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Welcome to the HBR IdeaCast from Harvard Business Review. I'm Curt Nikish.
Sales incentives are proven winners. It's pretty simple, really. Pay your salespeople commissions and bonuses for the things your company wants, and business and profits go up. However, when you create a game, you can game the game. Get a monthly commission? Stack your sales in one month for more money than you'd get spreading them out.
earn a referral bonus on new accounts? Well, tell clients to open one and just cancel later. No harm, no foul. These schemes can range from the innocuous to the criminal. Today's guests say that to spot and stop counterproductive sales incentives, company leaders need to learn to think like salespeople and even develop a quote, immoral imagination.
Joining me now are Timothy Gardner, Associate Professor at the Huntsman School of Business at Utah State University, and Colin Wong, a consultant in incentive compensation and sales performance management. Along with sales executive Rick Butler, they wrote the HBR article, How Salespeople Game the System. Tim, thanks for being here. Yeah, thank you for having me. Colin, welcome to you too. It's great to be here.
Colin, you study incentives in your work as a consultant.
There's that old phrase, you know, what's in it for me? When you have bonuses, when you have commissions, that's kind of clear. But it sounds like it's almost natural for people to think even more so. Like, how do I make this work for me even beyond what the company or organization intends? Absolutely. Salespeople by nature are just going to try to find the most efficient way to maximize their return on effort. So, you know, as we talk about in the paper, salespeople
some may take that to extremes that, you know, ultimately are illegal or fraudulent. But there are other cases where it's just kind of bending the rules and may or may not have significant impact on the company. Now, Tim, you did mention this term immoral imagination in the article, which I thought was kind of catchy. Can you explain that?
Several of the people that we interviewed in this project did not believe that salespeople engaged in this type of gaming incentive plan, that they felt like they were doing what they were paid to do. And anything that was against the rules was just an inadvertent violation. I have to say, I'm surprised that they're surprised. These are people in the sales field.
And what really struck us is that people who have done sales before are more likely to be aware of the type of gaming tactics that are out there. Now, that doesn't mean they themselves have games incentive systems, but they've seen it and they're aware of it.
And so I came across this term immoral imagination and it's used in the world of business ethics slightly differently. But to Colin and I, what this idea of immoral imagination means is can you look at systems, incentive systems, any type of system in existence and anticipate how someone's going to take advantage of it in some way and how there might, they might misbehave. My teasing example is that, uh,
As a teenager, my wife was a very good, obedient young woman and didn't disobey her parents. And I was a terrible young man in high school and college. Raising kids, I have a much better sense of the ways that they're going to go off track, the way they might be misleading us and things that they aren't doing. So I would say I have a much better immoral imagination. And I think this captures what sales incentive designers need to design a plan, to anticipate how people might take advantage of it.
Well, let's go through some of the most common schemes before we talk about, you know, what to do about it. We can't get through all of them. You kind of outlined eight archetypes or categories in your article. What are some of the most common ones?
I think for me, the one that jumps out the most that I didn't realize when I first started this project was this idea of partners and profit, where salespeople will sometimes actually partner with the customer to secure a deal for them, but really is going to be most beneficial for the salesperson themselves. As an example, we put in there the idea of
coaching customers to sign up for promotional deals and then coaching them on the appropriate time to cancel that deal. So they don't really have to pay anything out of pocket. The salesperson gets a higher commission and the customer gets something that, that basically came comes out as free. You know, you mentioned promotions there. That's actually kind of an incentive that companies are putting in place for consumers to,
or their clients. And then you have salespeople who are being incentivized to win sales or get their clients to open accounts or whatever it is. So you kind of have two incentives that are overlapping there. And maybe because of that incentive on the consumer side and also on the salesperson side, you have sort of extra incentive to
make that happen. The gravity is pulling that kind of behavior in. What the salesperson is doing is aligning their interests with the customer's interest, essentially bringing them behind the scenes. Here's how it really works. Here's how to maximize your benefit. I'll maximize mine. The theme here is really around unintended consequences. So
The folks who have designed these incentive plans had very noble goals of incentivizing customers or incentivizing their salespeople. But what they don't always think through is what's the unintended consequence. And as Tim pointed out,
I don't think anybody ever intended to have their salespeople partner with a customer to sort of collaborate on gaming the system. Or I don't think anybody ever intended that an airline check-in agent would use an incentive around credit cards or
to give a customer, you know, to waive the fees for their check bags. So I think that's a theme or a learning from this article is be on the lookout for those unintended consequences.
