Santa’s View on Pay for Performance

By Jason Kearns, Canidium, and Scott Barton, NewSigma

It’s the most highly anticipated time of the year: year end, holidays, bonuses and token gifts. This year, many cash-hording companies will open their purse strings to say thanks to their overworked masses. It takes the form of monetary bonus, gift card or Honey Baked Ham. IKEA recently announced that it was gifting all employees a new set of wheels (two per, to be precise, 12,400 sets of bikes total in the US alone).

http://www.msnbc.msn.com/id/40641253/ns/business-going_green/

The uniqueness and relative infrequency of these “gifts” make them special. A smart organization can realize and expect benefits from seemingly random acts of kindness that far exceed the initial investment. No surprise that Tammy happily put in her whole Saturday after receiving that $10 Starbucks card.

Whether it’s a card, check or Christmas dinner, by giving the gift the company says and ideally the employees hear some very positive stuff:

• We are a strong company.
• We care about our employees. Even at the expense of our bottom line.
• We value your loyalty.

In the context of a total compensation package, holiday bonuses for most companies are a footnote. But start a rumor of empty stockings this year and get ready for mutiny. It’s as if some employees would rather have the annual Butter Ball than this year’s merit increase, regardless of the incremental number of birds such merit would procure. We savor our traditions.

For our purposes of sales force effectiveness, what is the value of extending unconditional holiday gifts to the sales individuals who presumably already qualify for bonuses throughout the year?

Sales people are motivated by compensation and they are compensated based on performance. Is there value to treating sales people as “normal” employees for this annual occasion?

The negative argument is made by the economist posing as a psychologist. Sales people won’t appreciate a token award. They already strive for significant performance awards and they’ll view a small gift as an insignificant gesture. Besides, sales people get rewarded for company success as a direct result of their performance. Token gifts are a waste of money.

The positive argument is rooted in culture. Gestures of good will pay forward — employees say good things about the company to each other, their friends and their family. Sales people speak of the company favorably to their “family”– the company’s customers. A united culture drives teamwork and overall performance. We’re all in this together.

As you consider that holiday-gift line item tied to the sales segment of your employee population, think about the degree to which your sales culture represents the company culture at large. Even within the sales force you may have different animals: field sales, inside sales, technical sales support, and so on.

Are we splitting hairs? Who wouldn’t appreciate a holiday ham? We argue that sales people are different based on their expectations of pay for performance. There’s less risk of entitlement coming into play, and more danger of mixed messages when you award the low performer that special gift. How would the accompanying note read? “We made our profit target despite your weak contribution,” or, “Thanks for your poor performance.” There’s a chance that your gift giving to low performers could alienate your super stars. After all, even ole Saint Nick himself discriminates between the naughty and nice.

If we could put a bow around this topic, it is that whether or not they view themselves as different, your sales people are, or rather should be, treated differently from those who don’t have pay at risk and generally have no idea of their overall worth to the business relative to their pay. Intrinsic rewards certainly have a legitimate place in the sales performance management portfolio; how you play that gift card requires more thought for those employees with a direct connection to the company’s top line.

This post represents the first is a series published in conjunction with New Sigma, a sales compensation planning and sales operations improvement firm.