The Interaction of Team Incentives and Individual Incentives in Sales

How can managers employ both team and individual incentives to foster a supportive and high-performing salesforce?

A summery of the publication “Coopetition” in the presence of team and individual incentives: Evidence from the advice network of a sales organization” from Christian Homburg, Theresa R. Schyma, Sebastian Hohenberg, Yashar Atefi und Robin‑Christopher M. Ruhnau.

According to a 2018 report, workers in the US spend 5.3 hours a week on average seeking advice from colleagues. This need for information exchange is especially important in the sales profession, as there are many uncertainties to navigate through the selling process.

Studies show the importance of salespeople’s networks, how much advice they give and receive from peers, has increased significantly over the past decades. At the same time, the strength of individual performance has become less critical for profitability.

Managers who wish to increase productivity from their salespeople have two tools at their disposal: individual incentives and team incentives. The former is a way of stimulating rivalry among salespeople through competition-inducing practices such as sales contests, bench programmes, or rewards and bonuses for workers who display higher performance.

While this has been, and still remains, a staple approach among many sales firms, many increasingly feel the need to foster more collaboration among their employees. WorldatWork, the leading global association for sales compensation and rewards, reports that 83 percent of sales organisations it surveyed highly value team incentives that promote cooperation.

Of course, it is possible for corporate leaders to create an incentive strategy that balances both types of incentives. But it is important to understand, their contradictory natures can create tensions. For instance, individual incentives can be effective at encouraging salespeople to seek advice from their peers, but discourages them from giving advice in return. In extreme cases, people are also more likely to offer disingenuous or bad advice, as they are most concerned with improving their own performance in relation to their colleagues.

In contrast, team incentives promote advice giving, as employees want to ensure their fellow team members are all working as effectively as possible, yet reduce how often people seek advice, because workers are less focused on their own performance.

Against this background, the Chair of Business-to-Business Marketing, Sales & Pricing, alongside colleagues from the University of Muenster, Catholic University of Eichstätt-Ingolstadt, and others, contributed a study to the social network in sales literature examining how workplace environments respond when both types of incentives are applied simultaneously. Given the increasing importance of strong networks for salespeople’s performance, the authors specifically shed light on how using both approaches at once affects co-workers’ likelihood of regularly giving and asking for advice.

The authors conducted a nationwide survey in cooperation with the inside sales organisation of a fastening and assembly technology firm. To test their hypotheses, they draw on network data of 540 salespeople.

The study’s findings offer important insights for managers. The authors find that introducing team incentives on a broad scale, in workplaces where employees are used to individual incentives, creates a challenging environment where rivalry and cooperation are both encouraged. To navigate around this clash, they recommend a targeted approach, with different types of incentives to specific tasks.

For instance, sales leaders can provide separate team bonuses or rewards to promote cross-selling or team-selling activities. This would facilitate the sharing of customer and product information, as well as colleagues exchanging advice in difficult selling situations. At the same time, performance on such occasions could be excluded from the overall leaderboard or contest, which would stay focused on individual achievements. This way, managers can ensure that competitive motives do not get in the way of collaboration.

Another possibility which is rarely applied in practice is incentivising collaboration by including advice givers on the individual leaderboard. For instance, winners of a sales contest can be asked to mention their helpers and advisers, with those workers receiving recognition and a reward for their assistance.

Yet a third option is for organisations to create mentorship-type schemes, in which star salespeople partner with colleagues whose performance is not as strong, or new hires, to help them improve their performance, in exchange for receiving a bonus or partial commission for their partner’s first two or three successful sales. This is a method used in some organisations between managers and new recruits, but they could be implemented among peers as well.

Prior studies find that salespeople who have a longer tenure at a company tend to be less likely to seek advice. For this reason, the authors suggest that managers who want to increase advice seeking in their sales units should consider implementing horizontal career paths for salespeople. Anecdotal evidence indicates promoting people based only on performance is not always the most beneficial approach for the company overall, so it can be more effective to introduce alternative development paths.

The authors findings strengthen this view. They find that longer tenure salespeople are more likely to be advice givers than seekers. However, salespeople who have worked in the same unit for a long time are actually less likely to share advice with colleagues. Managers could approach these salespeople with opportunities that focus on horizontal development to find natural offshoots of their current responsibilities to create a more effective, socially connected and supportive salesforce.