What are the unintended consequences here? Like what's wrong with that? The company is trying to get customers to sign up for something. It's rewarding salespeople to promote those products. So what is wrong with that partnership and profit? Yeah, I think the most common sort of unintended consequence would be additional cost for the company. So if a salesperson is using a customer incentive product
unnecessarily or, you know, signing up a customer who subsequently closes a product or an account, the company is incurring costs, not only in what they pay the salesperson in commission, but then the costs associated with setting up, you know, the products and the accounts. And so it sort of defeats the purpose of the incentive plan, which is to grow the company's revenues. So there are also some ways that seem to have to do with data, right?
Like sandbagging, falsifying data, creating fake customers, which gets back to the issue of kind of measuring what matters, right? Of course, sales systems rely on various data inputs to function, pay out, to motivate. And what we found is that people are not always, salespeople are not always honest with the information that they report back.
Again, it's something that we have heard of, but this was a nice way to look carefully at it, is this idea of creating false customers. I think it's much more common than people realize, and that instead of engaging with real customers for demos, for purchases, for purchase intentions,
Salespeople will take advantage of the system by creating out of thin air people, having them behave in certain ways that earns them incentives, and then having them cancel early or pull out of the process after they've made their payments. The other one is, as you brought up, is falsifying data, essentially lying to the sales management system about number of visits, where the visits are taking place.
Deals that were not actually completed, it's a complete perversion of what the plan was designed to do. Companies have to put trust in their salespeople, and falsifying data is a violation of that trust, illegal and potentially fraudulent for everyone involved. Some of the examples that you mentioned in your article were things like
Oh, employees getting relatives or friends to open accounts and then close them later. Falsifying data by putting somebody else's credit report, somebody else with the same name on a bank account or mortgage application.
And then also things like salespeople going into their sales tracking system and adding their names to deals that they really had no part in, but just to change the reporting so that they benefit more at the end of the month. And the big one that's also misleading is obviously misleading the company and the sales system, but misleading customers, lying about delivery dates, the functionality of the product, testing on the product.
telling the customers things that aren't true to encourage them to make purchases that they might not have made if they had known all the information. Well, let's talk about ways to identify these issues. What do you recommend company leaders do just to take on this mindset? And so in terms of what to do about it,
You can use the eight categories and think like a gamer would, you know, think of these different scenarios and are those potentially applicable or could those come to life in your incentive plan design? For example, if you're trying to identify maybe the faux customer scenario where you
people are making up customers and then closing the accounts or the product after some time period. If you think that might be happening, then the next thing would be to use data available from your sales tracking system or your sales management system and see if you can tease out any patterns in the data. Are there
frequent occurrences of accounts getting closed, say, 90 days after they're open because that 90-day window is how long it has to be open to receive credit. And if you see that pattern occurring, then you use the data to determine, is it widespread? Is
Is everybody in the company doing it or is it isolated to just a couple salespeople? And then the last piece, of course, is then deciding, do you want to do something about it at all? We knew when people read this, no one was going to fall out of their chair and say, I had never thought of these before. But
what this list does is it creates this full inventory of the very main, most common ways, and it allows you to systematically review it. So as Colin talked about, as you're designing the plan, it allows you to talk to other people who can give input on how the incentive system might be gamed or you yourself to just systematically go over as a, just a powerful checklist to make sure you're covering all your bases.
