ChannelLife New Zealand logo
Industry insider news for New Zealand's technology resellers
Story image

The problems with partner reward programmes

By Ben Moore
Tue 3 Jul 2018
FYI, this story is more than a year old

There is a lot in the news about reward and compensation systems driving the wrong behaviour at banks and financial institutions.

Luckily, the ICT industry is not facing a Royal Commission, but there are certainly some badly designed incentives and discount structures delivering predictably poor outcomes.

There are two familiar adages worth thinking about in context together rather than separately - “You get what you pay for” and, “What gets measured gets done”.

When looked at together you have the makings of a reward and compensation system or a channel programme discount and incentive structure. However, if badly designed this sometimes creates what we call “unintended and reinforcing consequences”.

Let me explain with an example of a client situation we are working on a channel structure review for.

Unintended and reinforcing consequences

The client is a successful vendor in a very competitive, volume driven and price sensitive sector of the industry, with a mix of online e-tail, traditional retailers and resellers representing the vendor via a spread of distributors.

Its channel discount and pricing structure is what we would describe as a ‘legacy structure’ and internal and external metrics, and associated compensation, are based on this.

Changing would be challenging, especially mid-financial year.

In recognising some of the problems, they have tinkered with a few nuances over the years but there are still numerous flaws compared to what they could achieve through a complete redesign.

For example, they report sales as sell into the distributors, not sell out, distributors are set rebates or incentives around quarterly volume targets, and it does not have any significant programme tier-based pricing differences.

Consequently, you end up with distributors and channel partners competing against each other on price, but often with different cost structures and so different margin requirements.

Also, the current distribution incentives such as “blitz days” where staff get spiffs (a sales bonus for selling a specific product. Who knew - Ed) or prizes and partners get discounted product, combined with volume-based stretch targets, create the perfect storm of channel discounting.

Distributors and channel partners know the vendor will regularly run these promotions, often at the end of the month or quarter so will hold off ordering until such time to get a better price and remain market competitive.

The net result is the current reward structure reinforces price/margin discounting as the most effective way to sell.

The consequence of this structure is some distributors and partners find it too hard to make money and are looking at alternative vendors as they can’t make consistent or sufficient profit selling this brand.

Additionally, the vendor is under margin pressure as they must continually discount to achieve their targets. These distributor volume-based rebates and incentives are not only rewarding and reinforcing “business as usual”, but have another unintended consequence.

The distributors often end up with too much stock of a certain product because of buying aligned incentives. This means they now have to discount these items further to clear the stock, so they can order more of something else to meet their operating targets.

No wonder they have a channel pricing problem.

KPIs & incentives drive behaviour

The example above is not unique to this vendor, nor the ICT industry.

Wells Fargo bank in the US was fined US$185m and ended up firing 5,300 employees for inappropriate sales conduct primarily for opening unauthorised customer accounts. The CEO admitted this behaviour was driven by the employees need to meet sales quotas and earn incentives.

When thinking about “what gets measured gets done”, our advice is to think through the unintended consequences of not only the measure itself but the “height” of the measure.

If the measure seems unattainable to the people it is being applied against, then people will either not try to achieve it as it is out of reach, or worse, “game” the system to achieve it which can cause illegal or corrupt actions, as has been uncovered in the Royal Commission.

At the very least it has the potential to create a less than ideal company culture leading to longer-term poor financial results and customer outcomes.

The telco industry has in the past been guilty of this with mobile plan SIM splitting and other activities such as where customers were churned and resigned to meet sales targets or improve commission outcomes.

One thing my experience working in telco taught me was to recognise that not all revenue is “good revenue”, and you really do or can get what you reward.

A fair general assumption would be that employees or channel partners are not inherently unethical. But in the competitive, fast-paced and evolving digital business environment we are in today, there are significant pressures around job security, the desire to be seen to be successful, and of course containing business costs.

Target and KPI setting needs to focus on measuring and rewarding behaviours that lead to desirable outcomes, not just the outcome itself.

Reward the predictor, not the outcome

Nearly all ICT vendor sales-orientated staff are measured and rewarded on revenue as the primary KPI, while distributor and partner staff are more likely rewarded on margin, which is the first channel disconnect.

However, revenue and margin are outcomes of a range of activities that occurred well before the customer signed the purchase order with their selected partner who, in turn, would have received a quote from a distributor employee trained, managed, and supported by a range of vendor channel staff - in other words, a sale does not happen in isolation.

A well-designed channel programme and supporting compensation system, while still recognising revenue, should also reward sustainable and cumulatively enhancing customer satisfaction activities or behaviours.

For example, think about linked productivity measures such as:

Quote turn around (bad in isolation as could lead to poor quality) paired with quote to close ratio and/or quote to close time.

Number of staff trained/certified (easy to game) paired with quote/BoM/order accuracy.

