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Matt Harris: Incentive Program Design: The Middle 60
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Hi, this is Matt Harris with the Incentive Research Foundation, doing a tip today on what makes or breaks an incentive program.
As I look at companies out on the marketplace today that are doing incentives, I see a lot of people still overly-focused on the top 20% of their sales structure. I think the rule of thumb, the 80/20 rule, that we tend to live by has led us to believe that top tier is the place where we need to focus on if we want to drive the biggest amount of performance.
In actuality, that’s not true. Several studies have shown that the top 20% is responsible, on average, for about a third of the revenue. In some more complex situations, the top echelon can deliver roughly 40%. It’s different for every organization, but it’s definitely some place to look. Most of the time, focusing instead of just that top tier, but also looking at that middle tier, that middle 60%, you can drive significantly bigger gains and more quickly. I would also say the middle tier, your “B” players, also have the opportunity if more had more ability to improve their performance than the top tier that’s already performing at peak capacity.
So, for example, 5% performance gain from the middle 60% of a sales force can yield 70% more revenue than a 5% shift in the top 20%.
If we continue to do our top tier programs for our elite sales force and understand it’s the core of a recognition program to keep them engaged and happy -- and when we’re looking to drive incremental or additional gain, creating different kind of programs at the middle level when we can really make a big jump -- those programs have to be different. Winner-takes-all programs don’t work as well in that middle tier.
Generally, what works the best is open end, open rule structure so no top stops which can be a little bit scary for folks to not know exactly what the commitment is and an open rule structure that has tiered thresholds or performance so they can hit a performance level, get an award, pay out and then work toward the next threshold. That structure has proven to be the best way to get incremental lift out of that middle group and the highest ROI for the investment.
So, if you’re looking to increase your sales orders next year using incentives in the sales force, don’t just look at the top tier of your sales force but create a new program that helps to move the middle for the most gain.
Matt Harris is VP Marketing at Unberboeck Software