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Daniel Pink on Sales Motivation and Compensation

Many of you know Daniel Pink, best selling author of DriveA Whole New Mind, The Adventures of Johnny Bunko, and Free Agent Nation. If you haven’t seen his Drive talk at the TED conference, it is absolutely worth your undivided attention.

Drive clearly and elegantly surveys the decades-old research into human motivation. The book explains various experiments which have proven that humans are at least as strongly motivated by the intrinsic satisfactions that come from learning, playing and being curious, as we are by money or fear of punishment. Given a certain baseline level of comfort and security, additional external rewards actually serve as a medium term de-motivator for most kinds of work.

In fact, as Dan compellingly points out, people are naturally motivated at least as much by intrinsic rewards and satisfaction than by extrinsic recognition. Humans are naturally autonomous and self-directed towards contributing, towards engaging in life. We are, as Shambhala Buddhism puts it, “Basically Good“.

Then the book proceeds to point out how completely oblivious most businesses are to this scientifically-accepted fact.

As I read Drive I kept thinking about how these lessons applied to sales and sales compensation.  I wrote a note to Dan, to which he kindly responded, and then I wrote this post.

As I said at the end of that post, there are a lot of issues to consider when we think about the best ways to compensate salespeople. In subsequent emails, Dan kindly agreed to answer some of my questions about how the ideas in Drive and the compensation experiments of a few companies should apply to sales and sales motivation.

Here is a transcript of that email exchange:

Matthew Bellows: One of the common beliefs about salespeople is that we are “coin operated”. Are salespeople more motivated by money than others in an average business?

Dan Pink:Maybe. But in the end, I’m not convinced salespeople are somehow radically different from the rest of us. We all want to be paid fairly for our efforts, of course.  But that’s just a starting point. We also want to do good work, challenge ourselves, get better at something that matters, and make a contribution. That’s true for everyone.

And I think we get faked out a bit by the role of money for salespeople.  Sure, it’s a motivator. But it’s also a form of feedback. It’s information on how they’re doing. That’s hugely important because the workplace is one of the most feedback-deprived environments around.

I think we get faked out a bit by the role of money for salespeople.  Sure, it’s a motivator. But it’s also a form of feedback. It’s information on how they’re doing. That’s hugely important because the workplace is one of the most feedback-deprived environments around.

MB: You’ve profiled two companies that have switched away from the standard quota/bonus system of sales compensation. Why did they make that switch?

DP: In the case of Redgate, CEO Neil Davidson made the decision for clear-headed, strategic reasons. No matter what compensation scheme management devised, the sales folks figured out a way to game it. (That’s not a criticism. I’d respond the same way.) That led management to ratchet up the compensation scheme’s complexity –- which, in turn, led sales people to ratchet up the ingenuity of their response. On and on it went.

So Davidson decided to end the madness — and to tack in the opposite direction. He nixed commissions, raised base salaries, and increased end-of-the-year profit sharing.

MB: How has it worked out?

DP: Sales reps now collaborate more – since they’re no longer pitted against each other. Managers devote more time on operations and innovation –since they’re no longer policing the compensation system and arbitrating who brought in what piece of business. And –- lo and behold! –- total sales have gone up.

It’s a win for the customer, for the company, and for Redgate’s talented sales staff. The experience of SystemSource in Baltimore is much the same — and they’ve been doing it this way for 17 years.

MB: It’s probably good to remove the gamesmanship, but doesn’t losing the upside potential from a big quarter encourage salespeople to slack off? If I’m on a fat salary with no bonus, what’s to stop me from just kicking back?

DP: If I’m the boss, and I discover that you’re slacking off because you’ve got a salary rather than a bonus, then the problem isn’t with the compensation system. The problem is with whom I’ve hired.  If the only reason you’re selling my company’s product is to get the commission, then I doubt you’re going to be a very good salesperson for the long haul.  If that’s your only motivation, and you could just as easily be selling toaster ovens or bean bags, then you’re going to be a less effective advocate for my product.

MB: What are some of the other compensation measures, metrics or methods I should consider if I’m trying to reduce money as motivator at my company?

DP: I don’t think anybody should eliminate “closed sales” as a metric. But organizations would likely get fewer distortions if they also included other metrics – for instance, customer satisfaction, collaboration, total company performance, and so on.

I don’t think anybody should eliminate “closed sales” as a metric. But organizations would likely get fewer distortions if they also included other metrics – for instance, customer satisfaction, collaboration, total company performance, and so on.

Again, I’m not saying that commissions are inherently bad. What I am saying is that we’ve got many orthodoxies in business that we never examine. One of them is that the only way people will sell is with commissions.  That might be true in some cases, but it’s not universally true.  Organizations that challenge orthodoxies — of any kind — are the ones that make big breakthroughs.

MB: Is there a way to tell if a particular company is ready to go off of the sales quota system? Are there particular types of companies or sales teams for whom this switch would be more or less helpful?

DP: Great question. But the truth is, I don’t know. I’d have to look into it more.

MB: As you know, at a successful company it’s not uncommon for the VP of Sales to bring home more cash than the CEO at the end of a good quarter. But one of the compensation guidelines you give in Drive is “Ensure Internal and External Fairness”. How would you re-balance a new fixed cost sales comp plan with others in the organization?

DP: That situation isn’t unfair on its face — especially after a good performance. The problem is here is measuring people quarter by quarter, particularly if there are huge payoffs for short-term results.

The fairness I’m talking about in this regard is something slightly different. If people aren’t getting paid fairly relative to people doing comparable work inside the organization, or people doing comparable inside other organizations, then that’s a motivation destroyer.

MB: I’m trying to imagine the hiring process under a no-quota comp plan. What kind of salespeople will I attract if I switch to something like this? How would you sell this new compensation structure to a potential sales hire?

DP:My guess is that you’d attract people with a longer-term vision of their career and their connection to the company.  To these folks, I’d emphasize the ability to do great work with great people and to contribute to an organization.  As for the compensation, I’d emphasize that it’s healthy and fair — and leaves them far less subject to short-term pressures, the whims of the market, and the horrid feeling that an off month means you can’t support your family.

The experience of Redgate sheds some light on this. When the salespeople heard about the plans to replace commissions with salaries and profit sharing, they were for it — but thought the other salespeople would oppose it.

The experience of Redgate sheds some light on this. When the salespeople heard about the plans to replace commissions with salaries and profit sharing, they were for it — but thought the other salespeople would oppose it.

MB: Any resources that you can suggest to pursue this further? I’m betting most compensation experts would look confused if I asked them to guide me on this topic.

DP: There isn’t much out there. It’s mostly the case studies and best practices of the early adopters — places like Redgate, SystemSource, Best Buy, and a couple of other companies.

MB: Thanks very much, Dan!

DP: You are very welcome.

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