Do performance rankings effectively motivate salespeople to improve their performance?

Researchers published a new Journal of Marketing study that examines how the presentation of performance rankings influences critical outcomes, including salesperson quota attainment and employee turnover.

U.S. firms spend an estimated $3.6 billion annually on sales performance management (SPM) practices and tools. This figure is expected to rise to $6.4 billion by 2030, underscoring the growing importance of SPM practices within organizations.

One of the most commonly used SPM practices is companies publishing the sales performance rankings of their salespeople on key performance metrics. The goal of publishing performance rankings is to provide feedback to all salespeople by disclosing their performance relative to their peers, thereby creating a competitive motive for performance improvement. However, despite widespread use, the effectiveness of these rankings has not, according to the researchers, been explored.

I personally doubt their assumption here, since I can recall a number of studies of effectiveness in this area.

This new study examines how the presentation of performance rankings influences critical outcomes, including salesperson quota attainment and employee turnover. The study poses four primary research questions:

• Do performance rankings effectively motivate salespeople to improve their performance?

• Does this effectiveness vary by the type of information published alongside the ranking?

• What are the conditions under which publishing certain information with performance rankings is more or less effective?

• What are the long-term implications of performance rankings on salesperson turnover?

The research team conducted two studies involving over 27,000 salespeople from more than 170 firms across 83 countries. These studies leveraged extensive field data to examine the effects of three distinct information conditions: anonymized performance rankings, identifiable performance rankings, and identifiable rankings with quotas.

What the researchers say: “Our findings reveal that while performance rankings can positively influence sales outcomes,” the lead author explained. “Their effectiveness and the value derived from the performance ranking dashboards, hinges significantly on the type of information disclosed within the dashboards.”

For instance, anonymized rankings effectively motivate salespeople to increase their quota attainment, yet they also lead to higher turnover rates, which can result in substantial indirect costs related to recruitment, training, and loss of organizational knowledge. “As a result,” he continued, “the costs associated with implementing and maintaining anonymized ranking systems may not be justified by the outcomes unless turnover can be effectively managed.”

In contrast, identifiable performance rankings have the most substantial positive impact across two studies, significantly enhancing quota attainment and reducing turnover. The findings indicate that when salespeople know the identities of their peers in the rankings, they are motivated not only to improve their performance but also to maintain a positive social image. “This dual motivation of self-improvement and self-presentation drives better performance and lowers turnover rates. However, when quotas are disclosed alongside identities and performance rankings, we fail to see performance enhancing benefits.”

This study offers valuable lessons for managers and salespeople:

• More information is not always better. Instead, the strategic selection and combination of performance data are crucial for achieving both immediate and enduring positive outcomes.

• Managers should develop and implement identifiable ranking systems, ensuring transparency in how rankings are determined and communicated.

• Managers should avoid including fixed or objective performance metrics (i.e., quotas) in ranking systems to focus on relative performance evaluations, which is essential for the effectiveness of these systems.

Implementing these, the researchers say, can drive essential behavioral changes among sales managers and executive leadership within sales organizations. Sales managers will be able to adopt a more strategic approach to performance ranking disclosures, emphasizing transparency and leveraging the motivational benefits of identifiable rankings, which should lead to improvements in quota attainment and reduced turnover within their teams.

Furthermore, executive leaders can invest in performance ranking dashboards that are tailored to their organization’s unique characteristics, taking into account their sales force’s compensation structure and size. By doing so, they can ensure the investment in performance dashboards will justify the costs by achieving substantial performance gains and minimizing turnover, thereby enhancing the overall effectiveness of the sales force.

The research highlights the critical role of transparency and information type in performance rankings. By implementing performance rankings and carefully selecting the information disclosed alongside them, they can create a more motivated and loyal sales force. The lead author adds that “This approach will not only drive better performance outcomes, but also contribute to a more sustainable organizational culture.”

So, what? This is interesting in that the conclusions go against a plethora of studies—beginning with the famous Berger Paints study some 20 years ago—which have all found that any increase in competition between salespeople leads, in the medium-to-long term, a substantial decrease in sales and an increase in turnover of people.

Rather what these studies have shown, over and over again, is that the more the salespeople feel that they are part of a mutually supportive “tribe” the higher the overall level of sales. This has been shown to hold true for law firms (partners are, in effect, salespeople) and a wide variety of other industries.

There are additional problems with quotas, targets etc. These have been shown to be counterproductive in anything but the very, very short term—especially individual targets and quotas. If these exist at all they must be set by the sales teams themselves not handed down by management.