in this area and receive your target payout, do significantly better and get a nice piece of upside, underperform and it will hurt your pay.” This is usually the right message and mechanic for MBOs.