Creative Group brought together three behavioral experts to discuss common mistakes leaders make when it comes to incentive program design. We’ll unpack a new “sin” every other week. Follow along to see if you are committing any of these transgressions.
Sin 2: Spread goals evenly among each rep
Your Inclination: I’ve got to grow my region by 4% so I’m having all the reps grow by 4%
The Argument Against It: Territories and individual reps vary greatly – don’t treat them the same.
Not every territory is created equal. Nor is every sales rep. So why would every sales rep in every territory get the same growth goal?
Rewarding sales reps for simply meeting quota drives mediocrity. Reps who can easily achieve the results begin to coast and those who see the goal as too far out give up quickly.
But if your goal as a sales manager is to grow your business by 4%, for example, you’ll need to be more clever than an across-the-board goal that applies equally to each rep. You’ll need to look into the baseline sales and the sales potential for each territory and each rep. You’ll need some territories to grow at double-digit rates (because they have the opportunity) and some to grow at less than your overall goal. While this necessitates some mathematical gymnastics, you’ll get more out of your reps if their goals are relevant to their territories and their baselines.
Ran Kivetz, PhD, from Columbia University, put a name to this important discovery. It’s called Idiosyncratic Fit. This is what happens when someone feels like they have a distinct advantage to do well with the incentive rules. It’s a powerful psychological tool that, when engaged, gets our subconscious selves working extra hard. Without it, we may still engage, but when we hear that little voice in our head say, “Oh, yes! I’m going to kill it with these rules! They’re made for me!” … you’ve achieved idiosyncratic fit.
Serving up the same goal to every rep is like pitting unequal parties against each other, and it makes little sense. It’s patently absurd to ask a three-year-old child to run as fast as a 13-year old or a frequent marathoner to compete in a foot race against an octogenarian – so why would you ask your most tenured reps in the best territories to have the same growth goal as the newbie reps?
When you design your incentives with idiosyncratic fit, you take into consideration how much each territory can grow based on the run rate and market conditions. You break down what 4% means to the largest territory, in terms of units and profitability, and compare that to smaller territories with less experienced reps. You look to see which territories have untapped potential that can be leveraged, and which territories are maxed out. The overall 4% is then split up between territories, so some of them will receive a larger percent (say 8%), while others may have a lower growth goal (say 2%). In the end, when appropriate goals are established for a territory, the rep in that territory is more likely to enthusiastically pursue and achieve their goal.
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