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The Problem With Existing Sales Incentives

A high-performing and motivated sales team is critical for any growing company. Despite this, many organizations have trouble retaining their sales teams: the average turnover rate for salespeople is about 3X higher than for employees in other industries. Why is this the case?

The answer typically boils down to an ineffective incentive compensation structure. 40% of American companies are currently using commissions and bonuses in the form of cash or gift cards, the traditional status quo when it comes to sales incentives (commonly known as SPIFFs). To give you a broader financial picture: in 2010, American companies devoted $200 billion to large, short-term sales incentives. However, this investment returned marginal impact. If you’re over the same old status quo when it comes to sales incentives, let’s dive into the problem and explore what opportunities exist: 

The problem with existing sales incentives

It’s easy to assume that your sales reps just want money. But the high turnover rates on sales teams indicate otherwise. While a certain amount of cash is necessary to keep your sales team happy, you also need to supplement your high-priority initiatives with unique incentives that offer additional value beyond cash. Here’s why money alone isn’t as motivating as you may think:

Lack of personalization

One of the underwhelming qualities of cash-based incentives is that they don’t come with any personalization. Not only does this make the reward seem less authentic, but it’s also unlikely that it’ll leave a lasting impression since everyone is receiving the same thing. Think about it from your perspective: what are you going to remember five years down the road - the time you received a $500 cash bonus? Or the time your company arranged for you to take your partner on a Michelin star dining experience for a much-needed date night? 

Catharine Parsons, International Operations Director at Uwin Iwin Incentives consulting group, further supports this point: “The overwhelming quantitative and qualitative research we have gives us empirical evidence that freedom of choice of reward always, always lends itself to higher ROI for sales teams.” That’s why we recommend giving sales incentives in the form of rewards that appeal to people on as close to an individual basis as possible.

Diminishing returns 

The concept of diminishing returns is especially prevalent when it comes to cash. Chances are, your top sales reps are already swimming in on-target earnings (OTE), so they often reach a point where more money won’t really motivate them to hit their stretch goals. Research finds that, while happiness does increase with wealth, the correlation tends to peak at earning $75,000 per year. Which is why, at a certain point, even those $1,000 bonuses start to feel like a drop in the bucket. 

Also, according to Maslow’s hierarchy, once basic needs - such as food, security, and shelter - have been met, people start to look for things that fulfill their higher order needs of love and belonging, esteem, and self-actualization. These needs are met by things like meaningful rewards and experiences, not cash. That’s why a recent report from IRF found that “the more people earn, the greater their preference for tangible non-cash rewards, especially experiences, including travel and merchandise they wouldn’t normally buy for themselves.”

Preference reversal bias

You may be saying: “but my sales reps told me that they prefer cash as a bonus.” That could very well be the case! This is an idea that’s referred to as “preference reversal.” What this essentially means is that, while your sales people may think they prefer cash bonuses, in reality they end up gaining more value from a non-cash or experiential reward.

But at the end of the day, you have to ask yourself: does cash actually generate more happiness, or more motivation to perform? If you look at the turnover rates of companies that use cash bonuses as incentives, the answer becomes clear!

Short-term impact

Receiving a giant cash bonus feels good - but only for a short period of time. That’s why cash incentives are viewed as transactional and oftentimes aren’t actually spent on the things we value the most. This is called mental accounting, which is when the recipient blends the cash reward with salary and uses it for a utilitarian purpose such as paying the bills, buying groceries, or making mortgage payments. As a result, they derive very little meaning from this type of reward.  

While these actions can create some short-term feelings of happiness, they’re fleeting, and don’t create lasting memories nor inspire long-term behavior changes the way that something like experiential rewards can.

Changing workforce demographics

By 2020, 46% of the workforce will be millennials. It’s important to recognize that sales folks in this demographic are very different from the previous Boomer generation. Millennials are famously known for prioritizing experiences over material items and were born in the digital age.

This means that incentives that come in the form of plaques, cash, and fancy Rolex watches no longer cut it for this part of the workforce. Also, Millennials are likely to be attracted to the highly social nature of non-cash rewards. For example, let’s say a top sales rep wins a skydiving experience. This is something they can post about on social media and share with their coworkers. On the other hand, discussing a cash bonus could come off as bragging and therefore isn’t shareable. That’s why an effective sales incentives program for millennials (as well as Gen Z) requires a fine balance between extrinsic and intrinsic motivation strategies to keep them engaged. 

The solution 

To break away from the status quo, we encourage companies to introduce non-cash, sales incentives and SPIFFs that are detached from hard cash values. This could take the form of bucket list-worthy trips or activities, more one-on-one exposure to senior leadership, coaching, or learning and development opportunities that can be highly motivating and boost feelings of appreciation towards your company. 

These types of meaningful non-cash SPIFFs will generate greater anticipation, discussion, and “afterglow” than cash incentives, the opportunity to associate positive memories directly with your sales contest for years to come. Not to mention - your sales team will truly feel like you’re invested in their success and well-being. 

It’s clear that the current state of sales incentives is in need of a refresh. By taking a step away from a cash-only compensation model and towards an experiential-based one, you’ll have the opportunity to boost retention rates on your sales team as well as see increased productivity - which, at the end of the day, means more revenue for your organization. 

Learn more about how experiential rewards can help strengthen your sales incentives and SPIFF programs. When you’re ready to get in touch with our team, we’ll be ready with a few clicks of our Request Demo form. Looking forward to connecting with you!

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