Colin (00:01.272)

Hello and welcome back to The Growth System, the podcast that looks at B2B growth through a systems thinking lens. Today's topic is incentives, one of the critical dimensions of the growth team operating system, although arguably they're all kind of critical, that's kind of the point. So we're exploring how things like compensation and the compensation structure and reward structure.

and recognition against how that impacts growth, not really just as a sort of simple carrot and stick, but more in a sort systems thinking approach to look at these as complex feedback loops that sort of shape organizational behavior and indeed sort of long term strategy. So as always, I'm joined by Chris Bayless. you're our fearless leader. Why should leaders think about incentives from a

Chris (00:45.964)

Absolutely.

Colin (00:56.118)

a systems thinking perspective.

Chris (00:58.285)

Well, I think actually that it's probably worth qualifying the intro a little bit that yes, this this episode is all about incentives and compensation. But if you have just thought great, I need some help on how to structure my next comp plan, prepare for disappointment, because that's not really what the the episode is, is exactly about. But certainly what we're to talk about some of those underlying structural principles of how the right incentive plan shapes the right behavior.

And that ultimately, in a nutshell, is the sort of systems view. So how does one thing affect all the other things? you know, something that I'm a big fan of saying, I say probably too much is that people do what they're measured on, and they do the things that they are paid on.

even more so than the things that they are measured on. Pithy it's not, but it's certainly one of the great truisms of business, I think, that one of the greatest levers of behavior that you have in your organization is your incentive plan, basically your financial compensation plan. And if you get it right, it can be a powerful lever for accelerating the good stuff that you want to achieve, usually increased revenue growth. But get wrong,

And well, there are some phenomenal tales out there of, you know, when compensation plans go wrong. And we'll talk about what this what it's kind of underneath that as well, and what the kind of behaviors are that that drive some of those adverse effects. So let's let's get into it. I think what we really what we're talking about here is incentives, a system of drivers, and

That is not a incidental thing. I think that if you actually start viewing your incentive plan as a mechanism for driving system behavior, then actually you've already sort of flipped the switch in terms of changing that thought pattern. How is the incentive plan going to impact my overall system behavior?

Chris (03:02.883)

And if we think about that, we think about our workflows, we think about our infrastructure, we think about, course, the people in the organization, the way we devolve and delegate authority. All of these things have a big relationship with the incentive plan. So we might consider that we've got kind of local, but also what we've been talking about global effects with an incentive plan. So that's one of the really big concepts here, terribly difficult concepts as well, but ultimately, incentives

might boost short-term sales numbers, for instance, but they also might do things like undermine brand integrity or they might, you know, change customer perceptions of you negatively. if you, they might even kind of shape the wrong behaviors from a profitability perspective. So that sort of local effect of yes, let's get some more sales, let's drive some more revenue. You know, let's put a, you know, an extra multiple in the

in the comp plan, great, you that might achieve your short term goal. But the law of unintended consequences suggests that you have these global effects and they can be fairly significant. We've talked about some interesting ones before, haven't we Colin, on the podcast?

Colin (04:21.57)

Yeah, have to know I'm reminded of here is thinking about that sort of end of quarter, end of quarter, end of year, end of half sort of short term incentives, all this big push to essentially comes down to discounting. And then it has this effect of customers then know not to buy from you except like maybe about four days out of the year. And any sub-descending customer is essentially waiting there which obviously kind of

Chris (04:38.554)

Yep.

Colin (04:51.136)

rewires the whole system in quite an unhealthy way effectively. I think we've talked before about companies like HubSpot, for example, trying to retroactively fix that problem.

Chris (05:01.679)

Yeah, exactly what I was thinking of. Yeah, as a HubSpot partner ourselves, I suppose we shouldn't be bashing the great orange machine, it probably does, doesn't it? Yes, the great orange wrecking ball. Yeah, I think that when we're looking at those sort of

Colin (05:11.15)

I think that means something different though, doesn't it?

Chris (05:24.897)

end of quarter behaviours, that's a really really good example of kind of unintended consequences because that might seem like a great short-term way out with miles off target, let's just you know give everyone an extra bump to get over the line. Well great, of course they're going to do that, they're going to get paid more for it.

