For every system, there is a workaround or dirty little trick that people figure out and exploit.
I've always been leery of incentives. By that, I mean extra compensation or benefits for workers, executives, or even consumers. Specifically, to narrow programs that companies adopt to obtain sales or profits beyond the expected. Why? Because they cause perverse behavior.
One of the most common examples is the sales incentive. The thinking is that salespeople need extra "mojo" or "get-up-and-go" to find, engage, and close sales. This extra compensation is based on targets for product sales in their territory. Companies can't survive and grow without these sales. The saying is that everything starts with the sale. But it can get totally out of kilter through perverse actions by salespeople and the complicity of the managers that set up the program.
Most employees will see right away how to "game" the incentive program. This is natural. Much of this thinking is in line with what is intended. But other outcomes lead to unintended consequences, which only come to light down the road.
When does the salesperson get paid for this sale? On receipt of the purchase order? On payment of the order after it ships? I have found that there is great pressure from sales to get paid as early as possible. Most want commissions on signing of the purchase order. They feel that they have done their job and it is up to the rest of the company to fulfill the product shipment. Sounds logical. But the effect is to grow dissension between the salesperson and either finance or engineering/manufacturing.
Let's look at the finer details. First the purchaser must have credit established. If it is deemed at all risky, the salesperson starts to exert pressure on the finance types to approve credit. And they are good at selling so the finance person gets swayed. Then the purchase can take weeks or even months to fulfill. No salesperson wants to wait. Again, pressure comes toward finance to pay commissions because it is not the salesperson's fault that it is taking so long for the company to ship the products. In some cases, more engineering work must be done as well, which increases cost, time, and approval by the customer that the product works as intended. The approval cycle can get very messy. The salesperson hates this delay
If the customer rejects the product and the salesperson has already been paid, it sets up a great deal of bad feelings for all involved. Was the product oversold as to what it would do? Who takes the blame? Does the commission get returned?
Smaller companies, especially high-tech startups, are more prone to sales commission issues. They need the sales badly, agreements are many times not even spelled out clearly, and credit issues are not thrashed out. All involved want the best for all concerned, but seldom does it not run into thorny issues.
One of the bigger and most sensational cases of sales incentives gone bad is the Wells Fargo sales incentive program. Essentially, Wells offered cash incentives for their sales and branch employees when they sold new accounts to individuals. Employees figured out how to set up new accounts and get compensated without the customer knowing that this had been done!
The upshot for Wells was not pretty. Customers left the bank, management and employees that were involved at the top and throughout the bank were fired, the company took major write-downs (losses), and the stock price is still suffering after years. All due to this poorly thought-out sales incentive program.
It's not only sales
Metrics to measure all kinds of performance have been instituted throughout institutions, government, universities, non-profits, healthcare, and sports. For example, Rob Gronkowski was incentivized to play in a minimum number of games for the New England Patriots to get extra pay rewards during the 2017/2018 season. The thinking here was that he never could last without injury for the entire season. To collect, he risked injury in the last few games of the season when his presence may not have been needed and potentially could have been lost for the playoffs.
Image by Peter Griffin via PublicDomainPictures.net
Thankfully, there is relevant research that addresses these very issues, such as How to Create a Sales Incentive Program That Works
. The two aspects that I find most important are simplicity in design of the program (complication bogs down understanding for all) and recognition of those who have performed well.
Incentives are not all about money. Having to present results at a monthly or quarterly meeting can act as a powerful force. How humiliating it is to not meet one's quota and explain why to colleagues. The incentive here is to exceed and be proud of what you've accomplished. Now we also know that this isn't done on one's individual efforts alone but with the help of peers, especially engineering and manufacturing.
In today's world, especially high-tech, the salesperson depends on tools such as Salesforce, a CRM system that lets them collaborate with departments within the business and channel partners and potential customers with built-in tools creating a virtual office.
Discount and coupons
Incentives are pervasive throughout our economy, including high-tech. Discounts and coupons
are mainly used for first-time buyers to switch from another supplier and try a new product.
Social media and email marketing is where coupons are offered online — all different kinds — not only for products, but services. Whether they are on Facebook, Twitter, or come in your email box, this promotion gets you to the website so you'll buy more.
Many businesses have an employee advocacy program in which incentives are included. This article
by HootSuite includes "recognition" and "incentives."
New book on incentives
Referenced above under "Metrics" is "The Tyranny of Metrics" by Jerry Z. Muller, a history professor at Catholic University of America. He points out that there is A Cure for Our Fixation on Metrics
(article is behind a pay wall) and that measuring results is often wrongheaded and counterproductive. As I've learned, he has discerned that people learn to game any system based on metrics.
Is there a solution? Yes: Tread carefully!
— Fred Molinari is the former CEO of Data Translation, a pioneer in the business of PC-based data acquisition.
See all EE Times articles by Fred Molinari