Among our many cherished verities and assumed assumptions is the widespread belief—nearly universal practice actually—that salespeople are to be paid commissions. It’s the way things are done. Stop signs are red. Salespeople get commissions.
But why?
This is a practice so deeply ingrained that almost everyone assumes that commissions are an unalloyed good, and that salespeople won’t work without them. I’ll return to that notion about work shortly, but it’s somewhat amazing that commissions are so widely lauded when they come laden with so many recurring problems. These issues pop up with distressing regularity.
There are all kinds of problems with commissions, for example, high turnover as salespeople shop jobs to get a slightly more lucrative commission system. Always attempting to maximize personal benefit which results in system gaming like making fake phone calls to hit call numbers, sandbagging deals into the next quarter, sniping new leads, and so on (the list here is actually endless).
The problems include infighting over who gets credit for accounts and sales. They include constantly comparing territories and account value to determine fairness between salespeople. They include an enormous amount of overhead as each salesperson sedulously tracks every transaction no matter how minute to make sure they get paid on it (by the way, they hate having to do this, and it’s a staggering waste of time. It’s also a place where weak salespeople like to hide out).
All of this is organizational dysfunction, and it’s a recipe for resentment and distrust among your team.
Management then tries to correct for these problems. They constantly drop or add ballast. They have to carefully structure the pay plan, the territories, the lead assignments. They have to referee disputes, tweak the various systems, and try to keep everyone happy. It’s like a spinning top and every time it starts to wobble, management has...