But if you also don't have the discounting structure under control, although the mechanism for approving discounts, or ultimately you've just fundamentally set the sort of perceived

behaviour or the perceived purpose of the system to be just sell as much as possible, then that has a huge amount of unintended consequences. Because whoever's signing off your discounts, well, we've just got to sell as much as possible. If the customer needs this discount, we're going to sign this discount off. And then of course, what you do is you start training your customers, as you say, Colin, you they know that, actually, there's absolutely no point trying to buy anything off them on the second of the month or the third day of the quarter, because, you know, they're all full of, you know, they're all full of it. And they think that they're going to do the number.

going do is we're going to wait until the last day of the month or we're to wait until the last day of the quarter and then they're going to give us whatever we like and it used to be true with HubSpot not so much anymore you know they've got a handle on that but yes absolutely they trained pretty much their entire part of the network and all of their customers that yeah no point buying something at the start of the month and of course what happens by the end of the month of course you're miles off target because no one's bought anything off you because they know they've got to wait for the end of the month so it's yeah

a pretty serious problem because that impacts profitability, impacts cash flow, it impacts predictability, you know, just it's all bad on bad on bad when you start doing that. So yes, we've talked a lot about short-term goals before and incentivizing short-term goals is even worse. So yeah, that's a big thing.

Colin (07:18.742)

challenge to a big systemic challenge, guess, sorry to interrupt to really balance because, you know, obviously it's not like short term short term needs cease to exist just because we recognize that perhaps we're not emphasizing the kind of intermediate and longer term needs. You know, I've been in organizations where the big focus was just on customer or acquisition, just

Chris (07:38.905)

Yes.

Colin (07:47.062)

sign the new logo no matter what. And I've seen this kind of first hand that real overshadowing of the need to invest in success and in the brand and especially in this is I wouldn't say fatal but has been sort of lethal towards that particular company's market position and the product innovation. It's all about how much

What can we acquire now to then fudge the figures about our market share in order to effectively, in the case I'm talking about, sell the company? And so I can understand why there's this need to reward short-term revenue. But as I say, I've seen firsthand how that can really damage the whole possibility for that company to achieve healthy growth and a functional system.

Chris (08:20.697)

I'm PC fanatic, this guy.

Chris (08:39.881)

Yeah, absolutely that. And I guess what we're talking about there a little bit is kind of positive and negative feedback loops, because when you start prioritising the short term and not thinking about the long term, not thinking about the brand,

then the brand inevitably suffers. And then when the brand suffers and maybe the product suffers, then the client churn increases and then the requirement for more short term wins increases. And what we have is there is sort of a runaway balancing loop. We've got a sort of...

issue there where sort of one bad thing begets another and then it spirals out of control and that's what we'd sometimes call in systems runaway claps. So that's a really, really good example of kind of a negative feedback loop at work. But of course, there's a positive side of that. You know, if you get that incentive program right, and people are incentivized on the right things with the right time horizons,

and they're successful at doing that, then they'll be motivated to do more of that. And it becomes a virtuous circle. You have a positive feedback loop and it starts driving growth. And of course, that's what we want to do with our incentive plans. And obviously, is what really to a degree what this episode is about, is how can we get into the positive reinforcing loop?

Colin (10:00.814)

Yeah, indeed. I think just to kind of add to that kind of anecdote, guess, I think something that I... This is really relevant to the growth team operating system and what we do. I think in that situation, there was a lot of very talented people in the company who are still talking a lot about a lot of sense about what we should be doing and how we should be approaching things. But there's this enormous dissonance with...

what is actually going on in the incentive structure and what we're actually being driven to do. And I think I've seen firsthand a really rapid erosion of sort of trust and synergy between different parts of the organization and generally just sort of cynicism creeping in as we start to see this, I suppose in growth team operating system, we talk about it as a misalignment with...

the purpose and the stated values of the organization.

Chris (11:01.477)

Yes, absolutely. That kind of deep structural misalignment is such a key thing and it's something that no one really talks about and no one really thinks about, I don't think.

Ultimately, if you are saying that we are trying to be an innovative company, and we're trying to build long term value for our shareholders, and we are, you know, trying to build the world's best product, whatever that product might be, but then what you're actually rewarding people on is sell at any cost, acquire market share at any cost, you know, who cares if it's a bad fit, just sell, sell, sell, sell, sell, then

Of course, people know that your values that you state to the public are rubbish, because they're not what you're paying people on. are not the behaviors you're rewarding and rewarding a behavior which is completely contrary to those stated values. So you get this kind of like purpose action gap that emerges and that has a whole

dreadful spiral of unintended consequences because ultimately when you as a employee, you the place you turn up at work, you give your labor to, you give your time to, and you prove yourself as an organization to be, you know, let's face it, disingenuous, know, dishonest, you're saying one thing and doing another, then of course that creates...

a sort of dissonance within the people that are traced to be driving that value within the organization. They know that all you really want is to pile it high and sell it cheap and then flip the company at the end. Well, of course, that's not something that...

