Is the end nigh for commission payments?
Do a search on “Daniel Pink and incentive compensation” and you will find more than a few well-meaning articles from people proclaiming the end is nigh for commission payments and incentives for sales teams.
Indeed, I suspect there’s a certain cache attached to these opinions in the blogosphere. It sounds kind of new age and enlightened. And wow – we don’t have to pay out expensive “bonus” payments (err, sales incentive compensation) to those pesky salespeople anymore. How good is that? The CFO will think I am so cool.
Not only is it too good to be true – it’s dead wrong.
It’s based on a big misconception of sales incentive compensation planning: that commissions and incentives are a cunning tool used to manipulate and “drive” the behavior of salespeople as though they are simple automatons. “Coin-operated” is a term that is popular amongst veterans from the 1970s – but it is irrelevant, if not insulting to the sales profession in the 21st century.
Brain scientists have recently shown us just how much we do NOT know about how the brain works and the complexity of human motivations. So we might be getting ahead of ourselves if we think a simple pay plan can PREDICTABLY and DIRECTLY drive desired patterns of behavior in salespeople (but as an experienced sales guy who isn’t “motivated by money” per se – I can think of plenty of incentives that were highly ‘motivational’ and a few that weren’t)
So, rather than delve into the contested area of human psychology, we need to first understand WHY sales incentive compensation is a seriously important part of your sales business strategy.
In short, the guiding purpose of your sales comp scheme is to align PAY to PERFORMANCE.
No more no less.
To echo Daniel Pink – we need to get ‘money off the table’ so that people can get on with their jobs. Employees must feel that their performance is being recognized with appropriate levels of pay.
A well calibrated, fixed annual salary – that is, fixed over 12 months – is how you ‘take money off the table’ for nonsales employees.
For salespeople, the way you do it is to have a well calibrated fixed base salary with a clear and concise pay plan for earning a variable component of pay. The key here is FREQUENCY – you can’t wait an entire year to pay for performance
Try converting your sales comp plan into an annual incentive or annual rem increase – and watch your good salespeople walk and your duds stay behind to enjoy their higher ‘base’ salary.
Interested in comments on this – it’s a bit of a minefield but I think I just walked right into it.