The Case of the Twisted Quota

Chuck Csizmar –
CMC Compensation Group

For many global companies with a direct sales force the design and administration of their compensation program is in a constant state of flux.  It always seems to need a further bit of tweaking, as dissatisfaction follows in the wake of any plan design.  Why?  Every uncomfortable participant who’s on the receiving end, from senior management to the employee pounding the street, feels that they know what’s wrong.  The verdict is that not enough money is offered for successful performance.

Of course.

Somehow though, that knee-jerk reaction seems the easy criticism.  You expected that too, right?  The issue though, goes deeper.  You can have in place the most well-designed incentive scheme for your industry (on paper), but if your quota setting process doesn’t work, you’re in trouble.   Because any corresponding reward design will miss the mark by a margin; poor quotas reflect ghosts, not reality.

Improperly designed achievement targets (recognized revenue, products sold, units shipped, etc.) present objectives that are viewed as unreasonable for one reason or another.   Stretch goals can be a useful strategy, but not when the numbers are considered as out of reach.  That perception guarantees that those involved will not try as hard as they could, because they feel the effort will not be rewarded.

This cynical “can’t be done” criticism is a short step away from employee disengagement (failing employees will start to question their skills – and morale will sink) and the inevitable departure of key sales talent for greener pastures.

Why does this happen?
Everyone complains about money, so it always seems easier to moan and snipe than to implement real change by improving the way many companies establish their sales quotas.  How do they get it wrong?

  • The “last year plus X%” strategy: a simplistic approach that hits everyone with the same percentage increase in quota.  This approach rewards average performers and penalizes home run hitters (stretch performance becomes expected and a minimum standard for the future).
  • Total revenue target divided by the number of sales representatives: another easy to calculate process, where you simply divide the revenue “pie” into equal portions.  Everyone is treated the same, regardless of personal or territorial distinctions.  But the selling process does differ whether you’re in India, Argentina, France or the US.
  • Using a top down “here’s what we need you to do” vs. bottom up “here’s what this particular territory can generate” approach to generating targeted goals.  The management decision on gross revenue is based on what the financial analysts say is needed to protect the stock price (Earnings Per Share – EPS).  Those needs (targets) are filtered down to the territories, usually with a lame explanation of where they came from.

Territory or geographic distinctions become blurred, to the detriment of motivating the sales force.

When your quota setting process relates more to an arithmetic exercise or an illusionary “concept” figure, even generous incentive schemes won’t attract or retain talent, because seasoned sales professionals know the odds for success have been stacked against them.

Unrealistic targets can destroy morale, initiative and employee engagement like rain at a picnic – and how do you recoup from a discouraged workforce? Trust is hard to build, but easily broken.

When a workforce feels that they cannot be successful they tend to give up the effort.  They may even give you up as their employer.

Snap your fingers and fix this.
Why is changing the quota setting process so difficult that management is reluctant to even try?

  • A salesperson’s natural tendency to complain breeds skepticism.  Sales people cry “wolf” a great deal, always seeking to better their chances to do well.  The easier the target the happier they are.
  • In order to protect the company’s stock price from unwanted fluctuations financial analysts often require the company to commit to achieving certain goals.  When those targets are forced on sales employees, the usefulness of even a highly accurate targeting process becomes moot.
  • Some managers like to “pad” targets to ensure that lower performers don’t drag down overall success.  This interference by sales management blurs the line between objective and subjective targeting.
  • Acknowledging national distinctions in the selling process may be difficult for some managers to explain.  It’s easier to treat everyone the same, no matter the circumstances.

While an overhaul of your company’s quota setting process is likely to be a hard sell, ask yourself a series of questions to gauge whether your current arrangement passes the smell test.

  • Are goals based solely on sales history (last year, average of last three, etc.) or are economic realities of a specific territory considered?
  • Is a territory given a target without consideration of who is covering it (junior or senior rep)?
  • Is sales management allowed to set goals in a way that the sum of all territories would exceed the total goal? This attempt to “make up” for individual failures by stretching everyone is resented by sales employees.
  • How many representatives achieve target level performance?  The lower the number the greater the credibility gap with “targeted” incentives.

Goals for your sales force should be based on a combination of sales history, potential, economic conditions, channel shifts and any other factors that would affect the sales effort.  They shouldn’t be an arithmetic exercise that doesn’t take into account territorial realities, national or cultural distinctions and incumbent capabilities.

More About Chuck: