Changing Corporate Culture with Sales Incentives

How One Company is Transforming Sales Culture in China

May 2009

Richard Payne Principal Consultant Aon Consulting Asia Pacific

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The challenge Sales had been rising steadily during the past 10 years as a major European manufacturer had expanded its business into China. The company had become a major employer with over 10,000 employees and more than five lines of business operating in the country. Their corporate-wide Sales Incentive Plan (SIP) was designed to stimulate sales growth in China and it had been working for about eight years without significant changes. But, the results of a recent employee engagement survey showed that both management and the sales team leaders did not perceive it as an efficient or effective system. Comments on a newly launched special recognition program also indicated that there was room for improvement in their performance incentive initiatives.

Managers argued that the incentive system was leading to average performance rather than motivating high performing individuals and teams. Furthermore, they were concerned that the sales incentive system was designed with a “one-size-fits-all” philosophy that ignored the diverse characteristics of different business units.

Aon Consulting, along with several other consulting firms, was invited to prepare a proposal with the scope defined as a diagnosis on the current sales incentive plan. After a rigorous selection process, the company chose Aon Consulting to conduct the project.

According to the company‟s Head of Compensation and Benefits (C&B), “We wanted to leverage the expertise of external resources but we knew that the outcome would depend on how much investment the consultant put into the project, not just the consultant‟s expertise. We chose Aon because we knew the Aon people well. We trusted them to put a lot of effort into the project. As it turned out, the final result was even more than what we expected.”

The consulting process Aon Consulting carried out a three-step process to identify the best possible solution for the company‟s sales incentive program:

Information collection. The internal diagnostic entailed a series of interviews with top

management and business unit management. Focus group meetings with selected sales staff augmented these interviews. The external benchmarking of 15 competitors looked at both the features of each company‟s sales incentive plan as well as the design rationale for their plans.

Gap analysis. Aon consultants then wrote up a gap analysis report focusing on both internal and external comparison of the company‟s sales incentive plan. The report critiqued the current system and indicated the major areas that needed to be optimized.

Management workshop. During a workshop for senior leadership, Aon consultants presented the gap analysis, validated the findings with the leadership team, recommended changes and facilitated a discussion, which led to an action plan to optimize the company‟s sales incentive program.

The findings The diagnostic phase of the project revealed that many aspects of the current plan were working well. The sales incentive plan had played a critical role in supporting the firm‟s remarkable growth. The external benchmarking indicated that the plan was generally consistent with market norms, especially for higher-level positions. The sales force understood and accepted the plan‟s rationale, the performance measures – key performance indicators (KPIs)– were comprehensive, and the plan encouraged strong teamwork.

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At the same time, the diagnosis indicated that there was room for improvement in three critical areas. The first concern was that it was hard to see or understand the link between the salesperson‟s results and the incentive payment that he or she received. Performance measures were numerous and often outside the control of the salesperson. Determining the sales incentive required complex calculations and often the data needed was difficult to obtain and was secured long after the fact.

The diagnosis also confirmed the original concern that prompted the project – the sales incentive plan encouraged an average-oriented culture. There was only a modest difference in incentive payments between good and poor performers. Performance ratings tended to be quite similar among the vast majority of the sales staff. Plus, sales people had limited opportunity to earn more for over-achievement. In fact, over-achievement often led to higher targets in the following year.

The third critical finding was that the plan was not aggressive enough for junior-level positions. The pay mix was heavily weighted toward fixed compensation and there was no special recognition bonus for top selling individuals or teams. This helped reinforce an average-oriented culture from the moment that a sales person was recruited.

The solution and results Aon consultants developed detailed recommendations to address these shortcomings while at the same time, maintaining the positive aspects of the prior plan. The emphasis was on offering creative solutions that were aligned with the company‟s values and would help sustain the firm‟s high sales growth but which, over time, would lead to a more performance-oriented culture.

During the workshop, the company‟s management vigorously debated Aon‟s overall approach and each of the specific recommendations. The leadership team then identified the most critical action steps and came up with a plan of action for implementing the changes within each of the business units.

While the company is still in the process of implementing the changes, they have already seen positive results. According to the compensation and benefits head, “The project was quite successful and the feedback from the project was very good. It has really improved the awareness of the management team and senior managers in the field. They realize how they can leverage this tool to drive sales behavior. They have begun to look into how to leverage the tool to improve performance.”

Senior management indicates that the program already has improved sales effectiveness. Managers report that the performance measures are clearer and more objective. Sales people find the plan more transparent and now understand how the incentive payments are calculated. The business units appreciate how the plan maintains consistency across the businesses while also allowing for customization when it is needed.

The plan has also led to greater cost efficiency. There is now much more differentiation based on performance: top performers get more while low performers get less. This has been accomplished without an overall increase in cost.

The expectation is that the changes in the plan will lead to a long-term culture change within the organization. Managers‟ competency in using sales incentives to drive performance has already improved through the extensive communication that was conducted in order to roll out the new plan. Furthermore, sales people now see the direct relationship between higher performance and higher pay. Bonusesnow act more like an incentive than an expected benefit or right.

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The challenges ahead While the initial feedback is quite encouraging, the company recognizes that using sales incentive to drive performance is a continuous and never-ending process. The next area that the company hopes to tackle is target setting, but it is not easy to do during a downturn. The company‟s C&B head tells us that, “The current economic environment is still unpredictable. Even now in May, we cannot finalize the target. The businesses still want to look at the economy before finalizing the target. They plan to make the final target before the end of June. They don‟t say it is a „target‟ they say it is a „forecast‟.”

The C&B head also reports that, “We have tried to consolidate all of the KPIs but there are several hundred. Some teams are project-based so their quantitative KPIs are more activity based. The KPIs are not really related to sales.” The challenge is to reduce the number of performance measures, while still maintaining their meaningfulness to individual business units and teams.

Despite these issues, the company feels that the timing for this project could not have been better. “It was a good time to review our sales incentive plan last year. We did it in advance of the downturn and we changed to become more performance driven. We were more prepared for the financial crisis and we th ink we can recover more quickly than our competitors.”