Chris (12:48.485)

most people necessarily want to be a part of, they want to be a part of building great things, you know, they want to come to work and they want to make a difference and they want to use their time on this earth ultimately to do something meaningful. And, you know, making a load of money for the PE firm that bought you last is probably not most people's definition of meaningful unless you own the PE firm. So yeah, you've got you've got a really serious kind of deep structural issue there if that's what you start doing.

Colin (13:13.774)

I've seen some really spectacular misalignment there as well in that context where the part of the reward and recognition structure is that actual the progression path through the organization is set up in a very well intended structure that I think we would probably on paper get right behind, which is all about being a match for the company's values and deep structuring principles. And yet that remains in place while we have this.

acquire market share at all costs, who cares if it's a fit, don't worry about the customer success handover. The incentive structure flips while part of it, the progression path doesn't. And actually what I saw was a lot of people just leave, just leave. the progression path they were on is, yeah, they will progress in their career, but somewhere else. It's absolutely fatal misalignment that I've seen in the past.

Chris (14:10.883)

Yeah, and it's really, really common. and it's, you know, it's kind of a strange thing, because I've seen this lots of times as well. And what you kind of see, I think, is, a sort of recognition that this is happening within management. But but they sort of lie to themselves that it's just a short term thing. You know, we're just we just need

Colin (14:32.408)

Yeah.

Chris (14:33.221)

this quarter and then we're all going to get back to being good individuals and we're going to be going after all that lovely CSR stuff we've told the investors as well. But we just need to get up to 8 % market share or whatever it is that we are gunning for. We just need to deliver 300 % growth and everything will be fine. And it just never is because you entrench this culture in the organization, as you say, if you are being rewarded,

for that particular culture then you might stick around as long as you're able to productively deliver that but the majority of people just think I don't want any part of this, we're going to go elsewhere and then all the talent hollows out of the organ and again you get back to this runaway claps piece that we talked about at the top of the show.

Colin (15:15.51)

Indeed, indeed. I feel like I've accidentally turned this down too far, too much of a negative road in the episode talking about some examples. But I guess you should think of these as cautionary tales. Like what can seem like a necessary evil at the time can actually cause like runaway systemic failure. And that's a problem for you and your investors and your customers and for everyone.

Chris (15:23.397)

Yes.

Chris (15:39.342)

Yeah.

Chris (15:44.08)

I think it's fair to say though that in the world in which we work, I can think of far more bad examples than good examples. Because as soon as you've got investors involved, your ability to think long-term, to do the right thing, to build long-term value, it takes quite a special kind of investor to enable you to

Colin (15:51.246)

Hmm.

Chris (16:13.005)

work that way and actually I think it's probably unfair to the investment community. I do see actually an increasing trend towards taking much longer range views. I think to be honest that's possibly enforced by the state of the market.

Colin (16:25.902)

Yeah, I feel like that's a sort of balancing loop that's come into play. Maybe this is a future episode. I think maybe we've done that thing where we uncover a topic we don't often look at things from the investor's point of view. And I think to be fair, at some point we probably should.

Chris (16:40.184)

you

I think that would be really interesting. Maybe we could get one on because that's, it's a big part of the day-to-day lives of a lot of our customers. And I'm sure a lot of the people and organizations that people work in that listen to the show because, you know, PVC money is a fact of life in the tech space. So actually how you can bridge the sort of, you know, values gap.

and still actually deliver performance that is the sweet spot. I think that sweet spot probably does exist, but it does require the investors to be part of that system, to that sort of systemic understanding of how everything connects and not just be chasing the next month. And as soon as you change that culture,

And I think that really comes back to episode two, you know, in this season, it's all about values. And I think if you can entrench those values and then actually act upon them and make it okay for people to act upon them and prioritize long-term value for customers and for stakeholders, then I think that ultimately you build a more valuable, more resilient business anyway, which is worth more to dispose of, but you do need to take a 10-year view, not a three-year view to do that, I think.

Colin (17:58.072)

Yeah, why don't we, as fascinating as that is, I genuinely think that we may have uncovered at least one episode topic there. Why don't we sort of return to the fundamentals, if it can pull us back to the sort of fundamentals of what we're talking about here, incentives in the complex B2B environments that we typically work in.

