December 7, 2013

By Request: Pay Sales Commissions or Not?

After a crazy week of speaking, consulting and traveling amidst winter storms, I thought I’d try something new and take requests for a weekend post. Shelly Lucas, Senior Marketing Manager at Dun & Bradstreet, was first to respond with this doozie: “…would love to hear your take on whether or not paying sales commissions still makes sense.”  I’m a fan of Dun & Bradstreet’s Hoover’s Online sales resource for researching and selecting strategic target prospects, and Shelly brings up a great topic I’m happy to tackle.

No need to beat around the bush, talk out of both sides of my mouth, or nuance my answer: Unequivocally, YES! Paying sales commission still makes sense. And the more variable the potential sales results, then the more variable I believe the compensation should be.

Shelly referenced this recent article in the New York Times that seemed giddy to highlight a small handful of companies that had made the switch away from paying commission to their sales teams. The irony is that the very company lauded for the successful move to a fixed salary for all sales reps admitted losing ten percent of their 40-person sales force after making the change. So let me ask you: which four reps do you think quit once the playing field was leveled? Don’t think for a nanosecond that four under-performers packed their bags and moved on because their commission was eliminated. Not a chance. Without knowing any of the details, I can say with great confidence that the folks who walked out were highly-driven, self-reliant, money-motivated producers. I’d be shocked if that wasn’t the case.

One of the most consistent downfalls I see in compensation plans across a variety of sales teams and sales roles is that the plans are too flat. At the end of the day (or more accurately, the end of the year), there is not a meaningful enough delta between what the top and bottom-performers earn. And not only is that confusing, it’s stupid. Think about what a comp plan that is too flat creates. It does the exact opposite of what we want a plan to do: It helps us retain bottom-producers while forcing top-producers to question if they could be more fairly compensated elsewhere for the results they achieve. A good compensation plan makes sales reps who are not delivering results uncomfortable, hopefully hungry, and possibly even causes them to think about deselecting themselves from the role/company. And smart plans handsomely reward those who over-deliver results. Isn’t that what we want a sales compensation plan to do — help retain and reward our best while appropriately pressuring those who need to improve their performance?

One caution: Don’t hear what I am not saying. I am not advocating that all commission plans are good or smart. I am not suggesting that we want all under-performers to live in constant pain or be forced to bail. And I don’t think top reps should be ridiculously compensated to the point of putting the company in financial peril. But, I am clearly stating that Sales is a different type of job. Sales is not about effort or output. It’s about results. And the best salespeople tend to be uber competitive and motivated by return on effort/investment and money.

Thanks for the request and question, Shelly. Without reservation, I say, YES, paying sales commission still makes sense in the vast majority or organizations.