By Neal Glatt

Most businesses have someone who is responsible for selling, and most of those people are paid in part or in whole by commission.  In fact, less than 5% of all salespeople in the US are paid by salary alone.  Most sales managers believe that commissions provide the necessary motivation for selling, but do they even work?  Here’s what the science shows…

Want to have this blog in podcast form?  Check it out here.

Sales commissions sometimes provide motivation, but only if they are implemented correctly.  For instance, annual bonuses aren’t nearly as successful in increasing salesperson effort as quarterly bonuses.  That’s because if someone falls behind in their sales, they will quickly abandon their annual goals entirely, whereas they can restart if the goals are tied to a single quarter of performance.

Sales commissions also fall short of maximum performance when they are overly complicated, involve ceilings on earnings, or are tied to items outside of salesperson control.  Incentives need to be carefully aligned with what a business really wants to achieve, but understanding the true link between compensation programs and outcomes is far too rare.

Commissions can work for selling motivation, but they tend to work even better for things most businesses actually don’t want to occur.  Salespeople working on commission have been shown to more likely “stretch the truth about the competition,” “lie about availability of a product,” and “apply pressure” to make a sale even when a salesperson is “not sure a product is right for a customer.”  These are all unethical behaviors which degrade customer trust and loyalty.

Salespeople who work on commission, as opposed to salary, also experience more stress and emotional exhaustion.  While sales performance is higher, it comes at a very real human cost of taking more sick days than salaried salespeople.  This fact alone should give pause to those who set sales compensation programs.

So, do sales managers need to decide between increased sales performance and negative outcomes of commissions?  Not necessarily.  Consider the case of realtors in Norway who work on a flat-fee structure that is substantially lower pay than the traditional commission structure.  These salespeople actually sell homes faster and for 2.7% higher prices on average.

Clearly, there is more to the picture than simply money and motivation.  Proper recruitment, selection, training, and management of salespeople makes the biggest difference in outcomes, while compensation is often the excuse of weak managers.  If you need help getting more performance from your salespeople, perhaps we should chat about your process to help you avoid suffering undesired consequences of commissions.  We’re always available at Info@GrowTheBench.com to help.