Do you set goals for yourself and others? Better yet. do you set stretch goals and standards for productivity and efficiency? It is a well-known fact that most people strive to attain things if there is a reward in it for them. If there is no reason to exert oneself, they will be satisfied to level out at some middling of performance and not push themselves beyond their comfort zone.
And everyone’s comfort zone is different. Some people just want to earn enough to pay their rent or do just enough to not get fired. But fortunately, most people want to do more than just survive and actually have a dream — be it getting a larger apartment or buying a home, or earning a promotion instead of simply avoiding being fired. These people are looking for job satisfaction, recognition, competitive instinct or more money. People usually respond really well to more money. This is the concept of striving for stretch goals vs. complacency.
Let’s consider a business developer. This person should not be complacent; they are typically results-oriented and strive for success and higher earnings. If they do not have these traits they might be better suited as an order taker or processor. As someone who is financially motivated, the higher one sets their goal the more they will strive to achieve them. And if they don’t fully achieve them, they will at least earn more then if they did not stretch in an effort to reach them.
Let’s assume that a person’s earnings were tied to gross profit (GP) and their norm is generating $1 million in GP at a 2% commission rate, or a $20,000 incentive. To encourage them to produce more, a sliding commission was put in place where each additional $500,000 in GP would earn an additional 1%. Thus, they would earn $25,000 in commission if their GP rose to $1.5 million and $55,000 if their GP rose to $2.0 million. Doubling their GP would net then $35,000 more. If we did not have such a sliding scale, they would have earned $40,000 in commission.
Interestingly, the blended commission rate on $2 million in GP would only increase from 2.0% to 2.8%. A driven person would still try to produce more, but may or may not work quite so hard if there was a greater premium placed upon doubling his performance. He might even look for a higher commission elsewhere; the company should realize that this person might just be worth the additional payout and that this would be a win-win situation for them and the company.
Stretch goals not only work but are self-compensating: no increase in GP, no increase in commission. A stretch goal combined with a sliding commission scale can motivate driven people to run the extra mile. Clearly, the economics must be cost justified when creating any such plan.