How smart leaders align promotion decisions and reward structures with business results

Imagine that you have to decide which employee you want to promote to sales manager. You know that research shows that promotion from within leads to higher productivity, greater loyalty to the company, and better manager-employee relationships than hiring outside talent — so take a look at your eight salespeople and, because he consistently leads all others exceed , you promote Bob.

Bob is the obvious choice.

According to a 2019 study published in The Quarterly Journal of Economics which evaluated approximately 38,000 salespeople and more than 1,500 promotional decisions across industries, the best employees may not be the best managers when a leadership position requires skills that are different from those required in an employee’s previous job. (And those skills are always at least slightly different)

According to the researchers, when companies advertise based on traits that predict managerial performance — such as collaboration, mentoring, employee development, communication skills, etc. — sales increase by as much as 27 percent.

In short, the best salespeople are usually not the best sales managers.

But what if you don’t promote the best (seller)?

Sounds logical; we’ve all worked for someone who was great at “doing” but terrible at leading. (Just like we’ve all worked for someone who was a decent “doer” but turned out to be a great leader.) A great carpenter isn’t always a great construction manager. A great accountant is not always a great CFO.

But if you don’t promote your best salesperson, isn’t that demotivating for them and the rest of the team?

as the researchers write

…if companies promote employees based on traits that predict management performance, they may overlook better-performing employees, weakening the incentives for employees to perform well in their current positions.

Such promotion policies can lead to perceptions of favoritism or dishonesty or the impression that effort at work is not rewarded.

That’s a real problem: everyone wants to be recognized for their efforts, and getting promoted brings public recognition for outstanding achievements.

In fact, the researchers found that some companies make promotion decisions based on sales performance, finding that the cost of promoting someone with lower management potential does not outweigh the incentive it provides to other sellers. If Bob was promoted because his sales were the highest and I want to get promoted one day… I’ll work extra hard to be the lead dog in the sales package.

Perhaps that’s why the researchers found that the highest-ranking person on a sales force is three times more likely to be promoted than an average salesperson.

But that promotion strategy doesn’t really work.

Take the case of people who rarely cooperate with others: the so-called “lone wolf” salesman whom the researchers describe as “very confident, rule-breaking cowboys … who do things their way or not at all.”

Companies are “significantly” more likely to promote lone wolves, even though lone wolves offer the lowest “managerial value added” of them all. Because lone wolves usually can’t teach others to be lone wolves.

But great employees can teach others to be better employees.

Adjust your pay structure, then focus on skills

Obviously, the smart move is to promote the person who best demonstrates the leadership traits you need.

But there’s still a problem: The studies found that salespeople are much more likely to switch jobs if a teammate with poorer sales results is promoted. While forecasted leadership promotion improves overall sales, it can come at a cost unless you structure your compensation accordingly as well.

Getting promoted brings reward and recognition.

But so does higher pay for outstanding performance.

as the researchers write

Companies (can) place less emphasis on current job performance in promotions where leadership positions entail more responsibility and where current performance is rewarded with a relatively high performance reward† (My italics.)

In short, if I can earn more by selling more, I don’t have to worry as much about whether or not I’ll be promoted to sales manager.

I know of salespeople who repeatedly turn down leadership promotions. Not only can they make more money, they would much rather sell than lead. As a result, they don’t care about promotion-based recognition as they feel recognized and rewarded by paying for performance.

Therefore, you can always afford to pay sales superstars more.

When sales pay is based on performance, too much is never enough – even if the sales manager has more “responsibility” and yet earns less than a superstar. (Just like NBA coaches earn far less than their superstar players.)

The best recognition, like the best rewards, is always a matter of personal taste. A solid salesperson who enjoys working with others and generating results through others may be happy to be recognized for the leadership skills they possess and put them to work.

A great salesperson, especially a lone wolf salesman, might be happy to be “passed over” for a promotion if she enjoys what she does — and appreciates the fact that her salary isn’t based on arbitrary pay scales, but on performance.

Create a rewards structure that rewards great salespeople and great leaders.

Then you can put the right people in the right places.

Because then you make sure that they are not only as effective as possible, but also as happy as possible.

The opinions expressed here by businesstraverse.com columnists are their own, not businesstraverse.com’s.