We recently responded to the following question on LinkedIn:

Sure seems like nobody wants to work for commission only anymore.. selling software … Anybody know why? Its a job.

Great question and I agree with the other posters here – this is a rough economy and people know that in many companies, the sales aren’t going to come easy or often.

That said, there are many sectors where 100% commission is the tradition and in this economy many employers feel they have leverage in offering full commission positions.

It looks good on paper and you can certainly find people to work for 100% commission, but there are some caveats, especially if it is not the norm in your sector to pay 100% commission:

– Offering a salary, even a below market salary, implies a company has some degree of staying power
– Offering a salary helps share the investment required for a new hire to learn about your business (a salary is and should be below the target income that a rep wants to make to create incentive, so the new hire is not making what they want while they learn your business – they are investing as much as the company)
– Offering a salary demonstrates commitment to the new hire
– Candidates who have options will place a lower value on a company offering no base salary – it is an emotional reaction, not always logical
– Anyone who can get a position with salary will likely go for it, so even if you hire someone on full commission, they may end up taking the position because they need a job, but continue to search for a better position
– You will not be able to hire the top performers in the industry or the best qualified unless all of your competitors pay no base salary and you are hiring from within the industry (…and building a team of B or C players and other company’s castoffs, is absolute suicide for the sales leader/owner – messed up leads, pissed off customers, higher turnover, wasted management and training time..and on)

If paying 100% commission is not the norm in your industry, you can still find great people who will work for 100% commission – there is a certain type who are convinced they can sell your product, will be attracted to a highly leveraged comp and will take the risk – it just may take you a very very long time to find that special person and in the meantime, you are passing up good profitable sales that would otherwise have been won by your company.

Sometimes paying a small base salary can make a world of difference in terms of finding a productive sales professional in a decent time frame…and then you can focus on building your sales instead of hiring.

To your success!

Eliot.

Sure seems like nobody wants to work for commission only anymore.. selling software … Anybody know why? Its a job.

Great question and I agree with the other posters here – this is a rough economy and people know that in many companies, the sales aren’t going to come easy or often.

That said, there are many sectors where 100% commission is the tradition and in this economy many employers feel they have leverage in offering full commission positions.

It looks good on paper and you can certainly find people to work for 100% commission, but there are some caveats, especially if it is not the norm in your sector to pay 100% commission:

– Offering a salary, even a below market salary, implies a company has some degree of staying power
– Offering a salary helps share the investment required for a new hire to learn about your business (a salary is and should be below the target income that a rep wants to make to create incentive, so the new hire is not making what they want while they learn your business – they are investing as much as the company)
– Offering a salary demonstrates commitment to the new hire
– Candidates who have options will place a lower value on a company offering no base salary – it is an emotional reaction, not always logical
– Anyone who can get a position with salary will likely go for it, so even if you hire someone on full commission, they may end up taking the position because they need a job, but continue to search for a better position
– You will not be able to hire the top performers in the industry or the best qualified unless all of your competitors pay no base salary and you are hiring from within the industry (…and building a team of B or C players and other company’s castoffs, is absolute suicide for the sales leader/owner – messed up leads, pissed off customers, higher turnover, wasted management and training time..and on)

If paying 100% commission is not the norm in your industry, you can still find great people who will work for 100% commission – there is a certain type who are convinced they can sell your product, will be attracted to a highly leveraged comp and will take the risk – it just may take you a very very long time to find that special person and in the meantime, you are passing up good profitable sales that would otherwise have been won by your company.

Sometimes paying a small base salary can make a world of difference in terms of finding a productive sales professional in a decent time frame…and then you can focus on building your sales instead of hiring.

To your success!

Eliot.

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A few days ago I bought a new cellphone at a retail outlet and thought I would share the experience since it highlights how not to design a comp plan (no need to mention the company).

The store rep was great, engaging me, asking questions, showing various different products and sharing facts and opinions on each. I might add, he successfully upsold me on a couple of items. Great service and a good sales for his company. After I had paid for the items he mentioned I would likely get a customer service call asking me to rate my buying experience. Straight forward so far. So he informs me that how I respond on this followup call is critical to him receiving any commission for this sale. He further explains that if I don’t use specific words in my response he would not be entitled to any commission at all. For example if I said the service was “great” but didn’t say “perfect” he would not secure any commission. And he expressed his opinion that this is just one of the ways that his employer tries to screw its sales staff – his words not mine.

This finish almost ruined a great buying experience for me and I blame the company not the rep.

First of all, when I buy something, I want to pay and go. I shouldn’t have to spend my time being coached on how to respond to a courtesy call or feel obliged to take the call at all.

Second, I shouldn’t have to hear about a reps comp plan and a company’s internal problems. None of this is my business and it should be transparent to me. It makes the company look bad.

Third, the company is being petty to be so strict about the way it comps its reps. Surely, I could say the rep was great and that I would buy there again and the rep should be entitled to a commission?!

This serves as a good reminder to all sales managers and employers to incent the sales staff to provide courteous and good quality service, *which includes* the staff feeling good about their compensation plan. If you are not sure if your reps feel the comp plan is fair ask them. And don’t assume they will tell you the truth, so find ways to ensure they feel their honesty will not be punished.

