In order to give this topic a more complete look, I think it should be viewed in context - i.e., where does it fit in with the overall design of the pay-plan/commission-plan that's right for your company? Of course, the "right design" for a commission-plan is going to vary from company to company. So, in order to do this "more thorough examination", its necessary to come up with a "yardstick' that's good for general application. One that I came across some time ago, which I think suits this purpose as well as any, was an article in BNET called "Design a commission plan that drives sales - Sales Commissions". This article begins with a "Ground Rule" which seems like a great "yardstick" to start with on this topic. It says:
'* Start with the outcomes and behaviors you want to foster;"
Generally, as this topic has been raised with me, the only "outcome" receiving any attention is increasing revenues while reducing upfront investment. In one case, I met with a business owner who was targeting a 50% increase in annual revenues while planning to reduce the base pay of his Sales people by more than 50%. Of course, this is a pretty extreme example and it may just be a reflection of that company's financial position. However, this company's approach on this topic is similar to others I've encountered recently in as much as it only focuses on one desired "outcome" and it ignores desired "behaviors". Ironically, in most cases where this is coming up, its coming from business people who tend to view "typical Sales people" in the way I described in 'The Pride and Prejudice of Sales"- i.e., "a huckster" who is skilled at "palming off" some product or service. The true irony in this is that those very business people are adamant about not having that sort of behavior as a part of their company. It seems to me that their myopic perspective on this is more likely to produce behaviors they don't want while being unlikely to produce the revenue outcome they do want, at least not consistently and not in the long-term.
This isn't to say that there's no place for the "highly-leveraged" pay-plan/commission-plan. But, as with any commission-plan, it should be designed considering ALL the "outcomes and behaviors you want to foster." I think most Sales people also have the gut-level reaction to the statement, "A Sales person should eat what they kill, right?", that it seems logical. However, that's only going to hold up, if they feel a part of an organization where everyone "has some skin in the game." In the case of the business owner I mentioned who was targeting a 50% increase in annual revenues while planning to reduce the base pay of his Sales people by more than 50%, this was a complete disconnect with the company's pricing structure. That pricing structure is pretty standard ... a Customer is told what they'll get and at what price ... the Customer isn't allowed to pay more or less, depending on how they like what they end up with. Of course, any incentivized Sales compensation-plan won't completely map to that sort of pricing structure either. But, if I was on the receiving end of the pay-plan the business owner in question is contemplating, the gap between how I was getting paid and the way the business owner is getting paid would most certainly have a negative impact on my behavior, especially in terms of my feeling a part of that company.
So, what are your views on this? As always, we welcome you sharing your related views and experience for the benefit of others.
Comment
Liz Cobb, CEO Makana Solutions Says:
January 16, 2009 at 4:51 pm edit
Your most compelling argument here is related to one of my fundamental philosophies: “start with the outcomes and behaviors you want to foster”. My version of it is make sure your plan communicates what you intend for the salesperson to do, because it is the most powerful communications you have.
However, I cringe at the argument that the reason to lower base salaries is that “A Sales person should eat what they kill, right?”. The real reason, and everyone knows it, is that the business owner now needs to save the money to be more profitable. If they are doing it for their own benefit, that will be noticed. If they are doing it because our economy is going through hard times, the message can be told differently. By showing that lowering the base doesn’t mean you will make less money unless you produce less or by showing a higher reward for over performance, you are communicating a shared business goal and reward. We have several customers who have managed this successfully because of the very clear plan documents our system produced. Take a look. http://www.makanasolutions.com
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