Idea in Brief
The Research
In the past decade, researchers studying sales force compensation have been moving out of the lab into the field, doing empirical analysis of companies’ pay and sales data and conducting experiments with actual reps.
The Findings
Companies sell more when they remove caps on commissions; “ratcheting”—raising a rep’s quota after a good year—dampens motivation; and a pay system with multiple components (such as various kinds of bonuses and commissions) can engage a broad range of salespeople.
The Implications
Many companies use experiments to improve pricing, marketing, and website design. Because sales compensation is a large expense and sales force effectiveness is a primary revenue driver, companies should apply analytics and experimentation to find better ways to pay and motivate their salespeople, too.
Before I became a business school professor, I worked as a management consultant. One engagement in particular had a profound influence on my career. The project involved working with the Asia-based sales force of a global consumer products company. This company practiced “route sales,” which meant reps spent their days visiting mom-and-pop convenience stores, servicing accounts. One thing about the organization surprised me: Its sales managers spent inordinate time listening to the reps complain about their compensation.