At an early age, we are rewarded for actions which we receive positive encouragement; “David, put your blocks away”. Blocks go. “Well done!!! You can have a gold star”. Next time, David happily puts away the blocks as he knows that this behavior will be rewarded.
As sales professionals, we are rewarded through commission payments. If we do well and sell, we are encouraged with a commission cheque. If we don’t sell well, we don’t get paid. There is no question that receiving rewards in the form of commission motivates sales reps to succeed.
Commission is not the only positive motivator; balance between work time and family, training and recognition in the company newsletter are examples of other types of rewards. For now, let’s focus on commission as this is likely to be your number one motivator. It can also be your number one de-motivator.
Commission schemes can quickly flip to being a negative motivator. For example, if your commission is paid late or incorrectly, then trust in your employer and Sales Manager evaporates and commission switches from being a positive to negative motivator.
A negatively viewed commission scheme is likely to cause sales reps, or potentially the whole sales team, to fight the system. They may, for example, find ways of moving deals in and out of quarters or engage in unproductive compensation side deals with their peers. There are many ways that a dissatisfied sales rep can and will make the life hell for the Sales Manager.
In his article titled “Behind the Revenue: Better Managing Sales Team Motivation” (Business Performance Management, December 2008, pp24-29), Mark Smith talks about the factors that can cause the switch from what should be positive encouragement to a de-motivator; “By paying greater attention to the management of the compensation of sales representatives, [sales mangers] can improve the motivation of their sales force and boost their chances of meeting revenue targets”. Smith describes some factors that are important to keep compensation as a positive motivator:
These are team factors that Sales Managers need to be aware of, and accurately stay on top of. There are personal factors that the Sales Manager must also be aware of:
The messages to Sales Managers is clear; your salespeople will perform best when they are encouraged and motivated, and a top motivator for a sales rep is their commission. You need to structure commission to reward those behaviors you want to see displayed by your team.
David Black BBus MBA GAICD FAIM
Growth in Focus Pty Ltd
Checklist for Commission Schemes
- Commission plan formulated and approved and communicated at least two months before the start of the plan year. We have seen situations where targets we set after the end of a plan period! This is laughable and highly dangerous to your management credibility and your business
- Plan document written in plain language, with clear rules for handling normal sales team eventualities, such as:
a. New hire treatment
b. Sales person leaving mid-plan
c. Payment timing (and stick to it!)
d. Situations where “claw back” may be required – clearly stated
e. Territory changes through the plan year
f. Major account changes within the plan year
g. “Bluebird” treatment – unexpected abnormally high-value deals
h. Management of margin particularly if sales people have any pricing power
i. Management of contract risk
- The Business Manager, CFO and Sales Manager must sign the commission plan document. This is a legal document that forms part of the sales team’s compensation package. There cannot be disagreement between the executive team on the function and operation of the commission plan. The business manager and CFO should satisfy themselves that they will be happy to pay commissions as they arise because of the positive benefits to the company
- Every sales person must sign acceptance of their targets and acceptance of the plan. No signature, no commission
- Make every effort to avoid changing the plan during the plan period
David leads our Consulting Sales and Sales Tools team, bringing more than 25 years of experience to each client. With more than 25 years sales and management experience. His expertise is within many industry sectors including Mining, Oil & Gas, Utilities, Finance and State and Federal Government sectors.
David has held sales roles in include Denver Technology, Ajilon Australia, Datacom Systems, NEC, Permeance Technologies and Yenem Engineering Services.