Sales incentive structures vary widely among wholesale distributors. Companies use commission-only, salary-only, a combination, or a formula that also employs bonuses, quotas and/or draws. Mike Marks and Mike Emerson of Indian River Consulting Group (IRCG), Melbourne, Fla., recently surveyed 584 companies on compensation practices. They then did in-depth interviews with a sample of the market-share gainers and market-share losers.
Their results were surprising. According to Marks and Emerson's research, there is no relationship between a company's sales incentive plan structure and its gain or loss in market share. Instead, what separates share gainers from losers is how well the incentive structure is aligned with the company's business objectives.
Market-share losers chose incentive structures based on the erroneous belief that one is better than another in its ability to motivate the sales force. Market-share gainers demonstrated that any structure may work as long as it is developed to support the firm's specific objectives. Cause and effect must be clear.
For instance, market-share gainers did not pay for volume when their goals were profitability. They did not pay for short-term results when they were trying to make changes to position themselves long term. This may seem like an obvious concept, but it was frequently overlooked by market-share losers.
The study found that share gainers have effective sales management processes in place. Effective sales management is more than call reports and performance management. The crucial link is accountability.
The findings support that there is a clear difference in how gainers and losers developed their incentive plans.
The study's findings, as well as seven “how-to” best practices for developing and implementing effective sales incentive structures, are presented in Marks and Emerson's book, “What's Your Plan? Smart Sales Force Compensation in Wholesale Distribution.” The book is available for order at www.nawpubs.org for $79 for members or $99 for nonmembers.
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