Chris (18:23.107)

Yes.

Colin (18:23.214)

thinking here about things like, you know, it's obviously common, it's normal, you know, this is my set of structure, it's effectively yours as well, although you own the company, but essentially there's a base salary plus commission or bonus, like I think everyone listening will be super familiar with that and probably on a structure like that. how would you sort of delve into the topic of from, how would you look at that through a systems lens and how you kind of manage that?

ratio between fixed and variable pay and how that effectively wires the whole system.

Chris (19:01.413)

I think that the way that you structure compensation, particularly kind of the structure between fixed and variable compensation is obviously quite role dependent. And I think if we're talking about, you know, someone who's a seller, who's an SDR maybe, it really comes back.

to behavior, know, what behavior are we trying to generate? What is the emergent behavior that we would like to set our system up to deliver? If that system is, you know, the sales team, let's say. And

Compensation is obviously a huge part of what motivates sales teams. I do think it's probably overplayed, in my opinion. mean, everyone likes to get paid. And I think people that go into the sales profession are typically speaking, I mean, people use the phrase coin operated, which I think is quite insulting because, you know, ultimately, great sellers out there.

are there because they like delivering great solutions, they like delivering value for customers, they like finding a way to create that. And you know, that's why they're good at what they do. So you know, they're not just in it for themselves, how much they can get into the into the, you know, the payslip at the end of the month. But ultimately, you know, people need to be rewarded for good work and in sales, that's part of the culture. So

Colin (20:21.39)

Also look at the counterfactual, like you might, know, lots of salespeople of course might say that they're in it for the reasons that you just said, but then say, oh great then if you love it so much, why don't you do it for no extra compensation and just your base salary and then see how much they love it.

Chris (20:37.701)

It's really an interesting one, isn't it? why is it that we've got, mean, this is, sorry, we said we were going to try and do a 40 minute episode. So I'm not going to disappear down that particular rabbit hole. I think as a, a, know, let's pin that one up for later. You know, why is it that salespeople are rewarded for selling stuff?

but know, CS people aren't rewarded for delivering it great or whatever it might be. Everyone else is just on a profit share or whatever. Why is it that sellers get that? Where did that come from? You know, what is the root of sales compensation? Because it's cultural, know, sellers want compensation because every other seller gets compensation. So why wouldn't they want to be compensated? It's part of the fact of life. If compensation didn't exist, sellers would be quite happy to, as long as they were rewarded fairly.

and for their talent and for their skill. And I think that's the thing that goes on, isn't it? That base salaries tend to be artificially low in sales because it's then all loaded into the variable compensation. And okay, where's the balance on that? Now I kind of see a trend towards slightly higher base salaries right now in the tech space, probably only marginally, but I do see that there is a sort of a trend in that direction. I don't know what you see Colin, but...

Colin (22:04.786)

to look at these things as being a little bit stagnant at the moment, I would tend to agree that more often I've seen things like instead of a 50-50 split, like a 70-30 weighted in favour of salary in certain cases, particularly where there's a situation where organisations are having to prioritise the longer term or they've taken a strategic decision to prioritise the longer term. Sometimes

because of a change in perspective at the investor level as well, where they kind of realize that they are not going to have that exit they wanted to have next year. And in fact, there's a bit more, there's a bit of a different approach needs to be taken. And therefore you need to kind of, you need to make up the gap for sellers who are used to short term hustle and, you know, pushing towards your quarterly target and discounting on the last day of the month and all that stuff. And that's effectively they are.

Chris (23:01.017)

Yeah.

Colin (23:04.6)

Their bread and butter, their mortgage, their shopping, their holiday sort of thing. you can't just sort of pull the rug out from under them. yeah, higher salaries is something I've noticed. This is a bit of a trend, but still a lot of 50 50s out there as well.

Chris (23:19.333)

Yes. But yeah, so I think ultimately, how do we how do we create a good compensation plan? What's a good structure look like? What does that kind of balance look like? For me, it goes back to as I said, what's the intended behavior that we want to create? And that to a degree is kind of cultural, it's kind of structural.

but it's also a reality of the world in which we live and that specific kind of role dynamic. So, you know, I think if we've got an SDR role, let's say, then, you know, from my perspective, it's a mistake to pay for meetings, know, meetings booked is, know, is the classic kind of SDR metric for me, I think that that.

is not a good thing because again thinking about emerging effects well what you then pay for is a load of people to hustle people on the phone to just agree to have a meeting to then just get this idiot off the phone that's been you going on at me and yes so what value does that create absolutely zero so you know don't don't pay for meetings booked

Colin (24:13.75)

They come on the meeting and say, I'm not actually sure what this meeting's for. Every time.

