Sales Comp & Merry Men in Tights

Let’s just pick up where we left off last week: the case for upside potential. You want to reward those top performers, not just pay them. You want to incent them to repeat their performance next year. And you want to engender loyalty to your company by ensuring they feel like the critical contributors that they are, through recognition and financial compensation.

 

But finance will ask, “Where does all this money for upside come from?”

 

Our old friend Robin Hood has inspired the answer. While that merry fellow worked (robbed) to promote less division between the high end and the low end of the village, we suggest that when it comes to sales compensation, the reverse should be true.

The Reverse Robin Hood Principle states that an organization doesn’t overpay the low performers but instead significantly rewards the high performers. Instead of paying low performers below threshold, the organization uses those funds to reward the top. Perhaps surprisingly, this can be a big challenge. Some companies simply are uncomfortable with a huge disparity among members of the sales organization. The Reverse Robin Hood could upset the company culture, or the way it’s always been done in the past.

But, if the outcome is rewarding, celebrating, and retaining the top performers, perhaps at the expense of the bottom 10 percent, perhaps a meritocracy isn’t so bad, after all.

What are the potential risks and rewards you see with the Reverse Robin Hood?

To learn more, visit us at www.SalesGlobe.com.

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2 Comments

  1. Matt Zink

     /  October 17, 2012

    Thanks Mark – I’ve always liked this term. It sets up a good conceptual framework for discussion. On the other hand, the math rarely works out. The cost of paying for upside >100% to goal outpaces the savings generated from thresholds or other s-curve designs <100%. Without manipulating the performance distribution through quota management (to create more under performers) you can't take away enough to fund a dollar for dollar upside.

    That being said, I don't think, nor would I advise, companies to manage to a zero sum game (TI Budget = Payout). We should expect to pay around 110%-115% of the Target Incentive Budget with a normal distribution of performance centered at 100%. If you set up the reverse robin hood discussion with the baseline of 115% in mind, without expecting a 1:1 funding ratio from the poor to the 'rich' in a plan change, it makes for a better conversation (could also put in decelerators above excellence, etc…).

    Reply
  2. Matt:

    That’s a great point about low performers funding the over performers. Depending upon the distribution of performance,there may not be enought low peformers to make this practical. It’s kind of like the presidential tax plans we’re hearing about in the debates. There may not be a large enough population or enough deductions to actually pay the bill in the end.

    The other consideration on the Reverse Robin Hood of course is that while the cost of sales of a high performer on a percentage basis is usually higher than an average performer, the levels of profitability for the business are also often higher. This can be because the business has reached a greater gross profit by passing beyond its break-even points and its fixed cost assumptions and has moved to largely covering variable costs. There can also be greater economies of production or distribution at those levels. Software is a good example of this.

    In any case, we usually ask executives the simple question, “Would you be happy to pay at this level of incentive if a rep reached that level of sales?” We want to get to the point where the answer, regardless of the actual incremental cost of sales, is a “yes”.

    Mark

    Reply

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