Fairness matters to salespeople. Research conducted by University of Houston professor Mike Ahearne proved that eliminating overachievement rates and capping payout in the sales comp plan will result in reduced revenue. Even some studies and research in the animal kingdom can be used to better understand salesperson behavior. One study done with capuchin monkeys (which scientists value for their similarity to people) may shed some light on a fundamental part of human (and salesperson) behavior: their strong desire for fairness.
That rings true, in our experience. When we conduct focus groups with our clients, we often hear fairness raised as one of the biggest complaints:
- “I’m not paid fairly compared to what I can earn out in the marketplace.”
- “I bring in twice the revenue as the average salesperson but don’t earn anywhere near twice as much. It’s not fair.”
- “My quota is not set fairly. I get penalized in my quota for having a breakout year last year.”
This strong need for fairness is replicated by capuchin monkeys. Researchers at Emory’s Yerkes National Primate Research Center tested this by creating an economic trading environment in which the monkeys were given rocks and were taught that if they gave the rocks to the researcher, they would receive a cucumber slice in return. The researchers were successful in establishing this economic transaction: 95 percent of the monkeys were willing to trade a rock for a cucumber slice.
In the next phase of the experiment, researchers changed the transaction so that it was now “unfair”. In exchange for the rock, some received more appealing rewards (grapes) in full view of those monkeys that continued to get a cucumber slice. Participation among those offered a cucumber suddenly dropped to 60 percent. The economic transaction hadn’t changed for them – a rock for a cucumber slice – but the sense of equity had. More than one-third of previously cooperative monkeys opted out when they saw their “peers” receiving a tastier (and therefore greater) reward for the same effort.
In the final step of the study, some monkeys were rewarded with grapes for doing nothing at all. The degree of unfairness had gone up (others were getting a greater reward for lesser effort), and with it, the willingness to participate had decreased for those treated unfairly. Now only 20 percent of monkeys were willing to trade their rock for a cucumber slice.
The same is true for humans. If any inequality exists, salespeople sniff it out quickly. We have even seen salespeople quit when treated unfairly, even without a better opportunity waiting in the wings. And with the cost of sales rep turnover between $50,000 and $1 million (depending on the company), you can’t afford to have unfairness in your organization (or even a perception of unfairness). Whether comparing themselves to the market or comparing themselves to peers on their own sales team, the sense of inequity leads to feelings of unfairness and a higher likelihood of salespeople resigning. To avoid this scenario, you should ensure that you’re treating your salespeople fairly, from both an external and an internal perspective.
External Fairness
- Ensure that your target pay is at the 50th percentile of the market (or whatever your stated market match comp philosophy is).
- Benchmark your highest performers to the 75th and 90th percentile of the market.
- Check your base pay levels and ensure that they’re competitive, particularly in high cost-of-living areas like San Francisco.
Internal Fairness
- Test how “even” your assigned territories are in terms of the amount of workload required and the amount of sales potential in them.
- Ensure that quotas are set so that everyone has the same ability to achieve them.
- If there are multiple sales forces with similar roles, ensure that the overall pay levels, quota achievability and upside opportunity are comparable across sales forces.
These are just a few examples of how you can ensure that your sales team is treated fairly. Addressing the external and internal fairness issues identified above, and effectively communicating that out to the field will go a long way towards improving sales reps’ perceptions of fairness.
For more on fairness and other sales compensation topics, see the new book by ZS’s Chad Albrecht and Steve Marley, The Future of Sales Compensation.
About the Author
Chad Albrecht is a principal at global sales and marketing firm ZS in Chicago and a leader in the firm’s sales compensation practice area. He is the co-author of The Future of Sales Compensation and is a frequent contributor to ZS’s The Carrot, the most widely read blog on the topic of sales compensation.
