Wharton’s Take on Quotas & The Sociopathic Business Model™
April 18, 2014
When the word ‘quota’ is mentioned to anyone in sales expect a varied range of emotions and responses. It usually depends on two factors: 1. Is the quota fair and 2. How close is the rep to ‘hitting’ or achieving their monthly, quarterly, or annual quota?
Performance quotas and other types of incentive plans have long played a role in American business. Quotas are a way for managers to motivate effort and achieve certain outcomes, according to Matthew Bidwell, a management professor at Wharton. “They are how the firm communicates to its employees how hard they should be working,” he says.
Quotas serve two purposes and succeed 1. When correlated to clear-cut, predictable tasks, such as manufacturing and mechanical jobs 2. When they are instituted on a short-term basis
According to the article: The Truth about Quotas: You Get What You Pay For (UPENN EDU/Wharton)
Quotas are also problematic: Employees tend to focus on achieving their quota at the expense of anything else, and firms often end up incentivizing behavior and work they don’t necessarily want to encourage.
What the article fails to recognize is that the biggest problem with quotas involves the lack of accountability from executives who calculate quotas off of unrealistic projections. Pressure from VC’s and Board Members often cause an inexperienced executive team (prevalent in startups) to make inaccurate or grossly inflated projections to demonstrate quick growth which translates to company saleability. Remember the goal of many startups is to show quick growth and profitability and there’s less concern for sustainability.
And those reading this thinking it only affects a small number of people:
A recent compensation survey conducted by Deloitte, the consulting firm, found that roughly 75% of American companies use sales incentive plans that feature a quota. According to the survey, managers offer bonuses and special pay for crossing certain performance thresholds because they make sales reps more goal-oriented and encourage them to work harder.
Bidwell’s information regarding quota under the (understandable) assumption that the company is trying to be fair and not fraudulent. Sadly, that’s not an assumption that can easily be made today when you see corporate America federally fined billions across industries. This corrupt behavior is killing consumers and patients and the billion dollar federal fines are having little or no effect on stopping let alone preventing companies from acting unethically or illegally. And should we expect a company to only engage in unethical or illegal activity towards the public and not their employees? Or are 38,000 claims filed in 2012 by employees to the EEOC an indication of the facts?
Lack of transparency regarding quota development is a constant and valid complaint among reps in the pharmaceutical and medical device industry who have grown tired of demeaning responses from management like:
“Quota is a very complex equation developed by NASA scientists, some guy from Harvard, and a voodoo priestess; and, this equation is way to complex for a sales rep to ever understand.”
-Quotas are used to manipulate employees
-Quotas view people as accomplices (to achieve) numbers and victims (when unrealistic/non-transparent number is not met).
-Quotas lack accountability towards management’s ability to properly determine projections and in turn develop quotas.
-Quotas are parasitic
-Quotas create hopelessness in employees
-Quotas create an unhappy and unproductive workplace
-Quotas are used to motivate through fear
-Quota calculations and lack of transparency are used to demean and insult
-Management does not like to be challenged on quotas
-Quotas are used as a tool to in enlist employees in fraud
The moral of this story is that we don’t need to do away with quotas we need to put accountability back on the companies to be transparent when making projections and developing quotas, starting with venture capital funded startups who use false projections to create the appearance of hypergrowth to achieve an overvaluation, which is fraud. A little something I know about personally as it relates to startups.