Archive for May 2011
I have yet to see a description of any commission scheme or incentive plan that is fair to everyone. In fact, I’d like to suggest this as a given, an absolute truth: Call it “Lever’s Law” if you like: All commission schemes are unfair.
First let me explain why I believe this to be the case. And then I’d like to suggest that if we all stopped paying commissions to salespeople the world would be a better place.
So, why is having a commission scheme not fair?
It’s not fair to the customer – when I am buying something I don’t want to work with a person who is motivated by their gain by getting a deal done. I won’t to work with people who put my gain first. I don’t want incentives to become a new customer – only to be penalised when I am existing customer.
It’s not fair to the other staff – why offer commission to sales but not marketing? Or production or administration? These staff are as much a fixed cost as the sales people are. If someone in purchasing works late to get the job done – how is this different from a salesperson working late to get a proposal out? The difference is the salesperson will get commission if the order comes in and purchasing will not.
It’s not fair to the salesperson – sales people will get demotivated if they lose a sale they have worked hard on. This is especially true if a colleague gets some commission from a sale involving little work. A commission scheme can reward the salesperson in an easy sales region with little competition and can demotivate the salesperson who has a lot of competitor activity in their region. How is this rewarding the same effort fairly?
It’s not fair to the company – you want team players and staff who are motivated to ensure the company grows and prospers. So why hire folks who are loners and are motivated by their commission plan and might not pick up the ‘phone if an in-coming call is not from their territory? What happens when the commissions can generate more money from existing customers (who may pay a higher price) so that the emphasis on new business (which may require some price flexibility) is reduced? This doesn’t sound like a company looking to grow and go places.
In order to minimise the last problem a variety of commission scheme types exist. They could simply be based on turnover, or margin, or market share, or new vs. repeat business etc. etc. Each variation attempts to reduce the unfairness and motivate the salesperson to do what the business needs. In some organisations the scheme is changed each year in order to “make it more fair”. But isn’t this the sales manager or sales directors’ job? Isn’t it down to them to create an environment that develops, motivates and inspires the sales team? So, does that mean commission schemes are a support for poor management? Yes, I think they often are.
The problem of motivating people with rewards, to do something that you want them to do, can start at a very early age. Which parent hasn’t said “be good and I’ll buy you some sweets” or “pass your exams and we’ll get you a car”. Surely there must be a better, different way to motivate people. The problem as I see it is we are brainwashing people (from a very early age) into expecting a reward every time we ask them to do something different or something they may not like. This was brought home to me when a salesman who reported to me asked how much extra commission he was going to be paid for helping to train up a new member of the sales team.
If we continue to offer rewards to staff for doing what we think is difficult or something they wont like doing we will continue to perpetuate the myth that people are only motivated by money. And I don’t think this is true. Imagine removing all incentive plans, commission schemes and rewards from all levels of the company. I don’t think we would have had the credit crunch and the current recession if the financial markets had not been motivated the way there were. Imagine people in sales who sell their products in a professional way and are motivated purely because they are truly helping their clients solve their problems…
If the above rambling has got you thinking, can I encourage you to have a look at the excellent “Punished by Rewards” by Alfie Kohn. It really might make you think differently about incentive schemes and commissions.