Has the time come for sales organisations to move away from commission-based remuneration packages for sales staff? Our snap poll last month showed that 40% of Rewards members were planning to hire more sales staff this year while 60% reported difficulty finding good people. An overwhelming 84% chose to pay their new business sales team a package comprised largely of salary, rather than incentives.
While an emphasis on salary tends to promote teamwork and long-term relationship building - isn’t the promise of greater earnings, through hard work and perseverance, a major reason why people choose to work in sales in the first place?
Finding the right balance between salary and commission depends entirely on the strategic objectives of a company, its market conditions and the receptivity of its sales people. Salary packages offer security and income stability, encouraging sales staff to spend time building relationships with clients and servicing each account. Incentive-based rewards promote initiative and proactivity and offer a stronger correlation between individual performance and short-term sales goals.
US-based Exxon Chemical Company adopted a salaried approach to sales because it had a limited number of potential customers in its market. The business recognised that long-term relationships were more important to future profitability than aggressive sales tactics. It found that a comfortable base salary, plus annual bonus payments based on corporate performance, fitted its strategy and market and fostered greater teamwork in its sales force.
Cocks and Gould, managing partners of international software and consulting firm Compensation Master, argue that giving employees a choice in remuneration brings powerful benefits. Individual sales people are attracted to different forms of compensation. For example, those with children in school, or who are new and unfamiliar to an organisation, may prefer the security of a guaranteed income with less reliance on commission.
Some companies have taken a more innovative approach to commission structures where the company receives a fixed rate from each sale while the sales representative keeps the remainder.
In this situation, the fixed amount represents a contribution to the company to cover expenses fixed and variable expenses plus a predetermined rate of profit. Traditionally, businesses define profit as what remains after expenses have been paid. Conversely, treating profit as a planned expense ensures profit levels are stable and not eroded by discounts. It also enhances sales recruitment and motivation because there are no barriers to performance and no upper limit on the amount sales representatives may earn.
Again, this strategy is more appropriate for some firms than others. In popular markets, where there is a high level of competitive between similar products, companies need to adopt more aggressive compensation plans. In markets where making sales is simple, and staff are primarily order takers, there is less need to motivate them. As closing a sale becomes more difficult, the required level of sales skill increases and the more competitive compensation plans must become in order for companies to attract top performers.