In a study by the Department of Economics at Purdue University, a experimental study called “Entry into Winner-Take-All and Proportional-Prize Contests” revealed that:
” In a winner-take-all tournament, the highest performing contestant wins a prize. In the proportional-payment design, that same prize is divided among the contestants according to their share of total achievement. We find that proportional prizes elicit higher entry rates and thus more total achievement than the winner-take-all tournament. The proportional-prize contest performs better because it encourages significantly more entry among low ability contestants, without discouraging the entry of high ability contestants or limiting entrants’ performance.”
If we consider a competitive sales incentive as a kind of contest, then the same findings apply.
By rewarding only the winners, the overall performance improvement is not as great as a proportional reward system that recognises growth by all participants.
The reasons are obvious. Even if they recognise that they wont be the star performer, in a proportional contest every participant knows that it they can up their game, they can reap the benefits.
A winner-takes-all situation can breed resentment and disengagement. By definition, everyone else is a loser. Once a participant realises they are not going to win, they will generally lose motivation and give up trying. The resentment can come if they feel the odds are stacked against them, that due to external factors – such as not having the high-yield accounts, or the best store location – that it’s not a level playing field.
Proportional rewards can help improve team spirit, especially if the size of the overall pot is variable too. Now everyone is pulling together to improve the overall value of the prize fund, as well as competing to increase their own share of it.
Basing a sales incentive based on percentage sales improvement rather than sales volume actually reverses the problem. It’s much easier for a smaller dealer or low level salesperson to grow their sales by 10%, for instance, than the star salesperson or premier retailer.
Our mantra as always is to keep mixing it up. If you keep rewarding the same behaviours and on the same basis, you’ll only engage, motivate and drive the performance of the same band of participants in your incentive. The key is to keep experimenting with new ways to get different groups of users in tune with your activity.