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Now, shouldn't your managers of sales teams kind of be tuned into this and alerting you to it as a company leader? I mean, absolutely. But to a certain extent, it depends on the culture within the organization. There may be instances where,
The sales leaders perhaps are themselves encouraging some of this behavior because they benefit from it as well. But ideally, yes, your sales managers are going to be looking out for the interests of the company overall and bringing scenarios of gaming to the attention of those responsible for the plans.
And Kurt, it's also important to understand that there's two different groups of people. You have your sales leaders and your sales operations teams, which are going to design, document, and manage the sales incentive plan. And so unless the sales operations team and the sales designers in particular reach out to their sales leaders and other salespeople, they're not going to have a good idea of how to prevent potential gaming.
What do you do about it when you find it or when you anticipate it? Right. So if you do discover that there's some gaming occurring, you want to, as we said before, use the data to determine a couple of things. One,
how prevalent or frequently is it occurring? And then two, what's the impact of the gaming? You know, depending on which combination of frequency and impact that will sort of guide you to how you respond. There may be instances where, you know, low frequency and relatively low impact, you decide not to do anything and you just monitor it for,
any changes in the frequency or the impact. Other examples where it's a more, you know, egregious impact, possibly something fraudulent or illegal, whether it's happening a lot or just a little bit with those types of outcomes, you definitely want to put in place actions that shut it down, you know, performance management of those individuals that are
doing the behaviors, controls, and monitoring to make sure it doesn't happen again in the future, possibly even changing your incentive plan design to prevent the behavior in the future. Well, that one end of the spectrum that is maybe more innocuous or low impact, I'm curious what an example of that is and why it might be okay to tolerate rather than kind of rock the boat with your sales team.
By far the most common way that salespeople game incentive plans is sandbagging. And that essentially is holding off on submitting sales at one end of the sales at the end of the sales period and then stacking it and adding it to the beginning of the next sales period. And that allows them to take a small loss in the previous period and then potentially huge gains in the next pay period.
all salespeople do this. They, they have to manage or just feel great pressure to manage the ups and downs of their earning cycle and sales cycle. It's just something that's going to go on for most circumstances and how most people game or use sandbagging to game the system. The financial outcome is not that large. It's not zero. Uh, there's a, uh,
research study that we weren't able to put into the paper, but that can reduce sales revenues by four to 6%. So important and not a non-zero number, but it's something all salespeople do. It's very hard to eliminate. And the time and energy spent in trying to track it, stop it, prevent it is probably not going to be worth all the effort and the cost.
And that sort of idea of the time and effort to prevent it, I think, is the important factor because just introducing a change in your incentive plan, for example, and rolling that out and communicating it, especially if you have a large sales force involved.
That takes a lot of energy and it could ruffle some feathers with your salespeople and maybe your top performers get disgruntled because of this. So again, back to that unintended consequence, you may be trying to fix a situation that is relatively low impact and it inadvertently creates a lot of turmoil and
and wasted energy through the communication process. Kurt, you know, several of the people that we talked to would say, it's not our top salespeople that are gaming the system. Not to say they're completely immune, but that's not where the problem generally is. It's the people that are struggling and maybe the mid-level performers. And so making these changes, like you say,
could bother or irritate your top salespeople, and they have options to go somewhere else. And so, as Colin really emphasizes, making the change to fix gaming can be disruptive, and it can cause problems with people that stay, and it can drive people away. Well, let's go to another example, and certainly at the, you know, at the
criminal, fraud, legal risk, compliance risk, regulatory risk. We understand that end of the spectrum, and it's not just kind of changing the system. You're alerting a lot of other people in the company to it. But let's go with some case that's kind of in the middle. Colin, early on you mentioned airline agents,
promoting the airline credit card and waiving customer baggage fees. Can you explain that a little bit and how company leaders might approach that problem? The idea that some people may be familiar with is if you travel and use a co-branded credit card with the airline you're traveling on, that'll often allow you to check your checked luggage for free. And so one of the ways that the
check-in agents might game their incentive system is offer a customer a
sign up for the credit card right there on the spot and in return waive the baggage fees for that customer right there and then without knowing whether the customer has been approved for the credit card or anything, but merely by taking the application. And if the customer is not approved, the airline has spent that money on the approval process, but it's
But in return, they gave up the revenue that they might have received from the check bag fee at the time. On the other hand, maybe the agents are onto something that it actually would be a good benefit to offer consumers to get them to apply. It's a tricky balance. In the company that we interviewed, this was against their policy to do this.
