Table of Contents
- Key Highlights
- Introduction
- The Nature of Sales Incentives
- The Eight Tactics Salespeople Use to Game the System
- Unintended Consequences of Exploitative Incentives
- Recommendations for Company Leaders
- When Tolerating Gaming is Beneficial
- Conclusion
- FAQ
Key Highlights
- New research identifies eight tactics salespeople use to exploit incentive programs, including sandbagging and data falsification.
- Misaligned incentives can lead to unintended consequences that harm company revenue and customer satisfaction.
- Experts Timothy Gardner and Colin Wong recommend proactive auditing of sales incentive programs to mitigate risks while maintaining motivation.
Introduction
In a world where companies constantly seek growth, sales commissions have emerged as a widely recognized tool to drive revenue. A staggering 73% of American businesses use some form of sales incentive to motivate their sales staff, believing it will lead to heightened performance and increased profits. However, this intuitive strategy can breed more than just success. New insights reveal that the quest to make every sale can give rise to a troubling ecosystem of unethical practices among salespeople trying to game the system for personal gain.
Researchers Timothy Gardner, an associate professor at the Huntsman School of Business, and consultant Colin Wong, have delved into this phenomenon, revealing eight specific tactics salespeople use that can lead to detrimental consequences for businesses and their customers. In their article for Harvard Business Review titled “How Salespeople Game the System,” Gardner and Wong illustrate the complexities that arise when incentive structures fail to align with ethical business practices. This article explores their findings and offers guidance for leaders seeking to improve their incentive programs while safeguarding their organizations.
The Nature of Sales Incentives
Sales incentives are structured to reward employees for achieving specific targets—generally, the more they sell, the more they earn. This concept appears straightforward; financially rewarding salespeople is expected to generate a direct correlation between commission payouts and company revenue. Yet, as Gardner and Wong maintain, this system is ripe for manipulation.
Historical analysis shows that while commissions have long been utilized in selling organizations, the structures and behaviors surrounding them have evolved significantly. In the past, a salesperson's success was often measured by tangible results. However, as competitive pressures mounted and technology advanced, organizations began developing more complex metrics to measure productivity. This shift resulted in a proliferation of commissions tied to various initiatives, from customer acquisition to upselling existing clients.
While the good intentions behind these systems are evident, they can inadvertently foster an environment where gaming the system becomes tempting. Such dynamics call for an essential review of existing policies while addressing the root causes of these exploitative tactics.
The Eight Tactics Salespeople Use to Game the System
After extensive research, Gardner and Wong identified eight categories of tactics that salespeople frequently employ to maximize their personal gains at the expense of their employer. These range from the benign to potentially criminal actions:
1. Sandbagging
Sandbagging involves delaying reporting a sale until a more advantageous time, allowing salespeople to maximize commission payouts. For example, a salesperson may hold off on closing a deal in December to book it in January, potentially positioning themselves to exceed performance quotas and earn larger bonuses.
2. Partners in Profit
This tactic involves colluding with customers—advising them on how to leverage promotions that yield benefits for both parties. For instance, a salesperson might coach a customer on how to sign up for a promotional offer while planning to cancel immediately after gaining the commission.
3. Falsification of Data
Salespeople may create fictitious customer profiles or exaggerate their interactions to inflate their performance metrics. Using computer systems, they can alter data to claim sales that were never made or visits that never occurred, leading to skewed company performance reports.
4. Creating Faux Customers
Similar to falsifying data, this practice involves generating fake leads or customers strictly to satisfy incentive targets. These actions can appear innocuous but ultimately damage the integrity of sales reporting.
5. Misleading Clients
Salespeople may misrepresent product capabilities or availability to close deals quickly. For example, a salesperson might lie about delivery dates or features, enticing customers to finalize purchases they might have deferred had they been aware of the truth.
6. Excessive Discounting
Under intense pressure to meet sales quotas, some salespeople might offer steep discounts that outweigh potential revenue gains. By giving away too much in order to close a deal, they may contribute to detrimental long-term consequences for their organization.
7. Gaming Earnings Reports
Sales professionals may manipulate the timing of their sales in reporting, creating a façade of high performance that can influence their commissions and overall evaluations.
8. Cultivating Favorable Relationships
Salespeople might develop relationships with internal stakeholders who influence commission approvals. Networking within the organization can mean that favoritism reduces accountability, allowing for exploitation of the incentive structures.
