CMO Warning: Don't Tie Marketing Incentive Compensation to a Metric
The conventional wisdom around compensation is that you should tie it to specific, measurable goals to get the best results. And a lot of traditional marketing automation vendors and thought leaders will tell you this means a CMO should set a goal for number of leads generated, amount of marketing-influenced pipeline created, or number of sales accepted leads created, and then set maybe 1/3 of the compensation of your marketing team to be directly tied to this metric.
I think that is a huge mistake.
If you read the book Drive by Daniel Pink (or watch the video embedded at the end of this article), you’ll learn that, for tasks that are repeatable with a simple set of rules and a very specific destination, rewards are tied to the outcome you want work well. But more importantly, you’ll also learn that most jobs — especially marketing jobs — do not have simple rules and a very specific desired outcome.
In Marketing, you need to use a lot more creativity. You need people to bend or break the “rules” and think about the long term — sometimes even ignoring the short term. In my experience, most marketers value the ability to be creative and autonomous and have a sense of purpose in their work, and giving them a specific incentive tied to a specific goal makes that very difficult for them.
I am not saying there should be no compensation tied to performance. Your best marketers should get promotions and raises and maybe even an annual bonus. But those compensation increases should not be mathematically tied to a specific metric, like leads or pipeline.
However, the conventional wisdom is that you will get better marketing performace if you pay marketers for each lead or dollar of pipeline they create, just like you do with a sales team. I’ve never felt that directly linking compensation to number of leads generated produces the right behavior. Here’s why.
1) It won’t change marketers’ behavior.
Many marketers don’t count every penny in their paycheck like sales reps do. The exact amount of money they make is not the biggest motivator for them. In my experience, they tend to think about compensation a couple times a year, not the second the weekly direct deposit hits their bank account. And if marketers are not checking that pay stub each and every time, then you are really not changing their behavior that much by tying compensation to metrics.
But, even for the minority of marketers who can be trained to act like a sales rep and check each and every paycheck, the goal and incentive you have set up will cause some real problems, like these:
2) Lead quality will drop.
Under pressure to meet their goals — and using the motivation you’ve set up to make them focus 100% on one specific metric — your marketing team will scramble to work only on that specific metric. If it’s leads, you’ll get a lot more leads, but of lower quality. If it’s pipeline, same thing. Your team will take as many shortcuts as possible to just drive the one metric you set up, and they’ll ignore everything else.
3) It creates friction on the marketing team.
Your team will start arguing with each other about why the leads from the blog should be counted as their leads toward their bonus because they’re responsible for social media, for example, and social media drives traffic to the blog.
Basically, your role as a manager will become settling petty arguments about compensation and allocation of leads among marketers, instead of setting strategy and motivating the team to achieve company goals. (Ask your sales managers how much they enjoy this part of their job and how much value it adds to the company.)
Worse, this can change the culture of your marketing team entirely from collaborative to combative — and marketers perform best, are most creative, achieve the most, and are happiest in a cohesive and collaborative culture.
4) They’ll focus too much on short-term goals.
If you set a goal for the number of leads each month or even pipeline each month, then your team will likely focus only on that metric in the current month. They might do things like help sales reps close deals one-on-one, rather than planning and building a long-term lead funnel process and creating the right sales enablement tools and training.
There is a disincentive for them to work on things today that will not pay off for three or more months down the road, when the reality is that a lot of marketing takes months to influence the results of the company.
5) It will kill experimentation and innovation.
Giving someone an incentive tied to a specific metric means they will work harder on doing the task exactly the same way it has always been done. This completely kills innovation, and innovation is the key to marketing.
As soon as you do the same exact thing over and over, your results get worse. Experimentation is vitally important on your marketing team as new tools become available and consumers behavior changes. You’ll never have complete knowledge of your audience or environment, and the more real-world data your marketing team can gather through testing, the better. But variable compensation disincentivizes your team from continuously testing and trying new things.
6) It’s not sustainable in high-growth organizations.
In a high-growth environment, it’s really difficult to keep a compensation plan at pace with the way an organization develops. One day, you’re working on a project that’s worked into your compensation goals. The next, everyone’s in a meeting and it’s all hands on deck for an entirely different project, and your original one gets put on hold. What happens to your compensation plan? Your manager will have to rework it entirely with all the extra time she doesn’t have.
Compensation should be tried to performance, but it should not be tied to one or two overly specific metrics.
As an alternative to variable compensation, I’d suggest offering your employees some combination of a) stock options or profit sharing, and b) raises and promotions and/or bonuses tied to overall performance (evaluated quantitatively and qualitatively by the manager).
Imagine if I got paid to blog by the word or the article. I would just pump stuff out all day, not actually think about things and try to come up with ideas that challenge conventional wisdom. Not a great way to serve our company or our readers.
Oh yeah, and here is that Daniel Pink video I promised — and you didn’t even have to pay me to remember it!