Want to stir up controversy among a group of business owners? Ask them what's the best way to compensate salespeople. It's like throwing raw meat into a den of lions. You can just sit back and watch them go at it. Over the course of 25 years in business, I've developed my own system for handling sales compensation. I've also become convinced that the way most companies do it is a recipe for trouble.
I'm referring, of course, to the practice of paying sales commissions. Unless you're very careful about how you use them, they almost always have the effect of undermining any sense of unity and common purpose in a business. How? By putting the salespeople in a separate category, by making them stand apart. Granted, sales commissions aren't the only culprit. It doesn't help that most companies put the salespeople in separate offices, hold separate meetings for them off-site, and treat them far more gingerly than other employees at performance review time.
But commissions play the largest role in distancing salespeople from other employees. The result is a lot of animosity and resentment, leading to inevitable conflicts. The accounting people complain that the salespeople make special deals with customers and then don't inform the people who do the billing. The operations people complain that the salespeople make unreasonable demands. As the owner, you're constantly having to mediate between departments while resolving disputes among the salespeople themselves over who has which territory, who handles which customers, and who gets the leads coming into the office.
You also have to cope with the great fear all owners have that their salespeople will leave and take customers with them. That's actually more likely to happen with a commissioned sales force than with a salaried one. For salespeople on commission, the customer represents security. As long as they have that connection, they think they have a means of earning a living. Consequently, they have a strong interest in making sure the customer belongs to them rather than to the company. They resist letting anyone else have a relationship with the customer.
To protect themselves, owners come up with all kinds of mechanisms aimed at preventing salespeople from getting too cozy with customers. One approach is to transfer every new account from a salesperson to a customer-service rep, who handles the relationship from then on. Another technique is to reduce the commission over time. Such systems may or may not weaken a salesperson's hold on a customer, but they don't address the underlying problem. The salespeople are still not members of the team. Their focus isn't on making the company successful -- it's on looking out for No. 1.
So yeah, commissions cause their share of problems as well...
http://www.inc.com/magazine/20030501/25416.html
Excerpt:
Want to stir up controversy among a group of business owners? Ask them what's the best way to compensate salespeople. It's like throwing raw meat into a den of lions. You can just sit back and watch them go at it. Over the course of 25 years in business, I've developed my own system for handling sales compensation. I've also become convinced that the way most companies do it is a recipe for trouble.
I'm referring, of course, to the practice of paying sales commissions. Unless you're very careful about how you use them, they almost always have the effect of undermining any sense of unity and common purpose in a business. How? By putting the salespeople in a separate category, by making them stand apart. Granted, sales commissions aren't the only culprit. It doesn't help that most companies put the salespeople in separate offices, hold separate meetings for them off-site, and treat them far more gingerly than other employees at performance review time.
But commissions play the largest role in distancing salespeople from other employees. The result is a lot of animosity and resentment, leading to inevitable conflicts. The accounting people complain that the salespeople make special deals with customers and then don't inform the people who do the billing. The operations people complain that the salespeople make unreasonable demands. As the owner, you're constantly having to mediate between departments while resolving disputes among the salespeople themselves over who has which territory, who handles which customers, and who gets the leads coming into the office.
You also have to cope with the great fear all owners have that their salespeople will leave and take customers with them. That's actually more likely to happen with a commissioned sales force than with a salaried one. For salespeople on commission, the customer represents security. As long as they have that connection, they think they have a means of earning a living. Consequently, they have a strong interest in making sure the customer belongs to them rather than to the company. They resist letting anyone else have a relationship with the customer.
To protect themselves, owners come up with all kinds of mechanisms aimed at preventing salespeople from getting too cozy with customers. One approach is to transfer every new account from a salesperson to a customer-service rep, who handles the relationship from then on. Another technique is to reduce the commission over time. Such systems may or may not weaken a salesperson's hold on a customer, but they don't address the underlying problem. The salespeople are still not members of the team. Their focus isn't on making the company successful -- it's on looking out for No. 1.
So yeah, commissions cause their share of problems as well...