Getting Beyond "Show Me the Money"

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.

• Employee incentives
• Sales team management