Isn’t it about time we re-thought sales commission?
I know this is going to be a controversial idea. Some of you will dismiss it out of hand. But what if we didn’t pay all salespeople commission? What if we gave them just fixed salaries? Mind blown?!
It’s not a unique idea. There are companies that are doing it — Apple, Pluralsight, Makers Academy and UK drug companies. And I think it deserves more thought.
I’ve spent most of my life in sales. From working at Marks & Spencer, working as a waiter, a rep at Glaxo, running sales teams for selling jewellery or doing executive selling at IT services businesses, yes, I’ve done a lot of selling, and some of those jobs had commission and some didn’t.
Thinking about my career now, I wish I could go back and NOT pay commission to salespeople I’ve worked with. Here’s why:
Not everyone gets it!
I believe that if you run an organisation you can’t have some people on salaries and some people on commission. It’s not fair.
I don’t say to a software engineer “I’ll pay you per line of code” because they might write 100 lines of code that are totally s***. They might create code that I don’t want. I don’t say to support engineers “I’m going to pay you per ticket closed” because they would close tickets and not care about the quality of work. And what about call centre staff — you don’t see commission in call centres because their aim is to keep the call time low. That target would drive the wrong behaviour. Actually, you do sometimes see commission in call centres and selling gets in the way of service. These firms see service as a cost and these sales as a way of minimising the cost. The best service firms, such as Zappos, see service itself as the goal.
And what about those companies where one team might create the product, but the sales team then goes out and sells it. They get commission, but the team that came up with the idea doesn’t. It’s just “grrrrr”! It’s annoying. I have had numerous occasions when support staff would come to me and say how unfair the system was.
I know first-hand just how unfair it can be. When I was running one company I met a prospective client. I knew we had a deal, it was a massive deal, in the end worth $1million a month. For administrative purposes, I handed deals over to someone in the sales team. So I got back into the office and gave it to somebody else. That deal made him number one salesperson in many of the following quarters he was there. I could have given it to anyone, so was that salesperson lucky or good? He was lucky. Should he have been rewarded for that? Was that fair on everyone else?
Business journalist Simon Caulkin took a look at how sales commission could be creating bad behaviour within the banking industry:
“The problem is not that incentives such as sales targets don’t work, it’s that they do. They change people’s behaviour — but not necessarily in ways that are legislated for. Thus, to make their targets, salespeople can bring sales forward, book sales now and cancel them later”.
Aren’t we running the risk of people being unscrupulous, doing anything they can, just to hit that target?
In one firm I worked in a single 12 month period we lost customer contracts worth over $1million in annual recurring revenue in the 90 days after they were sold. The sales team were selling promises and products the company couldn’t deliver on. The cost isn’t just measured in the lost revenue but in the time and effort in delivery that is never recovered. Not to mention the reduction in trust and the increase in friction between operations and sales.
Do we want staff who are merely motivated by money? I don’t. One of my high leverage questions when interviewing salespeople is “what is your best deal?” I’m looking for someone who talks to me about the impact the sale has had on the customer, not about them or their ego or the money or size of commission. I then actively screen out people who are effectively motivated by cash and ego. I want someone who thinks of the bigger picture. To move towards a shared goal. We want to promote autonomy, rather than short-term thinking.
Statistician W Edwards Deming wrote:
“People with targets and jobs dependent upon meeting them will probably meet the targets — even if they have to destroy the enterprise to do it.”
There are so many different commissions plans you could use: salary plus bonus, base plus commission/salary plus commission, straight commission, variable commission, draw against commission, residual commission. Why bother?! If you have no commission you have no commission plan to write and police!
Then there are performance reasons to abolish commission. When a commissioned salesperson isn’t performing well a company often lets that slide. A lower pay makes them feel like they can allow a lower performance. But if you give them a higher set salary, a company wouldn’t feel they had to keep poor performers. If you are paying someone £100,000 you want your monies worth! You are really going to make sure you hire the right person because your failure to hire the right person is going to cost you every penny of that salary. And a knock-on is that you’ll have a better sales team.
A company would then have to take a deeper look at what performance is acceptable. You have to work harder at setting KPI’s because what are you going to measure people against? Whether they hit their sales target or not you’re going to have to pay them the same money, so how will they now show their quality of work? You’ve still got to find a way of measuring results but you can use more meaningful targets.
Maybe one of those KPI’s could be customer service. Dan Danford founded the Family Investment Center in 1998. He supports the idea of no commission for many reasons, but among the top reasons is that “sales commission rewards the selling process, not the service process”. We’ve all been in a position where we were charmed into signing on the dotted line, then never heard from that salesperson again. They were already off running after the next paycheck!
So let’s say you like the idea. Now you’re thinking “how on earth would I change from commission-based to a set salary? It’s too hard. Too much work!” It doesn’t need to be. I’ve moved sales staff from salary plus commission to salary only. I set the new wage at an equal amount to the previous salary, then added to that an average from the commission gained over the last 12 months
I have also moved sales teams from individual goals to team goals. This may make the more money-obsessed leave the company, and status will still be important to many, so you can still report the numbers as competition, however, this gets the team looking at hitting the goal as a team sport.
But please don’t think I’m saying this is a one fit all idea. It’s not. I know this probably wouldn’t work for transactional sales. I’m talking about longer more complicated deals.
I spoke to a former owner of an estate agent about this very subject and it blew his mind! He thinks all salespeople are motivated by money and that’s all. He thinks you can’t be a salesperson unless you are motivated by money. He won’t be moved on that. But his team is based on a transaction and there’s nothing wrong with that.
I also know you have to get a good return for your money, but if you’ve got the right people, and the right structure, it can work.