These are just two examples of KPIs now thought through with potential unintended consequences eliminated. What initially might have appeared to be a good measure of success, when re-designed will provide far better customer and company outcomes.

The same applies to channel rebates. In the earlier example, we highlighted the vendor providing additional rebates for achieving volume targets, which in our opinion is a margin dilutive practice for “business as usual”.

Rebates Compensate For Additional Effort

When we design a partner programme including rebates of any kind, the first thing we look to avoid is paying rebates for what should be done in the first place i.e. business as usual.

Rebate systems when well designed are there to compensate for the additional time, effort and associated cost of doing something above and beyond business as usual.

Therefore, achieving a sales number where sufficient margin is provided should not necessarily be additionally rewarded. There are caveats, however.

For instance, if the sales number rebate is provided for a new product requiring additional skills, more complex quoting, investment in specialist inventory, market mapping, reporting etc, this is a good thing.

Rebates offered for a specific and usually transitional period make complete sense, as you are looking to compensate the partner for the over and above investment until this becomes business as usual, then it should be withdrawn. Otherwise, the rebate effectively becomes operating margin for the partner or a permanent cost for the vendor, and this can have unintended consequences for market or channel parity pricing.


If you want to understand people’s behaviour start with my adage of “follow the money trail” by understanding what they are measured on and how they are compensated. It will go a long way to demystifying what can sometimes seem as unusual or unexpected behaviour.

Changing external channel programmes with the associated rules, requirements, discounts, and rebates must be done at the same time as there is re-alignment with the internal reward and recognition system.

Plenty of thought needs to go into the design to ensure there are as few as possible unintended consequences or holes where the system can be gamed, and so you really do get exactly what you pay for. 

Article by Channel Dynamics co-founder and channel strategy specialist Cam Waylan

