Incentives really do make the world go round

I have personally worked within 10 different commission/ bonus/ management incentive schemes in everything from agile scale-ups to global listed firms. I have devised and implemented yet more performance related compensation (PRC, is "perk" too confusing a pronunciation?) schemes and - for the same reasons that every one of your staff has - seen and discussed many, many more. None of them were perfect but there are common threads to those that I felt emotionally attached to and found most inspiring. The best were:

• Unambiguous performance drivers

• Clearly aligned to company goals

• Supportive of other departments

• Simple

Each of these elements is critical to success and could be framed as the most important factor ~ so, in no particular order...

What exactly are you incentivising?

Given the clue in the name, it seems obvious that PRC should drive performance, but SaaS is awash with compensation plans that motivate in theory but fail in practice. Getting this right involves one of the most critical customer success disciplines, effective expectation (target) setting. Performance is inherently measurable and most PRC plans are linked to a target of some kind (net dollar retention, customer results, expansion, advocacy etc) and selecting a target that drives performance has to be both achievable and ambitious. Setting a target that is either too low or too high can only drive under-performance either sending a message that complacency is acceptable or that success is not expected.

When clarifying what good performance looks like be cautious about the rubicon between driving performance and driving-out non/under-performance. The distinction is subtle and important to inspirational messaging: reward brilliance not the absence of incompetence.

I have seen a few schemes where both sales and customer success managers were able to make a very good living while meeting the barest expectations and even where the company itself was making nothing from qualifying work. In practice this looks like excluding a quality baseline on performance whether that's on terms, target, margin etc. This both undermines the concept of positive reinforcement and leaves no room for reprimanding all but the most egregious examples of crummy deal-making.

Recognising the role incentives and their related targets play in communication and culture building is important. For example, what behaviour is desired of a team member who has hit the maximum level of a capped PRC plan? If the answer is not, take a well earned break, then the scheme is setting an inconsistent expectation and potentially eroding company culture.

A final point on defining what performance looks like, it's important to note that this will change. In his excellent article "The right way to use compensation", Mark Roberge outlines how PRC for the sales organisation at HubSpot evolved to meet hyper-growth, retention and sustainability requirements. He outlines how they evolved what performance looks like, ensured that the only way to achieve a high PRC was to change approach and is unapologetic outlining how continuing with a 'business as usual' approach, would result in reduced, or no PRC.

What aren't you incentivising?

PRC is primarily a motivational tool which as is demonstrated by Simon Sineck and myriad management studies; starts with Why. Given the unique power of incentives to inspire innovation and tenacity in their pursuit, it is a fantastic idea to align them with your company why. Failing to align your PRC scheme with ultimate, shared objectives is at best a missed opportunity and at worst, actively undermining your ultimate objectives.

This doesn't mean everyone has the same scheme or is measured in the same way but if you've been through the process of unifying the business around a particular vision and purpose, ensure that PRC supports it. Having teams of individuals overly focused on objectives that do not enable and encourage the spirit of the whole will create a cultural competition that PRC will ultimately win.

Customer success that builds sustainable growth is not just a team or even a collection of them but the combined priorities and behaviours of the business as a whole. A properly-aligned PRC is the fastest way to bring a fully realised customer success strategy online. Ask yourself what a given team or individual might do to have the biggest impact on long-term, customer-led growth (customer KPIs, early or multi-year renewals etc) and what they could do to undermine it (erode margin, make inappropriate promises, renew late, agree unreasonable terms etc) and build a plan that is mutually exclusive of these behaviours.

How are you incentivising?

Many, if not all, professionals that qualify for PRC are competitive and (despite being very often a matter of individual performance) pay close attention to the plans their colleagues have (both in and outside of their immediate team). Which prompts two further considerations:

• Privacy

• Intra-team alignment

Unlike most charities, listed companies and all government departments, remuneration is a little taboo in start- and scale-up SaaS. I've lost count of the number of contract provisions I have seen that prevent the discussion of pay with any other stakeholders. They are however, universally impotent. I have never worked at an organisation where most members of staff didn't have a good idea of the take-home of others and an exact understanding of how all of the (non-exec) PRC schemes around the business worked - even the one-off exceptions are quickly uncovered (the Calatrava's are a dead giveaway). Whether you publish them or not, assume PRC plans are public and design them accordingly.

As an extension of aligning to shared objectives and amplified by the discussed lack of privacy, PRC schemes (like all customer success initiatives) live in an ecosystem. Again, this doesn't mean that all measures, schemes or OTEs need to be the same (or even similar!). Different roles do and should pay differently, they have different expectations, risks and levels of control but they must support the whole. PRC plans are all-to-often the source of friction between business units either by encouraging unhealthy competition or poor practices that will be resolved elsewhere. In both scenarios the issue is cross departmental and toxic. PRC schemes need to support the proper delineation of responsibilities actively removing the temptation to eat a non-competing colleagues lunch and acknowledge the way results are achieved.

Simple, not easy

In my experience no matter how capable or driven a person is, the one thing they do better than anyone else is pursue the incentives that mean the most to them. There is a world of important discussion to be had about incentives that take the form of time, work/ life balance, recognition etc but this blog post is focused on financial rewards and competitiveness is especially true of commercial (so... all?) CS. Eventually, every user of your PRC scheme will work to exploit it, if it can be gamed then you had better believe it will be.

Given the need to acknowledge how results are achieved and the complexity of modern business it is unlikely that a new PRC scheme will be a simple flat rate of commission. There is also solid research to suggest that PRC scheme with multiple aspects and triggers will resonate with and motivate different members of the team. Whether you need multiple schemes, accelerators, claw-backs etc - eradicate ambiguity and be extremely skeptical about the need for exceptions.

Ambiguity and complexity can lead to confusion which initially stunts motivation. Worse yet, the confusion is followed by layers of enlightenment revealing loop holes and unintended, occasionally costly, consequences. Like water following the path of least resistance, staff take the shortest route to maximum PRC. Unlike water, it doesn't matter if this is the path of least resistance... or even the most resistance.

In summary, the search for resonance, alignment and simplicity in designing your PRC scheme is not easy but it's too powerful a tool to neglect.

But process can be broken down and assessed as you go, I've detailed some of the key considerations and rules of thumb I use to ensure I'm track as a develop a PRC scheme. I hope this is useful and wish you every success as you create and align one of the most powerful tools for delivering customer success strategy.

Further reading:

• Start with Why, Simon Sineck

• Who Moved My Cheese, Dr Spencer Johnson

• The right way to use compensation, Mark Roberge

• How to really motivate salespeople, Doug J Chung