In a prior post for the FCPA Blog, I talked about a Harvard Business Review article in which the authors shared their findings that “performance pay can actually have dangerous outcomes for companies that implement it.”
That outcome goes from bad to worse when you mix in “stretch goals,” especially in what we call frontier markets, where lucrative business opportunities and corruption risk often collide.
Stretch goals are quite common in forecasting and quotas. When a sales person achieves a goal, a manager might think it was too easy and had too much cushion. So the manager ups the ante for the next quarter or reporting period. It’s also called quota ratcheting, and I’ve been at the giving and receiving end of it.
Here’s the problem. In many developing overseas markets, there may be few opportunities for a company to sell its products or services. At the same time, the institutions of procurement in such regions are typically weak and concentrated at the national ministry level. That sets up a sales cycle marked by large and unpredictable swings. From the perspective of the field employee, it’s a “win-big, lose-big” dynamic.
When sales goals are met in a win-big, lose-big market, a manager might seek to extract more revenue by ratcheting up the sales quota for the next reporting period. Even though that might be what a sales manager is paid to do, in this context, it’s a dangerous exercise.
Thinking that big international sales should be followed by others is a fallacy. In the defense business, for example, large ministry procurements are often a one time buy, even if spread among multiple quarters. It’s not a repeatable event. Using those sales to ratchet up the next quota puts unrealistic expectations on front-line sales personnel, and those expectations can threaten a compliance program.
When a company follows a big international sale in a low-integrity region with a new stretch goal tied to lucrative variable compensation, it sends a message to the field, “win again, above all else.”
Designing carefully calibrated sales goals and compensation plan is more work for managers. But it’s an investment in everyone’s ethical and sustainable long-term success.
Richard Bistrong is a contributing editor of the FCPA Blog and CEO of Front-Line Anti-Bribery LLC. He was named one of Ethisphere’s 100 Most Influential in Business Ethics for 2015. He consults, writes and speaks about compliance issues. He can be contacted by email here and on twitter @richardbistrong.