the people doing this that may, you could argue that it may have a positive impact on impact on the, uh, the, the revenues and the sales that they were seeking, uh, with this process. But if only a few people were doing it, they were going to get a more bonus. The people who are following the rules and following the procedures, uh, were not. And so it, it builds in fairness and just sticking with policy issues in there as well. So this is all really interesting and interesting.
What if the incentive structure has been baked into your organization for a long time? Like, you know, we've always been promoting this product this way. Isn't it hard to change that behavior? So absolutely. But we also have a saying, you know, what is the cost of doing nothing? And I think that's important to consider here. It could be that
No one has ever taken a look to understand how some of these gaming behaviors are impacting the company. Yes, they could have been going on forever, but do we really understand what it's costing the company in lost revenue or excessive commission payments? Is there any risk that these behaviors are putting the company at risk in other ways?
Kurt, another way to look at this is that if you look across a large number of sales plans over any five-year period of time, 80% of those plans are going to be completely changed or seriously revised. And so sales operations team plans,
leaders are going to be constantly evaluating sales plans of are they meeting goals, making changes and making those adjustments. What our typology does and what our system provides is a systematic way to do that. And if it's discovered that there are high frequency and or high impact gaming tactics being used, the plan would have to be changed and that wouldn't be terribly unusual consistent with how plans are typically managed.
When you make that change or you decide to do that, Tim, you said it's normal to do it, but how do you communicate that? What do you recommend for getting buy-in from the sales team and making sure you're not ruffling feathers or turning some of your best salespeople away? So one of the first steps that I would recommend is collaboration with your sales leadership even before you start investing.
the changes, even coming up with what changes in your plans that you want to make needs to be a collaborative effort if you're going to get that buy-in later on down the road. Similarly, collaborating with your sales leadership around applying this framework. They're in the best position to help you understand if any of these situations
scenarios in the framework could possibly happen under the new plan design. And they'll help you think like a gamer to identify where you may have to plug some gaps or where you may decide to not do anything at all. But using their expertise and being able to go to the rest of the sales team
and say, look, this wasn't designed in a vacuum. This was a collaborative effort with your leadership, and they were looking out for your interests. That goes a long way when you start communicating a new plan or changes to a plan. And Tim, what's your hope from these insights from your research? What do you hope people take away?
One of the biggest takeaways is that in the big picture, we are not just talking about salespeople. We tried to use this study to maybe illustrate a little bit of the human condition. We as individuals, people, human beings are always looking to make shortcuts in our life and in our career. And so one important takeaway is that we are not saying that salespeople are more or less successful.
likely to game or cheat systems than others. This is something that people do. An important takeaway is if people will see this as kind of opening their eyes that while you may be a great person and maybe not cheat the system, typically people are looking to do so, make you aware of it and make you think carefully about how to prevent it and how to find it.
Tim and Colin, this has been really helpful and insightful. Thanks so much for coming on the show to take us through your research and how people can recognize this problem and deal with it. Thanks for having us. Thank you, Kurt. That's Huntsman School professor Timothy Gardner and consultant Colin Wong. They're co-authors of the HBR article, How Salespeople Game the System.
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