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Incentives: The need to focus on more than cash

Carrots don't just mean cash

If sales are down how do you keep your sales staff focused and motivated to achieve your business goals? Constantly changing and adjusting pay and compensation to reflect the different market conditions is impractical. So is reducing sales targets, which might improve staff motivation short-term but at a financial price to the business. So what do you do? Mike Davies looks at some of the options.

Let's start with bonus structures and commissions and their role in the total reward and recognition picture.

The 'Performance Pyramid' shows the various reward options that companies can offer to their employees and the increasing levels of motivational impact and effectiveness as you move higher up through the pyramid.

Pyramid

Salary and benefits are often referred to as hygiene factors. This means they will help to attract and retain staff but can only really prevent dissatisfaction rather than drive achievement of goals, change behaviours or improve performance.

Within an automotive sales environment bonus and commission payments are frequently viewed by sales people as a standard part of the remuneration package and can therefore be regarded as part of salary and benefits.

At the top of the pyramid, however, is recognition, closely followed by non-cash incentives. When sales are down these are the tools to motivate staff and boost morale.

A well-structured recognition/incentive programme can help achieve short-term objectives without the large financial implications of reducing sales targets. Furthermore, it can easily be linked to product knowledge using incentivised quizzes or online content.

Toyota GB have developed 'The Toyota Guild' over a number of years into a strategic web based platform that combines sales-based incentives and product learning with an interactive communication platform. The Guild platform provides Toyota with the flexibility to adapt quickly to changing market conditions. So if sales of a model are down, targeted product knowledge combined with an incentive for achieving specific goals can quickly be delivered and communicated to the target audience.

What Toyota have therefore is a strategic tool that allows multiple short-term tactical activities to be implemented in a consistent and controlled way.

But if you don't have the benefit of a Guild platform how do you start to create your tactical activities to meet current challenges? To structure an incentive programme properly the best place to start is with the target audience. Adopt their mindset and ensure you get the answers to these basic questions right:

  1. What do you want me to do?Be very specific. Are you aiming for more unit sales, greater market share, launching a new model, running out an old model or perhaps you want to sell more finance packages? Ensure you keep these objectives clear, simple, realistic and measurable
  2. How do I do it?If the aim is to sell more accessories then remind the sales staff of the key benefits at the same time as showing how you will recognise their performance
  3. Why am I doing it?Communicate, communicate and then communicate some more. Let the audience in on the bigger picture and why you are doing this now. It is vital to get your message across and engage your audience. Consider pre-launch teasers, launch brochures, kick-off meetings, websites and emails.
  4. How well I am doing?Remember to let everyone know how well they are performing as frequently as possible. Use performance statements, emails and newsletters to share results, celebrate success and share best practices.
  5. What's in it for me?Probably the first thing anyone will ask. Choose awards carefully and consider the audience profile (age, gender, lifestyle, etc.). Ask sales staff what they want and they will invariably ask for cash. But incentives need to be memorable if they are to drive changes in behaviour and sustained performance improvement. Choosing the rewards must therefore show some thought and provide what is often referred to as 'Trophy Value'. American Express Incentive Services recently surveyed over 1,000 people from various industries (including automotive) that were known to have had a recent cash-based incentive. From the following findings, they concluded that cash-based rewards can be less successful than non-cash alternatives:
    • 29% used it to pay household bills
    • 18% had forgotten how they spent it
    • 15% claimed never to have received they award!
    • 11% paid it straight into their bank and forgot about it
    • Only 14% bought themselves a gift or booked travel

In addition to getting it right for the dealership, it's also necessary to set the programme budgets and structure how you will measure success and then provide the awards and recognition. There are only two types of incentive programmes (although with many variations): closed-ended, where a fixed amount is available and so dealerships or sales staff compete for the winning places; or open-ended where everyone achieving the set objectives can earn an award.

The financial aspects of incentives are not always easy. A well-structured programme should be self-funding and if sales staff don't perform, your exposure will be limited to the set-up, communication and administration costs. As a general rule 70%-75% of budgets should go on awards, 15%-20% on communication and promotion, and around 10% on administration. The taxman will also want paying. Both income tax and National Insurance contributions are liable on almost all incentives and awards but you do have a choice of paying the lower or higher rate of income tax on behalf of the participants. Always seek professional tax advice, or speak to the revenue's specialist incentive unit and ask for information on third party Taxed Award Schemes. If the dealer or the sales staff get landed with a tax bill they will not want to know the next time you try to motivate them. Finally remember - recognition first, reward second. Winning a place on an incentive travel trip may be a great reward, but for most it's the peer recognition and sense of achievement that really counts.

Mike Davies is head of incentives and rewards at Maritz, which specialises in performance improvement, travel and marketing research services. For more information contact 01628 486 011 or email info@maritz.co.uk .