“If the only reason somebody is selling your product is to snag a commission, perhaps you’ve hired the wrong salesperson.” -Daniel Pink, Drive
There seems to be a consensus that salespeople are merely coin-operated and driven solely by money. “If you increase commissions in the comp plan, salespeople will produce more,” has become conventional wisdom. This is a strongly held belief that may hold true for some salespeople, but those aren’t the people you want selling your product.
Team Sales Quotas: Compete With Rival Firms, Not Peers
A team goal runs counter to the conventional wisdom of paying sales superstars more than their peers. But early on with only a few salespeople, a leaderboard doesn’t make much sense. Collaboration is more important than competition. Experimentation and knowledge sharing is key when you’re trying to find product-market fit, developing the sales process, and learning how to sell. If someone discovers a new use case, marketing material, or best practice you want to incentivize ubiquitous information sharing. A team goal aligns incentives to support knowledge sharing. Under an individual goal there is no incentive, and even a disincentive, to proactively share information. Individual goals can prohibit knowledge transfer among the team, decelerate the refinement of your sales process, and spawn a distrustful culture.
Competition shouldn’t be with peers, it should be against the rival firm. How can a team be united in their effort to win against a competing company when they are just competing among themselves for individual commissions? In a study on bonuses from business and psychology academics, the authors describe how individual bonuses can decrease team morale and trust, “Rewarding individual employees can produce negative outcomes by eroding workplace cohesion, as employees become reluctant to share information with others even at the expense of reduced team output. Relative comparisons at the individual level create competition which results in decreased trust, sharing, and teamwork.”
Team quotas also create selectivity in who joins the team. If during an interview you tell a sales candidate that the sales team is compensated under a team goal, the team player will self-select in and the individual star will opt-out. “Firms using teams may attract a different quality workforce than firms that rely on individual production,” write Washington University of St Louis researchers in Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation. While managers should hire a diverse team and reject the homophily bias of hiring in their own shadow, the common ethos of everyone on the team should be an appetite for teamwork and a shared mission.
A Shared Purpose
Individual quotas force a salesperson to think, “How much more do I need to sell to hit quota?” Team quotas change the question to, “Who on my team do I need to help to ensure the success of our shared mission?” A shared purpose with team goals will unite a group and motivate employees to help teammates who are struggling. These superordinate goals have been shown to unite subgroups that initially distrusted each other and became willing to cooperate and interact productively.
A shared mission motivates people to do their best work. In Herzberg’s seminal HBR paper, One More Time: How Do You Motivate Employees?, his two-factor theory of motivation describes two types of influences in job satisfaction: (1) Hygiene Factors, and (2) Motivators. Motivators yield positive satisfaction, while hygiene factors don’t lead to increased satisfaction, but the lack thereof will yield dissatisfaction. Examples of hygiene factors include salary, benefits, or job security; they are basic needs employees have but an increase in them does not increase motivation. If you have a top health insurance plan it doesn’t make you work harder, but if your health plan is poor it can sour you towards your employer. True motivators that spur higher performance include a shared purpose, responsibility, a sense of belonging, autonomy, and recognition. Consider Herzberg’s theory mapped against Maslow’s Hierarchy of Needs.
A great salesperson won’t work harder, and help you build an organization, because of hygiene factors (e.g. a commission-heavy compensation plan). The great salesperson will produce an outsized effect on the organization when they have motivators like a shared purpose (“you are setting the cultural foundation for a world-class sales organization”), autonomy (“pricing strategy is up to you”), and meaningful work (“our mission is to change this industry”). No hygiene factor, including an accelerated compensation plan, will create peak performance from a great early salesperson the way motivators will. If anything, heavy accelerators will incentivize self-interested rather than team building behavior.
One criticism of team-based compensation is the free rider problem. Free riders can be prevalent in a large group, but in small teams the inherent peer pressure doesn’t allow the free rider to shirk their duties. The authors of Productivity Dynamics, Performance Feedback and Group Incentives in a Sales Organization write, “If workers are sensitive to comparisons with their co-workers, social appraisal, and the pressure to perform that naturally arise when collective achievements determine worker pay…there are many motivations (altruism, guilt aversion, shame, a longing for positive social appraisal, etc.) that induce individuals to exert extra effort to avoid letting down their team.” The fealty a salesperson has to the group and shared mission is a stronger motivator to perform than an individual commission.
Team-based compensation starts to break not because of free riders but because the size of the team diminishes an individual’s ability to have meaningful impact on their peer’s performance. In a small team of a few salespeople the top performers can share know-how and elevate everyone’s performance to achieve the team goal. As the sales team grows, the top performers will have their compensation dragged down by the underperformers. Consider when a sales team opens a satellite office in a new country. It is a lot harder for the original core team to have the same direct helpful influence across time zones and geographies with the new satellite team.
When the team goal starts to break, you can start shifting the variable component of compensation from 100% team-based to 75% team and 25% individual, and then to 50% team and 50% individual. At scale, a star salesperson can’t influence all of their peers, but in the early days, a team goal is an effective tool for creating a winning culture.
Scaling The Team-First Culture
Hiring for team players early, and uniting them with a team compensation plan, will have a long-term impact on the future culture of an organization. When the organization scales these original salespeople become managers and amplify the skills that made them successful to their now more siloed teams.
As a member of the team that scaled Cloudflare’s sales organization, we had a critical decision of whether to hire managers externally or promote from within. Because of the knowledge sharing culture, the internal candidate brought with them a wider lens of experience (e.g. competitive deal dynamics, internal coordination with product and engineering) to share with their own new hires and make them successful in all areas (e.g. sales calls, technical expertise, internal approvals) over an external candidate who wouldn’t have this tribal knowledge. The holistic institutional know-how, accumulated from team information sharing, is crucial in a technical b2b sale where enablement can be a prolonged learning curve for new hires.
By starting a sales team with team-based compensation, underlining a shared purpose, and providing true motivators the team will collaborate as a collective unit and intrinsic motivation will spur superior performance. Managers in early stage sales teams should be thoughtful about how to facilitate peer interactions and reinforcing a mission-driven culture that drives teamwork. As an early stage startup trying to build a repeatable sales process, a united team motivated by building a world-class organization will outperform a group of solo superstars who want to make a commission.