The Wells Fargo Lesson? You Need Smart Incentives to Motivate Your Team. Strict incentives may cause unethical actions. Lenient ones don't push hard enough. Find a balance.
By Danny Wong Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
It's clear that strong incentive programs are important to the success of any employee team, sales or otherwise. Research shows that:
Incentive programs improve performance by an average of 22 percent.
33 percent of all sales can be attributed to incentive programs.
More than half of all U.S. organizations use at least one type of employee incentive program.
Related: Why You Need to Integrate Transparency Into Your Culture
However, it's important not to push all of this too far, lest you end up facing the perils resulting from overambitious sales quotas. Nor do you have to look very far to find a great case study illustrating them.
The Wells Fargo sales quota debacle
This past September, Wells Fargo executives sat before the U.S. Senate Banking Committee describing the unethical sales practices that led them to open thousands of fraudulent accounts, fire more than 5,000 employees and pay a fine of $190 million.
According to the bank, many of these accounts were opened due to strict sales quotas that were incredibly difficult for employees to hit without resorting to shady practices. In the wake of this scandal, those sales goals have been eliminated in order to better serve customers and provide salespeople a more sustainable working environment.
The lesson to be learned here is clear: Sales quotas and incentives have a direct, important impact on the way your team members perform their jobs. If your incentives are too strict, you risk forcing employees to act unethically. If they're not strong enough, on the other hand, employees won't have a reason to go out and do the very best they can.
The key lies with striking a balance. Here are four things you can do to ensure that your company is offering the right kinds of sales incentives.
1. Use competition instead of quotas.
Tracking one single metric, such as total sales or outbound calls, doesn't take the whole scenario into account. You need to figure out a way to weigh all valuable sales activities and add them together to get a true picture of how effective a salesperson is.
Once you have this formula, it's time to gamify the system. In a report published by the Harvard Business Review, one company used a similar scoring system to create a fantasy football-based, team-style competition. This had a dramatic impact on performance, with noticeable increases in the number of outbound calls -- calls that led to appointments and visits to the company's retail location. As a result, inside sales referrals jumped an incredible 200 percent.
Related: 5 Ways Startup Founders Can Help Their Sales Teams
2. Make incentives quarterly instead of yearly.
For your low-performing employees, quarterly bonuses are actually a much stronger incentive than they are for your superstars. When such a bonus is removed and replaced with an annual one, the performance of those low-performers drops by an average 10 percent, while the average performance of stronger employees drops by much less.
The reason is simple: These employees need more frequent incentives to perform. Pace-setting incentives are important for people who aren't able to motivate themselves and need a little boost to contribute effectively.
3. Create incentive tiers.
It's important for sales incentives to be challenging but also achievable. Your sales team members need to be close enough to reach their goals, to feel the need to push themselves. But if those goals are too easy to hit, there's no incentive to work harder.
The most effective way to handle this is by creating a variety of tiers, much like many rewards or loyalty programs. As employees perform better, they'll earn better and more valuable incentives. The beauty of a tiered incentive program is that employees will always be close to their next incentive, no matter how they're currently performing.
4. Explain the program clearly.
An incentive program, even if it's based on a wide variety of metrics, must be simple to understand in order to be effective. If it isn't easy to understand and measure, employees won't know where they stand and what they need to do to reach their next incentive.
It's critical that employees know exactly what contributes to their incentives and how they can improve. Don't hide the metrics and calculate them in the background. Provide your employees with the exact formula for success. Whenever possible, give them access to updated information so they know where they stand at all times.
Your sales team is in charge of directly driving business for the organization. Finding the right way to incentivize its members has an enormous impact on the company's bottom line and is a sales manager's most important priority.
Related: 5 Million-Dollar Strategies Companies Use to Manage Their Sales Force
Certainly, it's difficult to find the right balance between "too difficult" and "too achievable." But by following the advice outlined above, it's possible to develop a plan that works for any organization.
