Archive for the ‘Ask the Expert’ Category

Spiffs, Bonuses and Contests – Ask the Expert #3

April 17, 2008

In this 3rd installment of David Cichelli’s “Ask the Expert” series on this blog, I asked David about his thoughts on spiffs. I asked him if it was possible to use spiffs while avoiding encouraging employees to push a certain product upon a customer at his or her expenses. I also asked David if there was such a thing as too many spiffs. Previous posts of this series are here and here.

Before going into David’s answer, I want to give a bit of background regarding what is a spiff.

SPIF (or SPIFF) may stand for “Sales Performance Incentive Fund”, “Special Performance Incentive Fund” or ” Special Performance Incentives for Field Force”. The exact origin of the term is open for debate. Wikipedia defines a spiff as a small, immediate bonus for a sale. They can be paid by a munufacturer or the employer, to the salesperson who sold a specific product.

I have seen spiffs used in several scenarios such as when a manufacturer wants to gain market adoption with a new product, when a retailer wants to liquidate some of its inventory, to incent sales people to sale certain combinations of widgets, etc. The goal is always to have an immediate impact on sales force behavior. Of course, spiffs are not without their own pros and cons, but they can fit nicely within a compensation strategy.

Here is what David had to say about spiffs:

Julien, you might want to check the spelling of “spiff.” I spell it with one “f.” It means Special Performance Incentive Fund. Check Wikipedia for a nice discussion on the spelling. [Sorry David – I’m sticking to spiff for now, so far I’ve seen it spelled this way more often than “spif”].

First of all, I consider spifs, contests and campaigns an integral part of the sales management’s tool kit. Here are the rules for appropriate use of these programs:

  1. Budget of all programs should not exceed the total earnings of the sales force by 3% .
  2. Spifs should be used for “doing something new for the first time.”
  3. They should not be used to spike performance during a period.
  4. They are narcotic in nature: the more you use them the more you need to use them. Moderation of use with healthy hoopla is the best prescription for success.
  5. Avoid the use of “chance” to determine winners and payouts–it ‘s unethical to do so: this is an employment relationship, not Las Vegas.

Ask the Expert – Biggest Challenges in Sales Compensation

March 21, 2008

Here is the second installment in David Cichelli’s “Ask the Expert” series on this blog. The first post and David’s background information are here.

Question: What are in your opinion the biggest challenges in sales compensation. Is there a key to success?

Answer: Well, I could write a book on this subject. Sales compensation is a very noisy device. It is hard to establish, keep current and administer effectively. We find that sales compensation programs tend to fail due to:

1) Obsolescence. Sales compensation plans must be continually updated to help maintain strategic alignment with the company’s goals. Most sales compensation specialists consider an unchanging sales compensation plan as a failure of sales management.

2) Complexity. The sales compensation plans are an easy “mark” when sales management is looking to get the attention of the sales force. However, too many measures—more than 3—doom a sales compensation program as it becomes overly complex.

Ask the Expert – Pros and Cons of Variable Compensation

March 14, 2008

I recently asked several sales performance related questions to David Cichelli, author of the popular book “Compensating the Sales Force“, a national expert in sales compensation and the sales compensation practice manager at The Alexander Group. He was kind enough to share his expertise with me, and to allow me to share his insight on this blog. Thanks again David for your time.

Question: Several readers end up on my blog by trying to find an answer to the pros and cons of variable compensation. You begin your book with an affirmation that ‘sales compensation works’. What are your thoughts on the pros and cons – the rewards and benefits versus the risks. If it is a fact that pay for performance works, why are not all companies adopting such a system.

Answer: Companies use a wide variety of incentive compensation programs for a diverse array of jobs. Incentive compensation continues to be a mainstay of contemporary management practices. Sales compensation holds an almost legendary status as an expected part of the employment equation. However, sales compensation is a management choice. It’s neither a birthright nor a requirement. In fact, in my view, sales compensation programs are cross elastic with supervisory practices. Frankly, a well-supervised work force does not need an incentive program to be effective, and that observation is true of sales compensation. But, its use is widespread and prevalent. Almost 85% of all companies with sales personnel provide a reward program tied to sales results. A famous—if somewhat inelegant—argument was made against incentives by the author Alfie Kohn in his book “Punishment By Rewards.” But, generally, most sales management teams believe that incentives help bring focus to the efforts of a dispersed workforce…the sellers of the company.