Sales Commissions Must Die

The only way the world will ever achieve honesty and ethics in sales is to completely eliminate sales commissions from the equation.

And you can quote me on that.

I've been trying to capture this concept in writing for six months, but I kept hitting roadblocks, deleting what I wrote and shelving it for a while. I think I figured out why -- making the full case is too complex for a short blog entry. Instead, I need to convey the concept in basic form and hope a few people who agree and disagree pick up the banner, start a debate and flesh it out together.

So following will be a disjointed train of thought that I hope makes the basic point.

• I believe that all salespeople should be honest with their prospects and strive to be moral and ethical in all aspects of their jobs. Just like all executives, department heads, managers, employees, etc. in every other department at all companies. And I think those who don't -- meaning the career liars -- should be drawn and quartered in the town square. (Okay, maybe torture is a tad strong. How about we just line them up for the firing squad instead?)
• One of the things my father taught me in my youth came in the form of a casual comment he made while snapping a lock closed on his tool trailer. "Locks keep honest people honest," he said. "They won't stop the career criminals, but they will keep the honest folks from succumbing to easy temptation."
• There is no "make sure my employees are honest" process you can invent that a dishonest employee can't get around. (See Dad's lesson about locks.)
• In my experience, the top people on a sales team -- the 20 percent that close 80 percent of the business -- would not be happy without the bottom 80 percent, because they truly enjoy being recognized as the best. And without the bottom people to sit in wide-eyed awe, your ego gets no strokes.
• On every sales team with which I have ever been involved, I have found most dishonesty resides in the tier-two salespeople -- the folks who are driven to be the best but who just can't seem to get there. (Interestingly, it's usually honesty that will get them to the top, but they just don't "get it.")
• Assuming your company is larger than one person, and successful, it is surely built of people working together for a common cause. To illustrate this point, let's talk about a 100-person manufacturer with a standard corporate structure. It has operations teams, manufacturing teams, accounting teams, HR teams, marketing teams, PR teams, delivery teams, maintenance teams -- you get the idea. All the people on these teams draw salaries or an hourly wage -- none get base pay for individual accomplishment. Sure, the company uses a profit-sharing model or bonus structure to reward growth and individual achievement, but its employees' base pay is fixed -- and everyone thrives.
• I believe it is contrary to company culture, sound business practices and common sense to pay your sales team differently than all these other teams at your company. And I believe this pay difference is the root cause of all conflicts generated within the sales department itself, and between the sales department and all other departments.
• Suppose for a moment you paid each person on your accounting team a small salary plus a portion of any bottom-line dollar he or she could generate for the company every day. Further suppose you put a chart on the wall of all accountants' status -- showing their rankings of best to worse in their ability to generate those dollars. What kind of people would be attracted to this team? Would they be competitive or collaborative? Would they be money-driven or team-oriented? Would those with bills to pay -- like the guy with the gambling problem -- be tempted to cook the books a bit, "spin" results or exaggerate "all the money we're about to save"? Would they get along as well with the other departments -- the ones spending the money they're trying to save? Would egos clash? Would bottom-tier accountants come and go every year? Would top-tier accountants strut just a bit?

Whenever you have a situation where one team -- a company, for example -- is made up of two groups -- employees drawing salary and salespeople earning commissions -- you will have constant conflict between the two groups. And no locks will ever cease the conflict.

Sales commissions reward competitiveness over collaboration. Sales commissions reward individuality and chest-beating over teamwork. Sales commissions reward trickery over honesty.

If you want your sales team to exhibit the same collaboration, teamwork and honesty demonstrated by the rest of the people at your company, sales commissions must die.

Gill E. Wagner, Sage of Selling
President of Honest Selling
Founder of the Yellow-Tie International Business Development Association

Comments

[Chris Marshall]

I disagree with the comments in "Sales Commissions Must Die" both in general terms, which may be fodder for ongoing debate, and in specific circumstances, which likely were not considered in this article.

First of all, I think the article errs by imputing the creation of dishonest salespeople upon a commission-based system. Such individuals were dishonest before they went to work. In a non-commission environment, where there will necessarily be production quotas for salespeople (as there are in manufacturing, accounting, and even in the CEO’s office), the dishonest will still behave dishonestly in an attempt to keep their jobs.

Second, sales is the only part of a company besides the executive leadership which can double, triple or quadruple (or more) its production, whether honest or not. Someone on the line at Chrysler simply can’t suddenly start making five times as many cars. Good, honest salespeople can do just that, and do so all the time. As an aside, many CEOs are on a commission system via stock options or executive bonus. The author doesn’t assert that this singles them out from the other company departments, as he states that commissions do for salespeople.

Finally, commissions are the great equalizer. “Your raise will become effective when you do.” A company can audition a salesperson to see if they are effective without paying an unearned salary for some long time in the process. We do this with product tests in many other areas. Furthermore, sales commissions are equitably allocated based on value to the corporation. Removing commissions and paying salary will reward the underperformers with a “welfare” distribution taken from the performers. History tells us that bringing down the haves in an attempt to subsidize the have-nots ends up hurting both. On the other hand, the ability to increase earnings causes the honest salesman to find innovative ways of finding and satisfying new customers. It is this pressure which would not be nearly as present with salaried salesmen.

In spite of the debate that may ensue over my comments, here are some specific areas where I think we may all agree that sales commissions make sense:

• Service providers. I don’t want to pay a real estate agent $20,000 and then hope they sell my home. My physician and my plumber both work on commission. I trust them to honestly recommend the services I need, knowing that if they over-recommend, they’ll make more money providing the services. In fact, as a computer consultant, I sell my own services every day. I must ethically determine what a client needs, and neither over- nor under-sell, as either is a disservice to the client.

• Affiliate sales. I once referred a friend to a car dealer after having a great experience myself. My friend bought a car, because the deal was the best she could find, and the dealer sent me a check for $50. Everybody won, but the dealer could never afford to pay all of its clients any type of salary to keep them in the loop. This is common in many industries.

• Sales as feedback. Suppose a company’s commissioned sales people, whose interests are in perfect alignment with the corporation, start to lose sales. If commissioned sales have decreased, it’s an immediate red flag to management that the demands of the market or the pricing or service of the competition have changed. Under a salary model it would be hard to identify whether a decrease was due to market pressure or the inevitable tendency to gravitate to mediocrity when high performance makes no difference.

In conclusion, the author has recently adopted the practice of giving away his wares as part of a realignment of his business model. This is admirable, and perhaps bears imitation by others. But to support this new business model by painting the rest of the industry with the broadest of brushes leaves me puzzled.