Today’s ultra-competitive markets call for fresh thinking about how to encourage salespeople to drive positive results. As key architects of company financial strategy, CFOs guide the development of incentive plans that attract and retain salespeople committed to their strategy– thus holding the keys to smarter compensation. This article examines how CFOs can add value by designing incentive plans strategically to motivate their sales teams in a way that drives better outcomes in the market through several illustrative real-world examples.
Table of Contents
1.Aligning Incentives with Market Objectives:
2.Encouraging Customer-Centric Focus:
3.Driving Innovation and Differentiation:
4.Promoting Cross-Functional Collaboration:
1.Aligning Incentives with Market Objectives:
Good incentive plans are the key to linking together the activities of the sales force into a coherent link in the longer value chain by rewarding the behaviours that make each sales action a contributor to the firm’s success in the market.
Example: (Adapted from an actual case.) For a leading hotel chain involved in the travel and hospitality sector, an incentives plan was designed that synced the sales incentive with the market-expansion strategy. Salespersons were compensated on the basis of how well they succeeded in negotiating and securing contracts with corporate clients from key demographic growth markets. The result was that there has been a spike in corporate bookings contributing to an overall growth in revenue, and expansion in the market share.
2.Encouraging Customer-Centric Focus:
As an example, incentive plans can motivate a salesforce to think more like customers, which will improve overall customer satisfaction and loyalty. Internal compensation structures can be better designed by CFOs to give priority to customer-focused behaviours (eg, proactive service, providing personalised interactions, building long-term relationships).
Example: A telecommunications company transformed its incentive plan so that the sales staff were paid based on customer satisfaction scores and retention rates. By incentivising behaviours such as understanding customer needs and establishing long-term relationships, churn rates came down, referrals went up, and both the company’s market perception and market share increased.
3.Driving Innovation and Differentiation:
Strategic incentive plans can motivate sales teams to create differentiated offerings on the market, bringing diversification and enhancing the relative unique value position. CFOs could, for example, set incentives for the introduction of new products or services, for pioneering solutions that have a high market-share or are first-in-class, or when reacting rapidly to market trends.
For example, a high-tech firm offered ‘product innovation bonus’ that recognised sales representatives who identified market gaps, and worked with the product development team to bring innovative new products to market – and then was compensated for their efforts. This incentive created a culture of innovation in the sales force that resulted in a steady flow of market-leading products, helping the company rebuild a competitive advantage.
4.Promoting Cross-Functional Collaboration:
Other incentive plans can foster collaboration between functions that typically operate in their own silos: CFOs can develop incentives that favour those sales teams that figure out how to collaborate effectively with marketing, product development and customer service to create superior customer experiences and market impact.
Example: One global consumer goods company wanted to encourage collaboration between its sales and marketing teams. The company had already rewarded teams for meeting individual sales objectives but, in order to provide even more incentive for collaboration, these teams were recently compensated for meeting joint sales and marketing objectives. This has led to more targeted marketing campaigns, more effective product innovation, and improved customer experiences, resulting in an increase in market share and brand loyalty. To wrap up, the judicious use of incentive plans is a lever the CFO can count on to get more favourable market results. Designing the incentive plans to have the right level of alignment with the market (outsized pay for outsize growth of the pie) and customer-orientation (as measured by customer outcomes and retention), as well as building in rewards for innovation (as measured by patentable outcomes) and cross-functional collaboration, are the keys to a much better result. As organisations evolve in today’s uncertain markets, CFOs must continue to be more flexible in designing incentive plans for higher market responsiveness and dynamic adjustments to assist an organisation in being adaptive to changing market conditions and achieve higher and more sustained growth.