Related stories
Top stories
Story image
Hands-on review: Huawei Watch D smart watch
The Huawei Watch D is the latest flagship smart watch from the Chinese tech giant, and it's further proof that the company is more than capable of competing with the likes of Samsung and Apple in the highly competitive wearable market.
Story image
Hands-on review: OPPO Find X5 smartphone
With the release of the new OPPO Find X5 in March, we got the opportunity to explore another one of their premium devices.
Story image
Hands-on review: JBL Flip 6 portable speaker
Once you switch it on, and listen away for up to 12 hours, you will quickly realise that this is a little speaker looking for a party.
Story image
Tech job moves
Tech job moves - Fastly, INX, Kinly, SmartBear & Vectra AI
We round up all job appointments from July 29 - August 12, 2022, in one place to keep you updated with the latest from across the tech industries.
Story image
Samsung introduces new generation of foldable smartphones
Samsung has unveiled its new range of Galaxy Z smartphones, bringing new developments to the company’s foldable smartphone portfolio.
Story image
Dicker Data
Dicker Data brought on as Acronis partner for A/NZ
The news about the partnership comes in as cyber criminals continue to exploit gaps in traditional solutions and strategies in NZ and across the APAC region.
Story image
Red Hat
Red Hat announces 2022 awards winners for A/NZ region
Red Hat recently acknowledged Australia and New Zealand partners with its annual awards, highlighting partners across various categories.
Story image
Financial results
Jade Software’s plan to get back to surplus in 2022
Jade Software has released its latest financial report, revealing that the company has kept its loss low from $567,000 in FY 2020 to just $153,000 in FY 2021.
Story image
Artificial Intelligence
Exclusive: NZ-based DEFEND offers global cyber protection
DEFEND supports customers in 66 countries across the globe with a relentless focus on ensuring that every dollar spent on security provides a meaningful return on investment and reduces cyber risk.
Story image
Snyk announces plans to expand partner network in APJ
Recognising that partnerships are critical for growth, Snyk is building an entire partner ecosystem that will drive its expansion across APJ.
Story image
9 in 10 retailers prepared for economic challenges this year
Some 9 in 10 retailers (86%) are prepared for continued inflation, higher interest rates and potentially lower consumer spending, according to new research.
Story image
Nozomi Networks adds nine partners to its MSSP program
OT and IoT security company Nozomi Networks has added nine new members to its MSSP Partner Program, and the list includes CyberCX and Deloitte.
Story image
NZ program recovers and recycles more than 177 tonnes of e-waste
The TechCollect NZ pilot program says its milestone of recovering and recycling more than 177 tonnes of ICT e-waste recognises the efforts of many.
Story image
Machine learning
Sysdig releases CDR offering to combat cryptojacking
Sysdig has unveiled a cloud detection and response (CDR) offering powered by machine learning to combat cryptojacking.
Story image
LG Electronics
LG Electronics’ revenue in NZ grows by 57% in FY 2021
The New Zealand branch of LG Electronics Australia's total revenue shot up by nearly NZD $45 million reaching a total of $123.7 million for FY 2021.
Story image
SnapLogic teams up with meetmagic for charity and children
SnapLogic has announced its partnership with meetmagic, an online Australian platform that combines business and philanthropy.
Story image
Document Management
TrustRadius gives M-Files two document management awards
TrustRadius has recognised M-Files with both a 2022 Best Feature Set and a 2022 Best Relationship award in document management.
Story image
Home security
Hands-on review: Eufy Wire-Free Dual Cam Video Doorbell 2K
We have had our house secured by Eufy products for over seven months now. We love the brand, and it has never let us down.
Story image
Workplace design a crucial factor for better employee experience - report
The key to a successful workplace could be its design, according to research from Ecosystm and Neat.
Story image
Hands-on review: Arlo Go 2 security camera
In my humble opinion, Arlo Go 2 offers security for anyone needing to keep a remote eye on prized possessions or premises at different locations.
Story image
High level of Customer Identity & Access Management adoption
The study from Okta revealed that the pandemic has either accelerated or highlighted the need for digital-first strategies.
Story image
Application Performance Monitoring / APM
New Relic integrates offering with Atlassian’s Jira Software
New Relic has integrated errors inbox with Jira Software to allow developers to easily access and set up complete stack error tracking and software performance monitoring from within the tool.
Story image
Dark web
Beware the darkverse and its cyber-physical threats
A darkverse of criminality hidden from law enforcement could quickly evolve to fuel a new industry of metaverse-related cybercrime.
Story image
Spectralink DECT devices now integrated with Microsoft Teams SIP Gateway
Spectralink DECT devices are now integrated with Microsoft Teams SIP Gateway to help create better results for business-critical frontline workers.
Story image
Cyber attacks
Dramatic uptick in threat activity with exploits growing nearly 150%
"While it’s not a surprise given increased attack opportunities like remote work, it’s still a worrying development and one we cannot ignore."
Story image
Ministry will no longer accept equipment from Chinese firm Hikvision
The Ministry of Business, Innovation and Employment (MBIE) says it will no longer accept equipment from a major Chinese surveillance camera maker.
Story image
Keysight Technologies and Nokia’s public test of 800GE success
Keysight and Nokia have successfully demonstrated the first public 800GE test, validating the readiness of next-generation optics for service providers and network operators.
Story image
Why security needs to shape your journey to the cloud
It's estimated that 80% of workloads could be in the cloud in the next few years. How can you make all that data secure?
Story image
Garmin expands NZ footprint with new Auckland distribution centre
The facility at Goodman’s Highbrook Business Park will be fully operational from October 2022 and features 3,586sqm of warehouse space.
Story image
Attacks on gaming companies more than double over past year
The State of the Internet report shows gaming companies and gamer accounts are at risk, following a surge in web application attacks post pandemic.
Story image
Ingram Micro
Ingram Micro NZ sees $74 million revenue growth in 2021
Ingram Micro New Zealand's latest financial report reveals that its revenue from contracts with customers increased by almost $74 million in 2021.
Story image
Privileged Access Management / PAM
The importance of stopping identity sprawl for cybersecurity
The 2021 Data Breach Investigations Report (DBIR) shows that 61% of all breaches involve malicious actors gaining unauthorised, privileged access to data by using a compromised credential. Unfortunately, it is often too late when the misuse of a credential is detected.
Story image
Web application firewall
Radware recognised in KuppingerCole’s 2022 Leadership Compass report
Radware has been named a Product, Innovation, Market and Overall Leader in the 2022 KuppingerCole Leadership Compass report for Web Application Firewalls.
Story image
New range of Samsung Smart Watches announced with health focus
Samsung has announced new additions to its SmartWatch portfolio, with the Galaxy Watch5 and Galaxy Watch5 Pro to be released in late August.
Story image
Home Entertainment
Hands-on review: TCL 65″ C835 Mini LED 4K Google TV
We introduce you today to a TV that brings the height of immersion to your viewing experience: The TCL 65″ C835 Mini LED 4K Google TV.
Story image
Organisations exposing highly sensitive protocols to public internet
More than 60% of organisations expose remote control protocol SSH to the public internet, while 36% of organisations expose the insecure FTP protocol.
Story image
Cloud and data protection big challenges for NZ businesses
"This surge towards a cloud-first approach meant security and safety became afterthoughts - there's no point being the fastest car on the racetrack if you crash.”
Story image
New Zealand
2degrees announces appointments to newly established board
2degrees has announced Liz Coutts as the board chair, while Russell Stanners and Kathy Meads join her as directors.
Story image
Google Cloud
Google Cloud to open first cloud region in NZ - among others
Google Cloud has announced plans to bring three new cloud regions, one each in New Zealand, Malaysia and Thailand.
Story image
Hybrid Cloud
The essential guide to digital transformation by SolarWinds
Digital transformation is a buzzword thrown around all the time by companies, but what does it actually mean and why is it important? SolarWinds breaks it down.