Salary vs. Commission - Impact on Performance

Calvin,

I'm all for team compensation. In my experience, as long as there is a difference in compensation, people try to rig the system in their own favour and they work for promotions.

I look at the team as an immune system. No external intervention is required. Parts of the system will create justice for the system.

Team members maintain justice for team members. Slackers are to be punished... by fellow team members not an external manager.

In my consulting world "punishment" means hard labour at the local temp labour agency.

Team members become part of the team culture. Backstabbing culture attracts and creates backstabbers and repels good people. A culture of hard work, high morale, passion and enthusiasm attracts and creates people of hard work, high morale, passion and enthusiasm and repels slackers.

And the kicker is this. Same base pay for everyone and same bonus. That is, take people's eyes away from the money differences and let them perform at their best.

The creativity and effectiveness of our decisions are the function of the number of connections we can make between our brain cells. The more connections we make, the better the decisions we make. Now, let's say, for the sake of simplicity, you have four brain cells, so you can make maximum six connections. In isolation I can make the same six connections with my four brain cells. But together we can make 28 connections.

Here is a different explanation. I'm an ex farmer, so I love animal examples...

Chimpanzees have the largest brains among animals. They are individual geniuses. But their group IQ is basically idiotic. Baboons, on the other hand, have pretty low individual IQ but very high group IQ. Baboons are a great example of collaboration.

Total number of connections = (Number of brain cells * (Number of brain cells - 1)) / 2

It means the quality of our joint decisions is 366% higher than the decisions either of us can make in isolation.

So, if you have two salespeople each of whom sells $1 million worth of cars per year, working in a team they can sell $4.6 million worth of cars.

And these salespeople will have loyalty and commitment to the dealership and accountability to their team mates.

Calvin, this is not easy to implement. But when it's done, it's pretty amazing. Internal competition vanishes and team members focus on doing their best work and enjoy the process.

Every time I've ever walked into a car dealership, I could smell duplicity, backstabbing, greed and rivalry in the air. And people do that too. That's why buying a car is one of the most traumatic experiences... especially for women.

Originally Posted by Calvin Also, do you see any inherent problems with team compensation?

No. it attracts team player and repels prima donnas. But this is what we want, don't we?

Thoughts?

Originally Posted by Julian Is that because they are more "focused" on getting results and are in a win : lose situation?

IMO, there are several possible reasons why this happens. Yes, one reason could be the focus that develops in the sell or sink arena. Another possibility is the caliber of salesperson that is attracted to the straight commission versus the salaried environment.

Originally Posted by AZBroker Another possibility is the caliber of salesperson that is attracted to the straight commission versus the salaried environment.

But what I'm also hearing is that today's salesperson must be more "service" focused than merely "hitting quota" focused.

The salary allows people to focus on playing a great game. The commission makes people focus on watching the score board, which makes it hard to play even a good game.

Originally Posted by Bald Dog But what I'm also hearing is that today's salesperson must be more "service" focused than merely "hitting quota" focused.

IMO, the salesperson that is attracted to the straight commission environment is more likely to be service focused than the salesperson who chooses the salaried environment.

Originally Posted by Bald Dog And the kicker is this. Same base pay for everyone and same bonus. That is, take people's eyes away from the money differences and let them perform at their best.

I asked one of the top dogs about this and he said he would hire a team of assistants and pay them appropriately for the work they do but he wouldn't pay everyone on the team the same.

Originally Posted by Thomas I asked one of the top dogs about this and he said he would hire a team of assistants and pay them appropriately for the work they do but he wouldn't pay everyone on the team the same.

Well, this is not a mainstream idea. Edison had to beg congress several times to let him install light bulbs for free. Congress kept turning his idea down.

The conventional wisdom in the corporate world is that a workplace must be competitive and somewhat cut-throat to enhance people's ambition.... yes, to succeed at their own colleagues' expense.

But I want the team to perform, not the individuals. E.g. Put together 10 Harvard top-notch MBAs, and they couldn't start up a business consulting firm even with a gun to their heads.

As the saying goes, if you chase two rabbits, you'll catch none (Believe me. I'm an ex-rabbit farmer, so this is first-hand experience for me). And that one rabbit is increased company-wide profitability.

Here is one advantage of paying the same. Everyone on the team is working towards one objective: Providing great service that maximises the company's profit. They know that the more the company makes, automatically, the more team members make. The better they collaborate, as opposed compete, with each other, the more money they generate for the company and for themselves.

But due to its collegial nature it's more suitable for women (natural collaborators) than men (natural competitors). And here comes my bias. Over the years, every time I've been hired to help to hire business development staff, I've never hired one single man, and probably never will. I've had my fair share of guys with inflated egos and this socialistic "entitlement" mindset: Pay me because I have a triple Ph.D. in rabbit chasing.

Women seem to be more practical and collaborative. And it seems to work.

Professional athletes work as a team but they aren't all paid the same. Why should it be different in sales?

Originally Posted by Thomas Professional athletes work as a team but they aren't all paid the same. Why should it be different in sales?

I missed something intially.

http://www.netmba.com/mgmt/ob/motivation/mcgregor/

McGregor's X and Y theory. Theory X says that people are lazy, lousy, and need whipping and cajoling.

Theory Y says people do their best because they're proud of hat they're doing.

I'm more for the theory Y approach witch specific consequences. I found it in the army that whatever I expected of people and demonstrated through my behaviour is what they lived up to. My behavior set the pace not the so-called rules.

Thougths?

Originally Posted by Bald Dog I'm more for the theory Y approach witch specific consequences. I found it in the army that whatever I expected of people and demonstrated through my behaviour is what they lived up to. My behavior set the pace not the so-called rules. Thougths?

I don't understand those things but I was thinking about it and I think ALL professional sports teams pay each player differently and the team still functions great.

What about medicine? I don't think a general nurse should get the same pay as the specialized surgeon just because she's on the same surgical team. I don't think the team would function better because of it either.

Originally Posted by Thomas I don't understand those things but I was thinking about it and I think ALL professional sports teams pay each player differently and the team still functions great.

Just read the article at the link and see how you perceive people in general? What applies to your more strongly. Theory X or Y? We may have the difference here. I see the best in people until they prove me wrong. But I'm the minority.

They function great. Yes. What they are also missing is that how much better they could perform.

Originally Posted by Thomas What about medicine? I don't think a general nurse should get the same pay as the specialized surgeon just because she's on the same surgical team. I don't think the team would function better because of it either.

My thought is this: Which approach makes the most profitable clinic? (as opposed to the highest paid individuals) Without the general nurses' contribution the surgeon's work is useless. And vice versa. In this situation the client's received value lies not in the surgeon or the nurse, but the synergy of the team.

When I win a running competition, which of my body part takes the prize? Since the commission structure calls for one single winner.

If you have a chance to read Stephen Covey's "8th Habit," he talks about this quite extensively to avoid internal competition.