Centralization for setting and rating objectives is crucial. Well-designed objectives can be integrated with a rating scale that allows management to differentiate performance and reward each group based on performance against agreed-on objectives (see Figure 2, click on figure for larger view).
Managers can become frustrated with what they perceive as a “pay everyone the same” culture and an unmotivated sales force with MBOs. A rule of thumb is to have each objective account for at least 10 percent of total compensation. It is important not to overload an MBO plan with objectives.
At the heart of developing strong objectives are methodologies like the SMART framework, which help ensure that goals are Specific, Measurable, Attainable, Results-oriented and Time-bound. Because the “objectives” part of MBOs strike some managers as amorphous, they might not put enough effort into developing them. Incentive plan designers might overlook the need to develop clear and tangible Measurable as possible (see Figure 1, click on figure for larger view). The goal is to create objectives that are as close to being It is important to be as results-oriented as possible in designing objectives. If a company can measure performance based on results-and sales representatives’ actions affect results directly -it should probably go this route and Some organizations rely on MBOs unnecessarily when sales might be a better measure of performance. By bringing the whole team together, the company can establish a consistent approach to try to ensure comparable and fair measurements. Because many companies already hold group sessions each period to review and create business plans, extending the meeting two hours to create MBOs is an excellent use of time.
A collaborative workshop-in which managers work with the sales force to define “good” objectives-is an extremely effective means to gain employee acceptance and ensures objectives meet local needs. In order to put its MBO plan on a solid footing, the company implemented its plan in five steps, which are applicable for any company considering an MBO-based plan: With a long sales cycle and a customer base that needed to be built from scratch, salespeople would have to educate and build a business case to prospective customers (but not necessarily log early sales). In this case, an MBO-based incentive plan was a good fit. Salespeople would play an enormous part of the launch’s success or failure, yet a traditional incentive plan (based on sales numbers) would not reflect the sales force’s efforts during the product’s introduction. The company would not generate immediate sales, and the sales cycle for a single customer could take multiple quarters. Take, for example, a technology company preparing for its first product launch targeted at enterprise customers. When a product sales cycle does not fit a quarter or even a year conveniently yet the company still must motivate its salespeople via incentive pay.In engagements that include team selling.When promotional activities like direct-to-consumer advertising affect sales results, such as consumer products representatives selling to major chain stores.When a company has indirect or insufficient data that limit the ability to measure individual sales performance.Well-designed MBOs are an excellent means to motivate and retain the sales force under certain conditions: But when the situation calls for them-and when they are designed and implemented properly- MBO-based sales compensation plans can be powerful tools for motivating and retaining the sales force. We have seen some of these issues materialize with MBOs and realize that MBO plans are not always the right solution. These features make MBOs an effective way to motivate the field when other methods are ineffective or insufficient.ĭespite MBOs’ great utility, plan designers might find MBO plans too vague or difficult to communicate to the field, fear that they will “pay everyone the same” or worry that MBOs will create major administrative headaches. MBO-centric sales compensation rewards salespeople for meeting objectives rather than (or in addition to) exceeding sales quotas. Or a traditional plan might not work when companies need to give incentives for actions outside of sales. But companies might have difficulty motivating and evaluating the sales force with a “traditional” plan because they lack proper data to measure sales. Management by objectives (MBOs): not everyone likes them, but almost everyone will have to consider using them at some point.Ī sales compensation plan should motivate the entire sales force, retain top performers and pinpoint weak salespeople. There are two sure things about compensation plans based on