sales incentive survey 2012 - management summary

PERFORMANCE RELATED PAY IN THE YEAR 2012: CURRENT STATE OF AFFAIRS

What is the current thinking with regards to performance-related pay: particularly looking at the why of this rewards element or tool. The RioRancho 2011/12 survey on variable compensation specifically focused on strategy and vision towards variable rewards, rather than tactics and mechanics. Why do we apply this tool and what do we expect from it. Is it just market competitiveness, or do we specifically aim to attract and retain key talent, and what does this mean for the way that these incentives are structured? This management summary presents some of the key findings of this survey.

WE PAY MAINLY FOR LABOR MARKET COMPETITION AND FOR PERFORMANCE

The first topic we investigated was the Total Reward Framework (TRF) and the place of variable rewards in it. Which are the crucial drivers or objectives of our TRF; i.e. what are we aiming to pay for? The results are presented in figure 1 and show that current thinking about TRF seems quite traditional with emphasis and expectations around market competitiveness and company and individual results mentioned by most. Interestingly: engagement, attraction, retention and development do not seem to be top of mind when designing a Total Reward Framework. This despite the press and emphasis these topics have received recent years. Do we find it difficult to put these into action/TRF, or is this a survey timing issue?

Figure 1. Crucial drivers of the Total Reward Framework (multiple responses).

Thankfully we do not seem to consider years of service a priority (anymore), but then neither do we consider entrepreneurship highly, which is also interesting given the expected increasing importance of temporary specialist resourcing (ZZP models) in business.

HOWEVER, COMPANY PERFORMANCE AND PAY REMAIN TWO SEPARATE WORLDS ALMOST
Next we queried which elements (or tools) we include into the TRF policy; how do we execute the ambition defined in the previous topic? So: when we say we apply our TRF in majority to drive company and individual output, which reward elements should make this ambition a reality? Well the answer to that one seems fairly easy: pay is top of the bill when it comes to these ambitions, with variable pay logically being looked at to fulfill this role. But when we next queried how the impact on company performance of the applied tools is rated, the results got a bit more interesting (see figure 2).
Figure 2. TRF elements and expected (significant) impact. The less we include queried elements into our TRF, the more we expect of them it seems. So we expect much from L&D, Culture and Leadership but do not include these into our TRF! The exception seems to be variable pay, which is both considered and expected to have a (significant) impact. Lets review this magic element more.

THE VARIABLE SHIFTS FROM REWARDING (LOOKING BACK) TO INCENTIVIZING (LOOKING FORWARD)
First off: all of our respondents have a variable component, perhaps this made them more inclined to participate, but more importantly nearly all also have a specific and separate plan designed for commercial (sales incentive plan SIP). A key differentiator between the general variable plan and a SIP should be purpose; a SIP generally is more associated with driving individual performance where a general plan is more aimed at rewarding company results.

[document] sales incentive survey 2012 - management summary [e-mail] info@riorancho.nl [website] www.riorancho.nl

sales incentive survey 2012 - management summary

Interestingly the results shown in table 1 show that sales incentive plans currently (still?) seem mostly geared to reward, rather than incentivize. The desired situation shows a fairly strong tendency to move more towards the latter.
It appears to be just as common to have a separate, specific pay plan for sales as it is uncommon to run a recognition program. Surprising?

CURRENT

23%

31%

19%

15%

12%

DESIRED

8% REWARD

19%

35% EQUALLY

15%

23% INCENTIVIZE

Table 1. Is your variable compensation there to Reward (in retrospect) or to Incentivize (ahead).

WITH A PARALLEL MOVEMENT TOWARDS EMPOWERMENT

Earlier we saw that we do not include entrepreneurship as part (or objective) of our Total Reward Framework, yet when querying this further as part of the variable we do see a tendency to move away from using variable pay to focus people (e.g. through many metrics or restrictive mechanics) towards empowering people to find the best way to do the right thing for the business. Doing this while not losing our checks and balances might be a challenge, but the benefits of this move might also be extensive. It certainly seems to be an increasing focus of our variable plans (see table 2) and may be the key to bring more entrepreneurship into our businesses.

CURRENT

31%

46%

15%

4%

4%

DESIRED

12% FOCUS

35%

35% EQUALLY

15%

4% EMPOWER

Table 2. Is your variable compensation designed to Focus activities or Empower people.

AND QUALITATIVE OVER QUANTITATIVE DEFINITIONS OF SUCCESS

A fact which seems to support this desire to move (more) away from restrictive structures and measures comes several queries down. When asking about the type of metrics or KPIs we can see some tendency to move more towards qualitative metrics (see table 3). As many HR and sales professionals are (in our view rightfully) skeptical about the effectiveness and impact of qualitative, yet SMART defined goals in sales incentive plans, the perfect answer surely has not been found so far. However the quest to increase flexibility and to recognize unexpected excellence and entrepreneurship during the year seems logical and clear.

CURRENT

38%

15%

35%

12%

0%

DESIRED

23% QUANTITATIVE

27%

38% EQUALLY

8%

4% QUALITATIVE

Table 3. Is your variable compensation centered around Quantitative or Qualitative KPIs.

IN CONCLUSION: WE EXPECT A LOT FROM OUR PAY. AND EVEN MORE FROM OTHER REWARD ELEMENTS
Achieving results and rewarding competitively, that is the stated purpose of our reward investment. Thus showing limited creativity (and surprise) in how HR professionals apply their tools. Surprising is however that the reward investment is not correlated with the elements expected impact. In other words, seemingly paradoxical, success of the company tends to be linked to intangibles, and not necessarily our big ticket reward elements. With one clear exception: variable pay. This is believed to be a strong performance driver and (for that reason) without exception tailored to sales staff specifically. Control, stringently focusing efforts and qualitative measures appear to make way for raising entrepreneurship and less predefined or tangible definitions of success. For that matter, formal ways of recognizing this -at this stage- are not (yet) a part of this development as common as we might expect. If there is one fundamental change that we believe to become more apparent over the coming years, it is the expected benefits from recognizing and celebrating unexpected excellence.

[document] sales incentive survey 2012 - management summary [e-mail] info@riorancho.nl [website] www.riorancho.nl