Dave, you have touched a nerve with this: commission payments is one of my bete noires.
I first formed plans to scrap them at my SaaS company back in 2012 but we were then bought out by a company selling commission management software! My plan was to offer a higher base, put more money into development and offer everyone in the company a quarterly bonus based on growth and customer satisfaction. We did the latter but I didn't have time to do the rest.
I thought this was the right thing to do for a number of reasons.
A sales guy told me he should have a bigger commission slice because without sales there would be no customers. I agreed to double his commission provided he built whatever he sold, provided implementation and support services and collected the money. He declined my offer. My point was that no one team can succeed alone: that needs everybody to their job.
As an avid part-time psychologist, I was very aware of the thinking and research on motivation and the role of reward. Studies repeatedly show that over the time, they are not effective. Commissions are a form of 'extrinsic' motivation, an external stimulus, but studies show 'intrinsic' motivation, drive from within is far more effective. Dave, that goes to the heart of your comment "They didn’t win by removing a commission structure; they won by building real management and leadership." I would argue that removing commissions is an act of real leadership.
My final and most substantive objection is about fairness. Many of the developers, support engineers, bookkeepers marketers in the company worked hard and made great contributions. How come they did this without needing commission to incentivise them? Without their efforts every sales person would fail miserably. Give the sales person a five figure check and the bookkeeper a pat on the back and a few kind words is immoral.
One final word. Commissions go back to the days of piece work, literally paying for each piece manufactured. The idea originated in Ancient Rome; the first mention I can trace is 1495 and it was part of the approach described in Adam Smith's 1776 treatise, "The Wealth of Nations". Smith also introduced the concept of division of labor to the world. It was born in a time of structural social hierarchy, low eduction for most and manual work. That's not today's world.
Yet we still rely on management practices that go back centuries.
There are so many powerful ideas and lessons in this comment David. The one I want to jump on is the fairness question. Nothing we do in B2B selling is something we do by ourselves. We rely on a number of people within our organization to support our efforts, as well as with our customers. Singling out one person to get rewarded seems senseless.
I'm a huge advocate of team and company based bonuses.
The provocative question I didn't attack in this is CEO comp. I'll save that till later ;-)
During my career in HR we did ask exiting employees about comp, but to your point, Dave, the feedback I often received and reported is that the employee was leaving because of his or her manager or the organization's leadership.
Excellent. I happen to think that commission plans are not the best way to go about improving sales. But you are right, getting rid of commission plans by itself is not the solution. The solution is to replace them with something more substantive. Very relevant piece, thank you.
Dave, you have touched a nerve with this: commission payments is one of my bete noires.
I first formed plans to scrap them at my SaaS company back in 2012 but we were then bought out by a company selling commission management software! My plan was to offer a higher base, put more money into development and offer everyone in the company a quarterly bonus based on growth and customer satisfaction. We did the latter but I didn't have time to do the rest.
I thought this was the right thing to do for a number of reasons.
A sales guy told me he should have a bigger commission slice because without sales there would be no customers. I agreed to double his commission provided he built whatever he sold, provided implementation and support services and collected the money. He declined my offer. My point was that no one team can succeed alone: that needs everybody to their job.
As an avid part-time psychologist, I was very aware of the thinking and research on motivation and the role of reward. Studies repeatedly show that over the time, they are not effective. Commissions are a form of 'extrinsic' motivation, an external stimulus, but studies show 'intrinsic' motivation, drive from within is far more effective. Dave, that goes to the heart of your comment "They didn’t win by removing a commission structure; they won by building real management and leadership." I would argue that removing commissions is an act of real leadership.
My final and most substantive objection is about fairness. Many of the developers, support engineers, bookkeepers marketers in the company worked hard and made great contributions. How come they did this without needing commission to incentivise them? Without their efforts every sales person would fail miserably. Give the sales person a five figure check and the bookkeeper a pat on the back and a few kind words is immoral.
One final word. Commissions go back to the days of piece work, literally paying for each piece manufactured. The idea originated in Ancient Rome; the first mention I can trace is 1495 and it was part of the approach described in Adam Smith's 1776 treatise, "The Wealth of Nations". Smith also introduced the concept of division of labor to the world. It was born in a time of structural social hierarchy, low eduction for most and manual work. That's not today's world.
Yet we still rely on management practices that go back centuries.
There are so many powerful ideas and lessons in this comment David. The one I want to jump on is the fairness question. Nothing we do in B2B selling is something we do by ourselves. We rely on a number of people within our organization to support our efforts, as well as with our customers. Singling out one person to get rewarded seems senseless.
I'm a huge advocate of team and company based bonuses.
The provocative question I didn't attack in this is CEO comp. I'll save that till later ;-)
During my career in HR we did ask exiting employees about comp, but to your point, Dave, the feedback I often received and reported is that the employee was leaving because of his or her manager or the organization's leadership.
Excellent. I happen to think that commission plans are not the best way to go about improving sales. But you are right, getting rid of commission plans by itself is not the solution. The solution is to replace them with something more substantive. Very relevant piece, thank you.