Your team had a heated argument on adopting OKR (Objective Key Result) or maintaining a perfect KPI (Key Performance Indicator). You know how to train your salesman, but the issue is that the sales commission is either underpressure for new recruits or it is too easy for old dogs. Your old dogs never seem to turn out to help your new sales staff, and you see this as a big stumbling block to grow your revenue. So, can you change human behaviour by changing the commission system? Imagine you are the bus driver and the turbo engine is the self-motivated commission plan – you can bring anyone to your destination faster than other buses, your passengers’ responsibilities are to brace themselves and remain buckled up in their seats.
Franklin, who owned five branches of a franchised tuition centre, had problems motivating his sales staff and teachers to bring more revenue to his business. He asked a CFO to help restructure the commission system to align with the company target. Instead of doing directly as per requested, the CFO asked Franklin to research on the first psychologist of systematic studies. This was a Harvard professor named Robert Rosenthal, who in 1964, conducted an fascinating experiment at an elementary school located south of San Francisco.
The idea was to figure out what would happen if teachers were told that certain kids in their class were destined to succeed, so Rosenthal took a normal IQ test and modified it as a different test. Rosenthal discovered that the teachers' expectations of these kids really did affect the students. If teachers had been led to expect their students to have greater gains in IQ, then surprisingly, students tend to score A’s and B’s. On the contrary, if teachers believed their students have low IQ, their students would result in scoring C’s and D’s. As Rosenthal did extensive research, he found that expectations do affect teachers' moment-to-moment interactions with the children they teach in almost a thousand invisible ways. Teachers believe that the delivering of good results are due to the presence of such high IQ students. So, is this why traditional methods of revenue multiple percentage, e.g. sales collection x 5% equals to sales commission, not sufficient in motivating the sales staff?
A simple logic formula can represent this phenomenon, as per provided by the CFO in the form of R > C > E:
Reward = Recognition and prize
Cause = Desired result
Effort = Behaviour and attitude
The Cause is the target agreed or the job performance required by the management. The company will pay out in the form of commission.
The Effort is the action executed by the sales staff, that is by being hardworking and to be moment-to-moment interactive with customers.
In a business, there are three categories of logic to drive a business in the direction you desire. First of all is personal behaviour and this has to be aligned with the company's core value. Secondly, personal performance and lastly, is team work. When this 3 logic works according to your business activities it will achieve goals and more profit.
As boss, you can actually feel it when your people are putting in effort into what you told them to do. You can really sense it, whether it is 100% or even 20%, don’t you? Their levels of effort can be translated into the following:
0% = I don’t give a f--- about what you said, I don't need that!
20–30% = I think about what you said, but I cannot remember what it was after a week.
50% = It is good to have it, but the best way to get it is not necessarily by fighting for it.
70–80% = I will definitely work hard for that, but it still depends on luck.
100% = I will sacrifice everything to make it happen for you boss!
Nevertheless, each level of effort should be celebrated with rewards.
Now, how do you build a commission system that instils motive to your sales staff? If you are changing the cause only, they will not be motivated, e.g. an double the commision from 5% to 10%. In addition to this, if you are changing the effort only, they will not be motivated, e.g. asking them to do more sales calls. Therefore, all you need is to determine the gap of both logics and levels to motivate them, that is changing the tension structure of commission. In essence, changing the commission system is changing behaviour.
Step 1: Identify the Cause of the three logics.
1. Logic 0: Behaviour
The activity and action that is desired by you to be aligned with company core values has to be set. For instance, requesting employees to be punctual and accomplishing tasks within key result areas. Do take into account the sales, operation and support staff, because it is the measurement of compass.
2. Logic 1: Personal Performance
The individual target that needs to be accomplished by the sales and operation staff. You should not include support staff in this category, because their performance is an impossible measurement of stopwatch.
3. Logic 3: Team Performance
The group target that needs to be accomplished by the team or department. This is the most important logic to measurement of stopwatch of the entire team – like a relay race, where teamwork is needed.
Step 2: Design Efforts with five levels to form an expectation gap.
Level BE
You : The cause must break-even with the cost of business.
Staff : If my effort is less than this, will I be fired?
Level 1
You : 20% effort with limited belief.
Staff : I know what to do, but I cannot do it.
Level 2
You : 50% effort to get the reward.
Staff : I can do it, only if ……
Level 3
You : 80% effort to accept the cause.
Staff : I want to do my best but …..
Level 4
You : 100% effort to achieve the rewarding cause.
Staff : Hell yes, I'm doing it!
Step 3: Establish the Logic Reward into each level.
Each logic must have a break-even point, where you set the minimum expectation and reward as your cost of business. Beginning the design with the Cause in mind. It is so important that you do not lose money, as each level of achievement from them is an extra profit for you For example, the maximum pay based on Logic 0, which is for good behaviour is RM1,000 (i.e. Level 4 is RM1,000, Level 3 is RM800, Level 2 is RM500, Level 1 is RM200, and Level BE is RM nil).
Another example is that if you set the maximum commission percentage is at 15% of sales, then Level 4 is 15%, Level 3 is 12%, Level 2 is 8%, Level 1 is 5%, and Level BE is 2%.
The example of Franklin’ new sales commission system was designed by the CFO by implementing the Logic Level Commission™.
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So, your company may have less staff, and you decide not to be too complicated. Hence, you could easily apply the concept to only use Logic 0 and Logic 1, and you could also reduce the effort from Level 4 to just Level BE to Level 2. It is essential to apply concepts which suit your business best. As long as you are certain of your break-even point of reward and the maximum costs you could bear, concepts you should apply remain the same.
Franklin is now an expert in designing the gap of expectation after he realises the cause of motivation. He would create an easy Level 1 and Level 2, celebrate efforts with a small win, and curve up to Level 3 and Level 4 to make it more challenging for the teachers and sales staff. Their expectations would now be “I have achieved Level 2, and with a bit of extra could actually achieve Level 3! So, I am doing more NOW!!”.
In the circumstances of you needing a CFO to restructure your commission system, do not hesitate to secure an appointment with me. Just email me at cfostan.asia@gmail.com.
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