Salary vs. Commission - Impact on Performance

Originally Posted by Bald Dog Not exactly. I only talks about other alternatives. Essentially yes. Salespeople contribute to the firm's success just as the executives do. They just have different job descriptions. I would say the owner, for the risk she's taking for starting, running the business and the ultimate responsibilities, she has the right for double-dipping. But the competition vanishes among other people. I've implemented this equal salary thing at over two dozens firms, and all of the sudden all the people felt responsible for the firm's success. So, I don't say my approach is better than any other approach, but these firms have become more profitable as a result, and the people enjoy their work more than ever. So, if I compare this to the normal 43% annual attrition of salespeople, then I like what I've seen so far.

This discussion reminds me of the time in the 1970s that I went into a publicly traded electronics manufacturer as the Sr. V.P., Sales & Marketing.

A month into the job I told my boss, the Exec. V.P., that I had designed a completely new sales compensation plan. It was radically different from the one that was in place for the previous 12 years. I asked him to review it before I put it into effect.

He said that he would not review the plan. He knew that it would probably increase sales and profitability. He also knew that, if it did not produce that result, that I would change it quickly so that it did have that affect. As it turned out, the first version of my plan was not very effective. Therefore, I kept modifying it until it was effective.

He was right on both counts.

I have run nine sales forces. Each one had a different sales compensation plan. Our company has provided sales compensation consulting to dozens of client companies. Every company has a host of variables that affect their sales compensation strategies. That mitigates against a one-size-fits-all strategy. However, as in the case cited above, a really good sales manager can make almost any plan work.

Absolutely It does, I see sales team strive harder when they need to work for it.

> And please don't pay me based on what other people do (team), unless I manage that team.

The question is whether or not you have the skills to lead a team. Most salespeople don’t. Leading a team is a different skill set. That’s why team people usually don’t perform well individually. And I don’t think I’m the only example.

A team of 3 people can outperform 3 individuals by the factor of 11.

So, the 3 $1 million producer produces $3 million.

The 3 $500,000 producer in a team formation can produce $5.5 million. And even if I pay $1.5 million to the 3 people, we still have $4 million left in the kitty. And of course a team is less costly to operate than 3 individuals.

I don’t deny it, I may suck as a salesperson, but as an engineer, I understand numbers. And in the army I learnt how to put together and lead a peak-performing team. So, I'm biased.

So, this is probably the reason why I don’t care much about individual performance.

Originally Posted by Calvin How would this apply to a sales position like a manufacturers rep where the rep works alone?

If I worked as that manufacturer’s rep, I would sell the smaller deals, but broker the larger deals. Especially if I’m on full commission, there is no loyalty involved. Since the company is not loyal to me, I don’t have to be loyal to the company. I become a broker between the company and the client, but don’t allow the company to have direct access to the client. Basically I serve the client through the company’s stuff.

I agree with Bald Dog, in principle. However, in practice it difficult to make team selling perform up its potential. The functional responsibilities of each team member must be specified. Then, someone who has the right background and capabilities for that function must fill each of those positions.

It also requires specialized training for each team member, cross training, and a customized CRM system to facilitate shared information and track all commitments.

Most importantly, it requires complete active support by top management.

In My Opinion yes - if there is a structures commision payment method that indicated unless you were a good performer (hitting target) you got a simple wage - I believe a lot more sales people would hit target/

> I agree with Bald Dog, in principle. However, in practice it difficult to make team selling perform up its potential.

I think it’s the commission structure that undermines teamwork. It the euphemism for encouraging internal competition.

> The functional responsibilities of each team member must be specified. Then, someone who has the right background and capabilities for that function must fill each of those positions.

Not to mentioned that in a team we need people with the right talents and character, not merely skills.

Here I like using a horse example.

When it comes to selecting horses for a team, it requires huge experience. But when it comes to selecting 5 horses for a so-called "Puszta 5" formation, used by the horse people in Hungary, and one of the most spectacular displays of horsemanship, this is probably the pinnacle of understanding horses and horse psychology.

Why?

In the Puszta 5 formation there are three horses at the front, two horses at the rear, and the driver stands on the backs of the two rear horses. The rein is between the driver and the individual horses, and is used to set the direction of the team. And it’s kept pretty loose. But there is no harness on the horses. Actually there is no physical connection between the horses, and the driver has no communication with individual “team” members. The only thing that keeps the horses in formation is their character and discipline. And the Puszta 5 driver never uses a whip. He keeps a very loose control and relies on the horses to operate as a team and do what has to be done to get from A to B.

Business development is the same. You either hire an army of prima donnas and spend your life trying to control and keep them on track and on purpose, hoping that at least some of them pull the corporate cart in the right direction. Or you hire a few highly disciplined people of the right character and you can basically let them loose. They don’t need constant checking and controlling and also keep the company’s interest in mind. Why the company’s interest and not their own individual interest? Wealthy companies with healthy cultures keep their people wealthy. But just because the salespeople make good money doesn’t mean the company is doing well. I know there are some wealthy companies with poor people, but this is caused by a crappy culture.

> It also requires specialized training for each team member, cross training, and a customized CRM system to facilitate shared information and track all commitments.

And all this can be provided if the company is willing to invest.

> Most importantly, it requires complete active support by top management.

In most cases this is what’s missing.

What I've done with companies where there is a separate sales force is that I request 50% of all revenue to come to the business development team, and we run our own budget.

My belief is that without it's own budget a team is not a team.

Our strategy is congruent with the company's overall strategy and we don't ask for funding.

50% is to land the client and 50% is to serve the client. It's only fair.

And a percentage of this 50% becomes the compensation to the bus. dev. team. The rest is recycled into the business development team's budget for other purposes. The top dogs have no right to bark for we've earned this money.

This may sound harsh but in many companies bus. dev. people are treated like dirt. And that's unacceptable considering that they keep the company in business.

It’s time for dinner.

Cheers

That is an excellent depiction of team selling done right.

It looks like the basis for a good book.