The Absolute Guaranteed Way to Kill a Company Culture: Compensation and Rewards

Introduction

Compensation plans are undeniably crucial for hyper-growth companies, especially those venturing into new international markets. These plans are designed to motivate employees, drive growth, enhance employee well-being, and bolster the broader economy. However, it is equally undeniable that when compensation plans go awry, they can be culture killers. We explore why compensation and rewards are vital and dissecting how they can go horribly wrong. We will share the impact of misaligned compensation plans on sales teams and the broader organization, shedding light on how they can lead to a catastrophic breakdown of corporate culture.

The Importance of Compensation Plans

• Motivation and Drive: Compensation plans serve as powerful motivators. They offer employees a tangible reward for their efforts, pushing them to go the extra mile and reach ambitious targets. This motivation is the lifeblood of hyper-growth companies, fuelling their expansion into new international markets.
• Growth Acceleration: A well-structured compensation plan can turbocharge a company’s growth. By rewarding employees for hitting performance targets, these plans align individual goals with organizational objectives, driving the company towards higher revenue and market share.
• Enhanced Employee Well-being: Adequate compensation is not just about cash; it’s about recognizing and valuing employees’ contributions. In addition to financial rewards, effective compensation plans can include non-monetary benefits like healthcare, retirement plans, and work-life balance initiatives, improving employee well-being.
• Boost to the Economy: When employees receive extra income through commissions and bonuses, they don’t hoard it under the mattress. They spend it on goods and services, which stimulates economic activity, supporting local businesses and creating a positive ripple effect.

The Downfall: Compensation Plans Gone Wrong

Now, let’s examine why and how compensation plans can go disastrously wrong, starting with their impact on sales teams.

Sales Teams: The Canary in the Compensation Coal Mine

Sales teams are often the first to feel the brunt of poorly designed compensation plans. Here’s how it happens:

1. Unrealistic Targets Based on Fictional Numbers: One common pitfall is setting sales targets based on a fictional Total Addressable Market (TAM). This number is often inflated, unrealistic, and unattainable. Salespeople are expected to hit targets rooted in fantasy, which erodes their confidence and morale. From our experience working with a large number of tech businesses, we have seen sales teams give up in January. By June or July, most have resigned, leaving the company with an impossible mountain to climb in attempting to hit their targets.
2. Cookie-Cutter Targets in Diverse Markets: Treating all sales teams the same, regardless of their market or industry vertical, is a recipe for disaster. For example, selling MarTech solutions to high-tech companies will yield vastly different results than selling to meatpacking organizations. One team will thrive, while the other faces insurmountable challenges. Imagine pitting a group of marathon runners against a team of swimmers in a long distance running race. It’s not a level playing field, and it’s demoralizing for the swimmers who never signed up for a marathon.
3. Unfair Distribution of Accounts and Verticals: A fair compensation plan ensures that account distribution is equitable. However, many organizations enable senior team members to cherry-pick the best accounts, leaving newcomers with unattractive scraps. We’ve witnessed countless examples of this happening, and it ultimately kills the sales culture as individuals either leave or are managed out.
4. Lack of Transparency: When the process behind setting targets lacks transparency, employees feel they are treated unfairly. They suspect favoritism or discrimination in target assignments, leading to frustration, demotivation, and resentment.
5. Net New vs. Account Management Disparities: Segregating teams into Net New and Account Management, often favoring the latter with better accounts and strategic clients, creates a perceived bias. Salespeople recognize that hitting targets in Account Management is easier, leading to morale problems and accusations of inequality.

Beyond Sales: Wider Organizational Impacts

The flawed compensation saga extends beyond sales teams and infiltrates the broader business:

1. Subjective Bonuses: Bonuses based on a manager’s subjective judgment rather than measurable metrics can be demoralizing. This fosters a culture where employees believe that promotions and bonuses are doled out based on personal favouritism rather than merit. In such an environment, employees may feel like they’re part of a ‘mates club,’ where it doesn’t matter how hard they work; rewards are elusive.
2. The Impact of Failed Plans: When compensation plans are fundamentally flawed and employees feel unfairly treated, a cascade of negative consequences unfolds:
   a. Diminished Work-Rate and Productivity: Discontent spreads like wildfire, leading to a drop in work-rate and productivity.
   b. Stalled Sales Growth: Sales targets become unattainable, and growth grinds to a halt.
   c. Management’s Misconceptions: Leadership often misinterprets the decline in productivity as “Quiet Quitting” without addressing the root cause.
   d. Threats and Pressure: Threats and pressure tactics further exacerbate the situation, increasing tension within teams.
   e. Mass Exodus: Frustrated employees start leaving en masse or face the dreaded Performance Improvement Plans (PIPs).
   f. Customer Relationships Suffer: As employees exit, customer relationships deteriorate, impacting the company’s reputation.
   g. Stagnation and Leadership Exodus: Net new business dwindles, and leadership resignations follow.
   h. Competition’s Advantage: Competitors seize the opportunity to swoop in and grab market share.

Conclusion

Compensation and rewards can be powerful tools or dangerous weapons. When used wisely, they motivate employees, drive growth, and foster well-being. However, when misaligned, they can lead to the death of a corporate culture. Sales teams, in particular, are sensitive indicators of compensation plan health, and their success or failure can have profound effects throughout an organization. In the end, it is the responsibility of leadership to design and manage compensation plans that inspire, reward, and sustain growth while avoiding the pitfalls that can turn them into culture killers.