For more
than three decades, Andris Zoltners, now an emeritus professor at Northwestern,
has been studying the best ways to organize and pay salespeople. The pioneer of
sales analytics, he is the founder of one of the world’s largest sales
consulting firms and the author of six books on sales management. In this
interview, he shares some of his insights with HBR. Companies make several
common mistakes with sales compensation, Zoltners notes: over- or
underincentivizing key products, setting quotas too high or too low, and
underpaying top performers or overpaying people with good territories.
Companies often get the proportion of incentive pay wrong, too, because they
fail to account for “free sales”—residual sales they get nearly automatically.
They may think they’re paying 60% in salary and 40% in commissions, but if
their salespeople have a lot of free sales, commissions could be closer to 15%.
Overly complicated plans are also a problem. Some plans have different payments
for dozens of objectives. That’s too much; salespeople can focus on only four
or five goals at most. Yet a bigger issue may be an overreliance on
compensation in the first place, Zoltners suggests. There are other drivers of
sales success—the people you hire, their managers, the design of territories.
And while analytics are a useful tool, culture may prove to be an even better
one. [ABSTRACT FROM AUTHOR]