Compensation Is A Poor Substitute For Leadership

When CEOs discuss sales performance, the focus almost always turns to compensation—how much, in what form, and for what behaviors. This happens for two reasons: one practical, and one that’s quietly counterproductive.

The practical reason is straightforward. In most B2B companies, compensation is the largest line item in the sales budget. It’s a significant cost that must be effectively managed. But the second reason is more problematic: there is a widespread and often unexamined belief that salespeople are “coin operated” or primarily motivated by money. At best, this belief is outdated and simplistic. At worst, it leads executives to overuse or misuse compensation as the primary driver of performance for their salespeople.

The best sales teams I’ve seen—and research backs this up—aren’t activated mainly by bonuses or commissions. They are motivated by purpose, making a difference for customers, and creating value in the market.

Yes, compensation matters. It’s a necessary part of driving sales performance. But compensation alone is ineffective when it comes to promoting the kind of consultative and value focused behavior CEOs routinely want to see from their sales teams.

Too many CEOs unintentionally undermine sales performance by relying heavily on compensation as a management tool. Here are three common ways this shows up in your business and what to do instead:

1. Shifting from revenue to profit-based compensation to reduce discounting

It can be logical to shift sales compensation from revenue-based payouts to profit-based ones, to reward deals that protect margins. But without strategic guidance and coaching, this change rarely delivers results.

I worked with a company transitioning to private equity ownership with a new mandate prioritizing EBITDA over gross revenue. The comp plan was overhauled to reflect this, but  Reps continued to rely on price reductions to win business even while earning less.

Why? Because reps were not being coached to create more value earlier in the sales process, engage with higher level decision makers, or expand the scope of solutions they could provide. Discounting remained their default move. Compensation changes did not make the reps any better at earning business on value.

2. Allowing compensation metrics to take the place of your strategy

In the absence of a clear, actionable plan, compensation metrics often become a stand in for the go-to-market strategy. Executives want to drive results, and they translate objectives into incentive structures. But when metrics become a surrogate for consistent strategic direction and coaching, results can go off track fast.

Goodhart’s Law captures this risk perfectly: “When a measure becomes a target, it ceases to be a good measure.”  The danger isn’t the metric itself.  It’s the unintended consequences that follow when sellers are optimizing for compensation rather than customer fit or long-term value.

I’ve seen companies implement generous incentives, and new business surged. But much of it didn’t align with the company’s ideal customer profile and turned out to be a poor fit due to limited long term potential, high customer support costs, and unrealistic customer expectations. Sales teams may succeed at winning new business, at the expense of pursuing the right business.

As the leader of the organization, your strategy must paint a vivid picture of what the right business looks like, then ensure sales leaders are in sync with your vision and are reinforcing it in the field.

3. Using SPIFFs to promote products instead of solving customer problems

SPIFFs—short term bonuses for selling specific products or services—are a common tool for drawing attention to new offerings or boosting underperformers. While the intent is to sharpen focus, the effect often misaligns sellers with customers. Instead of leading with customer objectives and needs, reps are incentivized to prioritize whatever earns them more. Which may or may not be the best fit for a customer. The result is a more transactional approach that sacrifices long term value for short term gain.

When I talk with CEOs about this, I’ll ask if they’ve ever had the experience of being pitched something that didn’t quite fit what they needed. The answer is always yes, and the experience is never described positively. It undermines trust and turns what should be a consultative, customer-oriented approach into a lower value transaction. Never mind the problem of opportunities that are neglected by sellers in favor of the SPIFF.

Instead, make sure the strategy for prioritized offerings is clear across the sales organization. Ensure your teams understand why a product or service matters and educate them on the specific problems it solves and the opportunities it helps to capture. Then make sure your sales leaders are actively managing in the field and coaching reps to connect solutions to real customer circumstances. When sellers understand this and are coached to execute on your strategy in every sales call, you won’t need to dangle the extra incentives.

A great sales organization, and one that drives real growth in the market, isn’t powered by comp plans. It’s guided by clear strategy, strong leadership, and a commitment to coaching the front lines on how to execute your strategy in every sales call. As CEO, your most powerful lever isn’t the pay structure. It’s the leadership you provide and the expectation you set for how your teams win.