Unintended Consequences of Exploitative Incentives
The tactics employed by salespeople reveal a troubling reality within organizations—the pursuit of profit can lead to ethical shortcuts that undermine long-term sustainability. While sales commissions are designed to incentivize hard work, these strategies can adversely affect company culture, inflate operational costs, and ultimately erode customer trust.
Financial Impact
The most significant consequences of these behaviors include inflated costs and decreased profitability. For example, if salespeople engage in excessive discounting to close deals or collude with customers over promotional offers, the organization can incur losses that far exceed the anticipated benefits of increased sales.
Damage to Company Reputation
Ethical breaches can result in reputational damage that deters potential customers from engaging with the company. Clients who feel they were misled or pressured into a purchase may choose to seek alternatives, contributing to negative long-term implications for the brand’s credibility.
Internal Discontent
When a few salespeople game the system, it creates friction among the sales team. High performers may feel demotivated if they perceive that their own ethical behavior is undermined by colleagues who exploit the incentive structure. This sense of inequity can lead to higher attrition rates among top talent.
Recommendations for Company Leaders
In light of the potential damages fostered by inappropriate gaming of sales incentives, Gardner and Wong provide actionable recommendations for corporate leaders aiming to refine their incentive systems.
Identify Vulnerabilities
Company leaders should systematically review their incentive programs to identify points of vulnerability. Understanding the eight tactics that salespeople might employ is crucial. For instance, employing data analysis can unearth patterns indicative of sandbagging or excessive discounting practices.
Audit and Monitor
Regular audits of incentive plans can deter exploitative behavior. Monitoring sales data for irregularities and inconsistencies can help identify potential areas of gaming.
Foster a Transparency Culture
By encouraging an open dialogue about the ethical considerations surrounding sales practices, organizations can create a culture predicated on accountability. Employee surveys, feedback sessions, and regular trainings can help promote transparency and deter unethical tactics.
Design Incentives Mindfully
Incentive plans should be designed to minimize room for potential exploitation. This could entail balancing commission structures that protect the company while motivating sales staff, establishing firm guidelines surrounding discounts, and assessing the impact of customer-oriented promotions.
Embrace the "Immoral Imagination"
Gardner and Wong coined the term "immoral imagination" to describe the cognitive ability to anticipate how others might manipulate systems. By engaging in this practice, management can craft incentive systems aligned with organizational goals while anticipating how motivations may lead to unintended behaviors.
When Tolerating Gaming is Beneficial
While vigilance over incentive exploitation is essential, Gardner and Wong note that certain activities may be tolerated to maintain morale and productivity within sales teams. For instance, sandbagging, the practice by which salespeople hold sales for future reporting, often carries low financial impact yet significantly boosts salesperson morale. In such cases, company leaders might find it prudent to overlook minor infractions rather than risk upsetting the entire sales structure.
Conclusion
The intricate landscape of sales incentives reveals a dual-edged sword; rewarding performance can drive revenue growth while simultaneously fostering unethical behaviors with potentially damaging consequences. As organizations strive to harness the power of sales commissions, understanding the underlying dynamics of human behavior and the potential for exploitation becomes vital.
By employing the insights shared by Gardner and Wong, business leaders can navigate the complex realities of incentive systems, designing programs that align with both company goals and ethical standards. Crafting a transparent, accountable environment can ensure that sales teams operate from a foundation of integrity—ultimately contributing to sustainable business practices and fostering long-lasting customer relationships.
FAQ
What are the most common tactics salespeople use to exploit incentive systems?
Salespeople commonly engage in tactics such as sandbagging, creating fake customers, falsifying sales data, and misrepresenting product features to exaggerate their performance metrics.
How can companies identify when sales incentives are being gamed?
Companies can track metrics such as sudden spikes in sales at the end of reporting periods, consistently high numbers of account closures shortly after opening, and frequent reliance on excessive discounts.
Is sandbagging always harmful to the business?
While typically low in financial impact, sandbagging can be tolerated as it helps salespeople maximize their earnings without causing significant detriment to the organization.
What ethical practices should companies implement to prevent gaming of sales incentives?
Promoting a culture of transparency, conducting regular audits, incorporating feedback mechanisms, and designing incentives mindfully can significantly reduce the risk of unethical sales behavior.
How do I address sales incentive structures that have been in place for a long time?
Changing ingrained incentive structures requires collaboration with sales leadership, transparent communication, and an understanding of potential risks associated with both maintaining and altering existing practices.