Chris (24:27.333)

I quite like split compensation structures. you know, having a base salary for an SDR paying maybe 30 % of whatever the total compensation is for the meeting being completed. So that, people actually turned up and had a productive meeting, 30 % comp. If that meeting then subsequently turns into pipeline, then having the other 70 % of compensation.

paid on it actually turning into pipeline because that way we're of flipping the the sort of perspective of the seller from I just need to book as many meetings as possible at whatever cost to I actually need to book meetings where a they're going to turn up but they are actually going to be a good enough fit for whatever it is that I sell that they're actually going to move from that meeting and they're going to turn into pipeline.

And then that gets handed over to an AE or whoever's responsible for closing. whether that turns into revenue or not, I don't think the SDR should be comped on it turning into closed one. I think that it should be maybe 30 % on meeting complete, 70 % on productive pipeline. You it got there and a deal got on the board. Cause then you're starting to shape, you're starting to create an immersion behavior, which is good quality meetings that turn into good quality pipeline. So I think that's a way that I would kind of think about structuring that.

I also think that the higher fixed salary thing is really interesting, particularly in our world of very long sales cycles. Because if you're in a complex sales cycle organization, you might be in a kind of six, nine, 12, even 18 months sales cycle. You know, you got to eat, you got to go on holiday. If you're on a 50 50 structure and you're doing absolutely bloody brilliant job, but you're probably not going to get

the other 50 % until you're 18 months down the tracks and then it starts flowing in. What's the incentive to turn up and do a good job? You know, you're just working for a year and a half for a dodgy salary. You're just going to go somewhere else, aren't you? And then the person you're going to attract into that role is going to be someone that can't get a better job somewhere else, probably. So I think that that's something that, um, for me is increasingly in really long sales cycle organization. Something that you really need to think about is how can we reward someone?

Chris (26:45.153)

every single month for doing a great job. I also think that related to this and related to kind of goal setting and individual contributor goals is this is not actually particularly a perspective of incentive plans but something that I notice in a great many organizations is that the majority of the people in the business might have OKRs or KPIs or individual contributor targets or whatever you call them.

But the sellers won't, sellers just got sales target. So, you know, everyone else is, being targeted every month, quarter, year for personal development and doing X or Y or Z to drive them through their sort of personal progression. But the sales team just have, you know, do the number or else every quarter.

And of course, that's not great, is it? So I think that sales targets are important and people need to be rewarded for sales targets. But I also think that sellers need to have OKRs or gold or rocks or whatever flavor that you use in your organization that helps them develop the behaviors that are going to close business. And I also think that...

something I observe a lot in sales teams and this is again more metrics episode than incentives but I think there is a relationship there is a relationship here which is very seldom are targets in place for the inputs that create the outputs that we want. In SDR teams sometimes you might have a cool target or whatever which is fair enough you know.

don't work with many organizations that have a team where they just need to dial a hundred times a day or whatever it is, but maybe that works.

Colin (28:28.366)

I've been in that team. I've been in that team. And there was even a kind of over metric. Sorry, I'm going to interrupt you here. I'll go back to this. What were you going to say, sorry?

Chris (28:38.051)

No, no, I was about to say I had two. I saw double glazing once while I was at college and that was definitely, you know, make 100 calls in a night and then you can go home.

Colin (28:47.822)

I worked in a place where we had a KPI of making 300 calls a day back in the day when everyone's sitting at an office phone. here's the thing, like, and you were compensated on not meetings booked, but like meetings completed. But here's the thing, sort of variable compensation, your bonus would be boosted by up to 25 % depending on how many calls you had attempted.

and could be reduced by 25 % so you only get three quarters of your bonus if you had not attempted the right number of calls. So of course, if you were sort of reasonable at this game and you had sort of, you you were at or above your target and, you know, it's kind of Friday afternoon and you're thinking, well, I just want to have a quiet Friday afternoon, but I'm currently at a place where I'm only going to get 90 % or maybe even 100 % of my bonus.

I'm going to call this list and you could look around the office and see like 50 people doing this at the same time, calling the same list of numbers which are guaranteed to go straight to voicemail in order to boost up what the company pays out in commission by 25 % without fail every week.