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Eliot Burdett

CEO at Peak Sales Recruiting

Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Latest posts by Eliot Burdett (see all)

• 20 Of Our Favorite Books About Sales Management and Sales Leadership – October 20, 2023
• How To Make Progress On Your Sales Goal Without A Sales Leader – September 15, 2021
• Augment Your Recruiting Strategy During “The Great Resignation” – July 26, 2021

One of the most challenging areas in a company’s incentive plans are sales compensation plans. We often get asked to provide input on comp plan strategy and it is actually part of Peak’s recruiting services.

I ran across this article on article on compensation from our good friend Colleen Francis at Engage Selling (www.engageselling.com). She offers a true or false quiz to help you evaluate your comp plans.

Questions:

1. Sales people perform exactly as they are paid to perform?

2. Its OK to have a complicated compensation plan?

3. Introduce the new compensation plan part way through the first month of the New Year?

***********************************************************************

Answers:

True: Your sales team will behave exactly according to how the plan best rewards them, concentrating their efforts on what pays the most. If you have a specific objective (e.g. new customers, more repeat sales, higher levels of customer service), then you must reward the behaviors that pursue those goals. When revising your current incentive plan start by defining the desired objectives first, and then match the reward to having those objectives met.

False: The more complex the compensation plan, the easier it is to misunderstand or manipulate. For example, if your salespeople are assigned to geographic territories, be sure to develop and communicate clear guidelines on how they can sell to accounts that cut across territories, and how they’ll be rewarded for those sales. Make sure everybody knows and understands the rules. Sales professionals that don’t understand their compensation assume (sometimes unfairly) that it’s working against their best interests. This creates resentment.

False: Managers need to provide their teams a heads up on how they will be compensated the next year to allow for planning and pipeline development. Introduce the plan a couple of weeks before you are scheduled to implement it, giving your team a few days to digest its contents. Then hold a group meeting to discuss it. Meet with each salesperson privately to reinforce the plan and address questions and concerns that weren’t raised before the group. Ask your people about the plan to check for understanding.

Summary

Make sure you understand the plan and all its rules yourself. Review and edit the plan with your sales manager, and bring a non-sales manager into the discussion for a different point of view. Together, you should anticipate the questions your team will have and prepare solid answers. Remember: your salespeople will check whether their potential compensation might decline under the new plan. If that’s the case, be prepared to defend the changes.

All good advice – we have written several articles on this topic as well..see here–> Compensation and Incentives

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We often receive questions about the merits of various comp plan elements and alternatives. Recently received a question about the frequency of bonuses.

The right mix of incentives and structure depends on what you are trying to achieve. While commissions are typically tied to closed sales, while bonuses are often linked to other sales events and MBO’s, any incentive should be tied to behavior and activities you want from your reps.

For instance, companies that want a high volume of activity, often pay commissions on a regular basis – monthly or even more frequent – in order to sustain high levels of output. The downside is that it creates a very short-term focus. Reps that are compensated on number of calls or leads, may be less interested in customer satisfaction than making calls to achieve their targets. Reps that are paid monthly rather than quarterly, may create sales spikes right before month when they are most focused on achieving their targets.

“Spiffs” are often used on top of the normal comp incentives to support specific sales campaigns – ie. additional commissions on certain types or sales for the current month, or $X for all reps who sell more than Y products this month.

While most reps (most people) would prefer more frequent incentives which create regular cash flow, companies often prefer paying incentives less frequently to preserve cash flow. Incentives paid quarterly may eliminate monthly spikes, but less frequent incentive calculations typically also produce less short term results. On a longer sales cycle or with larger deals, monthly incentives may be irrelevant and quarterly incentive calculations are more common.

Bonuses tied to team or company performance are often paid annually, when the numbers are actually tallied (revenues, profits, EBITDA, etc).

In all cases, the best incentives are easy to interpret for the rep, and tied to events the reps can directly control and influence through their own behavior.

We often receive questions about the merits of various comp plan elements and alternatives. Recently received a question about the frequency of bonuses.

The right mix of incentives and structure depends on what you are trying to achieve. While commissions are typically tied to closed sales, while bonuses are often linked to other sales events and MBO’s, any incentive should be tied to behavior and activities you want from your reps.

For instance, companies that want a high volume of activity, often pay commissions on a regular basis – monthly or even more frequent – in order to sustain high levels of output. The downside is that it creates a very short-term focus. Reps that are compensated on number of calls or leads, may be less interested in customer satisfaction than making calls to achieve their targets. Reps that are paid monthly rather than quarterly, may create sales spikes right before month when they are most focused on achieving their targets.

“Spiffs” are often used on top of the normal comp incentives to support specific sales campaigns – ie. additional commissions on certain types or sales for the current month, or $X for all reps who sell more than Y products this month.

While most reps (most people) would prefer more frequent incentives which create regular cash flow, companies often prefer paying incentives less frequently to preserve cash flow. Incentives paid quarterly may eliminate monthly spikes, but less frequent incentive calculations typically also produce less short term results. On a longer sales cycle or with larger deals, monthly incentives may be irrelevant and quarterly incentive calculations are more common.

Bonuses tied to team or company performance are often paid annually, when the numbers are actually tallied (revenues, profits, EBITDA, etc).

In all cases, the best incentives are easy to interpret for the rep, and tied to events the reps can directly control and influence through their own behavior.

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