Thursday, April 17, 2008

Spiffs, Bonuses and Contests - Ask the Expert #3

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.

2 comments:

Paul Hebert said...

I might disagree with #5 - variable payouts have proven to be very effective in driving performance.

The issue is not to structure the program rules so it is an "all or nothing" deal. Pay something for the behavior - but allow for some upside earnings based on random payouts.

I've used "spin/win" type programs very effectively - both for the client and the participant. If the audience understands the rules and doesn't have all their earnings wiped out by the random portion of the game it is a great way to keep interest in the program going - and provide a much higher level of participation while maintaining budget integrity.

Julien Dionne said...

Apparently David Cichelli was not able to post his comment directly on the blog, but he asked me to post this on his behalf:

-----------------

I am responding to Paul Hebert’s thoughtful observations that he supports the use of “chance” for incentive programs. As I had previously wrote, I suggested that incentives should not involve a “chance” to win a payout. Paul pointed out that he has had great success with these programs and they are cost effective and helpful in driving performance.

I am going to agree with Paul, that they are—indeed—effective. However, effectiveness is not my issue...ethics is.

Most “chance” incentive programs require some degree of performance in order to get a “chance” to win a reward. In most cases, the number of accomplishments, such as sales, or calls made, gives the employee a chance of wining. It could be a “spin” board or “names in a hat.” These programs are very fun and popular with employees.

However, here is the issue. “Intermittent Operate Conditioning” is the fancy Skinnerian phrase to describe why people like to gamble. The random payouts are seductive to humans. Just visit Las Vegas to see this phenomenon in action.

In my humble opinion, employees work for a wage and should be paid for that effort. Providing them a “chance” (no matter how trivial the effort required) ethically violates this employment construct.

Finally, if the chance to “win” does not require any pre-performance, then I am fine with chance. Otherwise keep the gambling where is belongs: in a casino.

David Cichelli

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Ottawa, Ontario, Canada
Julien Dionne is a well-rounded consultant with global business management experience and outstanding technical, business and leadership skills. He earned a Bachelor of Applied Science in Software Engineering from the University of Ottawa, Canada, and he is a member of the Canadian Professional Sales Association. The views posted within this blog do not reflect the views of Julien’s current or previous employers and clients. Julien can be reached at julien.dionne@gmail.com