And this is supposedly to incentivize the right inputs, like a more effort equals more output. But of course, as soon as we start to measure it and reward or as soon as it becomes a target, it ceases to become a good measurement. And sure enough, we eventually... I also pointed out a couple of sort mathematical flaws with the system at the time. it was... No one really acknowledged my kind of like polite email, but then the system changed.

Chris (30:07.844)

Wow.

Chris (30:37.079)

Yeah.

Colin (30:38.318)

was kind of a shame as well because it was a really easy way to make 25 % extra on your bonus but also just felt that kind of unsustainable way where somebody had to blow a whistle on it.

Chris (30:42.405)

You

Chris (30:48.843)

Indeed. And I think that maybe brings us on fairly neatly to the sort of the sort of gaming of the system, I guess, as being a such a common thing that happens within sales teams.

Yeah, woe betide an organization that's got a, you know, poorly resolved incentive scheme, because people will find a way to get paid for as little effort as humanly possible. I think that, you know,

I don't mean to besmirch the sales, the sales community because, you know, frankly, anyone would do it. But I do think that sometimes effort in sales teams is a bit like water. It will find the easiest path downhill. And, you know, when you've got an incentive scheme that rewards people for just doing the 25 % of calls to the list of people that have gone to voicemail for the last 500 days in a row, then

Yeah, people gain the system. We've all seen, I suspect, SDRA partnership where if they're paying on meetings booked, they're like, could you just push that one as approved or could you just, if they're being paid on pipeline and they've just had a dreadful call, it's like, could you just stick it onto a stage one just so I can get some more money this month and they'll go on then.

you know, gaming of the system. I'm sure you've probably seen a hundred more opportunities sort of examples on that Colin.

Colin (32:14.882)

Yeah, we could do a whole spin-off podcast just about that, honestly.

Chris (32:18.501)

You

Colin (32:21.858)

And it'd be uncomfortable listening for certain people who'd been anonymously mentioned in the narrative, you know who you all are. What about actually, so I think we've done that thing of seeing a lot about what's wrong with how incentives are done. How do you design a sort of adaptive incentive system, I guess, an incentive?

Chris (32:28.237)

as much as.

Colin (32:51.15)

plan structure, you like, actually that's actually worthwhile. That's actually like pulling you towards the North Star. Obviously alignment with these deep structuring principles of sort of almost religious level of alignment with deep structuring principles like purpose and values. Great. But what about getting a little bit more into the nitty gritty of how we craft a multi-tiered incentives that actually

Chris (33:18.949)

.

Colin (33:21.27)

have the effects that we want.

Chris (33:23.511)

Yeah, absolutely. mean, I'm sure it's not just a Sam Altman quote, but certainly something I've seen attributed to Sam Altman, and I've stolen for a, you know, for talk I've done recently, was target long term measure short term. And I think that's the, you know, that's probably the guiding mantra for me, certainly when we're talking about the type of organisations that we are and we work in, you know, longer, longer sales cycle B2B orgs.

You prioritizing.

the long-term health of relationships, the long-term health of the business, prioritizing customer satisfaction, employee satisfaction, prospect satisfaction, client retention. So actually putting the long-term plan in first and working backwards would absolutely be my suggestion here. And it's all about behaviors. It's always all about behaviors. What is the immersion behavior we are trying to achieve in our system and what role

incentives have within that. So if we are trying to, you if we

have a account based marketing methodology potentially within, there's a lot of longer sales cycle organizations will have to a greater or lesser extent. Well, then ultimately what we're doing is trying to build relationships. So what we need to do is incentivize the building of long-term value and long-term relationships within prospects and within existing customers for expert purposes of expansion revenue. So what does that tell us? Well, if we're trying to build long-term relationships, then ultimately we need to make sure that we are incentivizing on

Chris (35:00.165)

annual or a sort of multi-year basis and we're tying that back to maybe brand health scores, maybe client retention, maybe, you know,

feedback pulse surveys, whatever it might be. So I think when we're talking about that sort of end game, then we think, okay, well, what's the end game we're trying to achieve? How are we going to measure that? And then let's start incentivizing around that. Now, when I say incentivizing, I also probably should point out, don't just mean financial incentives.

