I’ve been at the periphery of a number of discussions about commissions and sales. Usually, they are very polarized discussions, with people on each side taking extreme positions, neither providing useful or data based arguments, neither listening too each other and each reinforcing the others’ positions.
Usually there’s one camp evangelizing the evils of commission (There’s one CEO making a lot of noise on this issue in LinkedIn, though I suspect he has not given up his own executive bonus/incentive compensation plan.)
Likewise there are those that say, you can’t drive sales results without commission.
They’re a little comical to watch because there’s just so much bad thinking all around.
My purpose in this post is not to argue pro or con—though I tend to be wildly pro commission. Rather, I thought I’d bring up issues to consider in driving high performance–which is what the compensation discussion should be about anyway.
Bad Commission Plans Drive Bad (The Wrong) Sales Behaviors. (I feel a little like the old “When guns are outlawed, only outlaws will have guns.”)
I’ve seen too many bad commission plans driving the wrong behaviors. A couple bad personal examples, and one good example:
1. Early in my sales career, I maxed out my commission plan, paying my full Social Security deduction on January 15–15 days into the fiscal year. (US readers will understand the social security deduction from paychecks). Hundreds of my peers did the same thing in roughly the same time.
That year, was my worst performance ever, I achieved about 87% of my quota. And in my company, that was a high performance, most people finished in the 70-80% range
What was wrong in that situation? Badly written plan drove behaviors that achieved the wrong results. I and my peers were just doing what our compensation/commission plan was telling us to do.
2. As a sales executive, I wanted to innovate and drive a new commission plan. We were transforming the organization, becoming much more customer focused, and driving a lot of changes in the organization. We wanted a commission plan that aligned the behaviors with all those changes.
I hired a consultant (first mistake–or we hired the wrong consultant). The resulting plan required a PhD in Mathematics and Logic to understand it. It was so complicated, the sales people couldn’t understand what they were being told through the commission plan.
As a result, they gave up, and just did what they thought they should be doing–which didn’t completely align with our priorities.
It was a bad plan, it was too complicated, and drove different behaviors and priorities than we thought it would. As a result, we didn’t get the expected outcomes and confused the sales force. My bad!
3. A good example–I hope. In our company, with the exception of a small number of people, everyone–including me, is on a 100% variable commission/compensation plan. We get paid on what we produce and on service delivery. We don’t produce results–sales and delivery-compensation plummets.
A recipe for screwing clients, absolutely not! We’ve designed a simple compensation plan that ties the results we produce for our clients and our company to what people earn. Do a great job, you get paid big dollars, do a lousy job, get paid nothing. (Well, actually people don’t last if they do a lousy job.)
For each of us, our compensation is 100% at risk, but it is designed to drive the behaviors we want in building our own business and delivering great value to our clients. I’ve had the privilege of writing some $1M plus checks to people who have done outstanding jobs for our company and clients.
There is nothing inherently wrong with being paid commission or a bonus. What drives wrong and sometimes bad behaviors is a bad compensation/incentive plan!
No Commission/Bonus Rules!
Being on a “flat” plan or a “team” based plan doesn’t solve the problem many people think it solves.
You can still have tragically bad or wrong behaviors on a “full salary” plan if you are telling your people to do the wrong things, have a flawed sales/business strategy, or a flawed business culture.
If you are a product driven, internally centric company–being on salary won’t cause you to become customer focused.
It won’t cause you to recommend the right product to the customer–it will only cause you to recommend the product management it telling you to recommend.
People don’t immediately become value based, customer centric, customer service focused by being on salary. The best testimonial to that is the bad customer service too many of us experience. Most of them are on a salary, yet too often they simply don’t care. They are driven by metrics to handle so many calls, not solve customer problems and create great customer experiences.
So thinking you solve an absence of caring about customers, an absence of value creation, an inward self serving performance motivation by eliminating commission is just flawed thinking.
Commission/Incentive/Compensation Plans Aren’t The Only Performance Drivers
Too many sales managers and executives think that commission plans are the only way to drive performance. This is a huge mistake–which usually results in the wrong kinds of performance — or at least paying too much for the performance you get.
There are a number of things–tangible and intangible that drive performance. All are important levers, when combined with good compensation/incentive planning can create stellar performance.
Regardless how good your compensation design, a toxic culture will always drive the wrong performance. Bad value systems, bad culture, politically and internally focused organizations never perform as well as their peers who are the opposite.
Bad strategies, bad programs, systems, processes, tools, the wrong people impact performance.
As managers, having strong performance and development planning, strong coaching, combined with a good compensation/incentive system will drive performance.
Each element has to complement an reinforce the other. A commission plan that isn’t aligned with the strategy and priorities of the organization will not produce the expected results. Ultimately, it could cost you a lot of money–not just in commission payments, but in lost opportunity, lost customers, and so forth.
We Can’t Approach These Issues Lightly, Simplistically, Or Naively:
Too often, I think managers don’t understand the interconnection between compensation planning, performance/development planning, strategies, priorities, culture/values, people, process, systems, and tools in looking at performance.
None exist in isolation, but treating them as they do, always create sub-par performance.
The debate on “Are commissions evil and drive the wrong behavior,” will always draw eyeballs and heated exchanges. But the participants miss the point. They are stupid and naïve conversations.
We need healthy conversations and debates on how we maximize performance. We need to stop thinking of commissions as the performance driver, and recognize it is one element in a set of other elements, all of which must be aligned and pointed in the right direction to maximize performance.
Oh, and if you haven’t guessed it already, I fall very heavily on the leveraged compensation side of the equation. I’m delighted to make the people in our company very rich–because in doing so, I know they have created tremendous value for our clients, and tremendous results for our company!