I think non-financial incentives should also be equally considered. We haven't talked about them a great deal to be fair in this episode, non-financial incentives might be career progression. They might be things that maybe have some value, but we have organizations like...

somewhere they have like what they might call like a five-year club so you know you get to go on like a big trip or whatever if you've been with the organization a long time. It might be stuff that's related to your sort of...

the way that you kind of have that sort of status within the organization, I guess, so I can't think of any good examples off the of my head because it's half past four, but ultimately if we're trying to think about how we build that long-term value, then let's just start with that as our kind of jumping off point, if you like. So then I think it's working back and okay, well what then behaviors do we need in the sort of midterm, you know, what milestones do we need to cross together to our long-term?

Chris (36:40.663)

objectives. you might look at things like sort of partial bonuses, you might look at sort of like milestones. So if you're working a big deal, so we know that, you know, maybe we're working some seven figure deal with a big US tech company, we're working towards a tender date or something, you know, you maybe you might do an incentive if you get through into like the final three or something that kind of keeps things that kind of keeps things going along.

You might just do a sort quota based bonus. actually, well, if we as a team, we've got to roughly where we need to be in each quarter, then you might do a sort of share of a comp part, just to keep people kind of motivated as they're trickling along. You you might do just things that actually just reward and recognition, you know, actually.

you know, everyone's doing a great job. Like we're going to go on a team outing or we're going to give everyone a Friday afternoon off or just, just little stuff. mean, it's silly examples, but actually.

If we think about what is the purpose of an incentive, it's to keep the team motivated to doing the right things. So if we think about that problem holistically, we think about that problem as, okay, the long-term things we're trying to build long-term value, we're trying to build long-term relationships, we're trying to drive successful outcomes, and we're trying to keep the team motivated over the long-term to do that. So if that's my starting point, and then I think this isn't just about money, then...

I would suggest that actually having at the very very least a quarterly target rather than a monthly target if we are going to create a quota or we are going to create a sort of sales target. If you have got very very long sales cycles my suggestion is generally match the incentive scheme to the length of the sales cycle. So if you've got a 12 month sales cycle do a 12 month target and pay out at the end.

Chris (38:31.617)

If we are tracking in any given quarters, you you might do some sort of partial payout. I would definitely consider how we then drive incentives across a broader spectrum of things rather than just financial incentives. I would try and tie stuff back to metrics. So, you know, one of the things that can come back to an ABM piece that's really important is kind of target account penetration. So,

If we are targeting having a 6 or 8 % target account pen or if you've got very, you know, you're doing strategic APM, a sort of, you know, 100 % account pen because we're dealing with, you know, two or three accounts per seller. And actually we've got six key personas. And if I can demonstrate that I've had a conversation with all of these six key personas that's been positive in the last month in all of my target accounts, maybe I might get paid out on that or get some sort of recognition.

on that. again, incentivising the right behaviours over time. I do think there is a role for the short term, you know, for the short term target, for the short term goal, but I think we need to redefine what we mean by short term. Monthly sales targets. I think it's probably fair to say, and this would be heresy to most people that work out in the sales management community, don't do anyone any favours. You know, I think we have trained ourselves, monthly sales targets are a drug that everyone is hooked on.

because we sort of think that it's the only way that we're going to keep on track. Well, I just don't think it's true. You know, what I would ultimately do is when I'm thinking about short term targets, I would make that all about metrics, not about money. So have we done the right inputs every single month? Have we done all the things we're supposed to? Have I developed myself as a human being? You know, have I am I on track with my personal development plan? Have I

You know, have we done all of our input metrics? Have we done the right things, sent the right number of campaigns out? You know, have we, whatever it might be, you have we made the right number of phone calls? Have we, you know, done the right amount of account research for every new lead that's come in? Have we built an account plan? Is our account plan up to date? You know, you can go on, you know, these are the monthly metrics that I'm interested in, in a long term sales cycle. This month, have I done absolutely everything I need to do?

Chris (40:52.385)

Outcomes come later, know, outputs are emergent from inputs. So have we done all the right inputs? Then obviously we want to be tracking outputs over the long, over the sort of, you know, longer term. So, you know, are we getting out what we expected to? Are we using that as an opportunity to course correct? Then I think like, there's midterm milestones, whether that's a quarterly sales target or whether that is, you know, that drives a partial bonus or whatever it might be. But ultimately I think it's always tying it back to that long-term emergent behavior that we're trying to create.

I'm sorry that was very waffly but you know multiple time horizons start at the end and work backwards probably could be summarized.

Colin (41:28.622)

The TLDR. We should probably wrap up there. We did say we would do a shorter episode this week. Curious to get some feedback. Maybe people would prefer shorter episodes. I know Chris and I like to talk about this a lot. So it'd be great to hear what people think about that. Any sort of final thoughts on this? I mean, I'm kind of thinking about how incentives sort of mirror

Chris (41:36.153)

We always say we should do it for what we're episodeing, yeah.

Colin (41:56.12)

the organization's deepest priorities and can actually reveal the real priority even when the stated value says something else. They signal what truly matters and ultimately it's how we direct how resources flow and shape how teams spend their time. So we need to approach incentives carefully as strategic systems

levers, I guess, and we need to be careful about which levers we pull and when and how. Anything you'd add to that? That's all very general.

Chris (42:32.559)

I was going to talk about you guys as well. So yeah, you've stolen my thunder there. But yeah, absolutely. Just to echo exactly what you've said. I mean, incentives are a powerful lever. And they can drive the organization in the right direction. They can very easily drive it in the wrong direction too. So.

Colin (42:36.11)

I've stolen your levers bit, sorry!

Chris (42:58.059)

once you pull that lever and you've set the comp plan at the start, then the most important thing is measuring what is going to happen as a result of that. Now that means not just measuring how much did we sell this month. ultimately do the pulse check. That's where it falls down.

Colin (43:15.404)

that's where it falls down. How do we measure what the effects were? Yeah, yeah, yeah. Sometimes it takes a really long time for the effects to work themselves out. And if you're on the inside, can feel like being on a big train, very slowly coming off the track.

Chris (43:21.739)

Exactly.

Chris (43:27.765)

Exactly that. delays and oscillations as we talk about in systems world. actually those kind of system delays from pulling the big lever and say, okay, we're going to go in this direction with our incentive plan. There is going to be a delay before you see the effect. And then that effect might get out of control. You get that runaway feedback loop that we talked about. So we need to sort of spot the quiet signal thing. We need to do the pulse checks with the team. We need to...

understand what is going on. need to look very closely if people are gaming the system. We need to look very closely about whether the input metrics are aligning with the sort of reality of what is happening with the system. We need to check that there is a relationship between the inputs and the outputs, the sort of financial emergent effects as well as the sort of behavioural inputs towards getting those. And ultimately I think we need to create a culture where it's fine to be adaptive and to revise things because if we stop seeing incentives as something that gets set in stone

at the start of the year and we start seeing it as a tool that can be used to shape organisational behaviour and we create that as part of our culture, then actually as much as sellers don't necessarily like having the plan changed particularly if it's for the worst, ultimately if we say well actually the reason we have an incentive plan in this organisation is to create these behaviours.

then ultimately you're creating an expectation at the start. It will probably make it more of a self-fulfilling prophecy and mean that actually you are getting the right thing. But ultimately, if you need to change something mid-year, change something mid-year, recalibrate before you entrench the dysfunction into the team and make it more painful to change later.

Colin (45:05.038)

succinctly put Chris. No, no, very valuable. I'm afraid we didn't make it to our 40 minute target Chris. I don't know how this is going to affect my incentive structure. We did only go 20 % over. please don't cut my my pay by 20 % or anything like that.

Chris (45:18.117)

must have been inflated.

Chris (45:24.773)

I'll take that.

Chris (45:28.933)

It's like we're starting incentivizing you for a shorter podcast and then we'll see what happens. Live test next week. Yeah. tenor for Colin if we come in under 40 minutes.

Colin (45:33.742)

Yeah, well, there you go. That might be a self-fulfilling prophecy.

Colin (45:41.55)

Tenor? It's bit tight. Right, I'm going to cut us off there while we're still, I think, on 45 minutes at least before I talk myself out getting paid anything. The Growth System is brought to you by RevSpace, Growth Systems Consultancy. It connects B2B organizations with the future of growth, offering consultancy and education and...

even apply delivery services and of course, this the growth system podcast. Please don't forget to follow and rate the podcast. Obviously it really helps us to bring the content to a wider audience. I would really appreciate a moment of your time to tell us what you think. You prefer shorter episodes like this or do you like it when we go a little bit more in depth? Ultimately, we can never cover every part of every of each topic within the time allowed and generally we always come up with more.

that we're going to have to investigate in the process. Anyway, that's all we've got time for.

Chris (46:36.719)

Thank

Chris (46:40.121)

Yes, the tech isn't a wrong podcast. That's what you can be assured of here.

Colin (46:45.006)

That's all we've got time for this week. Thanks very much for listening. Catch you next week. Bye bye.

Chris (46:49.241)

Thanks for listening.