It’s not hard to validate the oft-expressed observation that sales is typically the sole responsibility of autonomous agents. Companies advise their salespeople that they will be held accountable for outcomes, not activities. They are paid commissions — and sometimes only commissions, with no fixed salary. And they are encouraged, in most cases, to manage their territories, their accounts, and their sales opportunities as if they were, well, their own.

Justin Roff-Marsh

Justin Roff-Marsh

Answer these three simple questions:

  1. If an important sales opportunity is lost, who is ultimately responsible?
  2. If an important customer is dissatisfied, who is ultimately responsible?
  3. If an account falls into arrears on its payments, who is ultimately responsible?

Salespeople spend so little time selling because they have so many responsibilities competing for their limited time, because each salesperson is a self-contained sales function.

Consider this: What has caused both the productivity and the quality of manufacturing to increase by many orders of magnitude over the last 100 years?

The answer is centralized scheduling and division of labor. And division of labor has had the same catalytic effect on project environments (think construction, aerospace, finance, and even marketing). Yet the modern sales environment is, in key ways, analogous to manufacturing as it looked more than a century ago.

That’s about to change. Silent revolutionaries have fruitlessly scrutinized sales for evidence that the function is somehow unsuitable for centralized scheduling and division of labor. Their new assumption, around which their sales environments have been engineered, is simple but powerful: Sales is the responsibility of a centrally coordinated team.

The Dedicated Sales Coordinator

Sales must be viewed as a machine, where tasks like prospecting and setting up sales meetings are shared and delegated within an in-house team.Opinion_Bug7

We should not begin this discussion by asking whether sales commissions make sense. Rather, we should ask whether we should sell via autonomous agents, or via a centrally coordinated team where sales professionals are paid as salaried employees and team members rather than independent outsiders. With this reengineered model, salespeople get dedicated executive assistants, or sales coordinators, who will free them to do nothing but sell.

Do Salespeople Need Special Motivation?

If salespeople don’t have the opportunity to earn commission, why would they sell?

I wish I had a dollar for every time an incredulous executive has asked me that question.

You would think the onus should be on the defender of performance pay to present an argument. After all, receptionists answer the phone when it rings, without getting incremental pay. Your controller does a good job of paying bills on time, without getting a per-check rebate. Even senior executives perform important tasks absent special incentives. (I’m assuming that no one is paying you to read this!)

Should salespeople differ from almost every other worker on the planet? The reason behind the obvious answer to that question (“No”) is simple: Absent the opportunity to earn a commission, salespeople will still sell because they are salespeople. (Just as receptionists answer the phone because they are receptionists.)

The “new” plan being proposed here, then, is not even new: It’s exactly the same plan used to compensate everyone else in the organization.

In the excellent best-seller “Drive: The Surprising Truth About What Motivates Us” (Riverhead Books, 2009), Daniel Pink presents a powerful case against performance pay. His conclusion — backed up by many social sciences experiments — is that external rewards retard the performance of knowledge workers. Such rewards have a positive effect only in situations where workers are performing mindless, repetitive tasks.

With these points in mind, commissions may be defensible in traditional sales environments — not because they motivate salespeople to sell, but because they motivate them to prospect. But that argument is moot with an internal, team-based sales approach that frees sales folks from the requirement to generate their own sales meetings.

When a significant component of salespeople’s pay is performance-based, management has formally abdicated its responsibility for sales. In so doing, management has telegraphed to salespeople that selling is optional! It is up to each individual salesperson to generate sales in the quantity of his or her choosing.

Calculating Salespeople’s Salaries

There are no surprises here either. As with all employees, there are two considerations:

  • Replacement cost (how much would you have to pay for another person with a comparable set of capabilities?)
  • Asking price (how much do you have to pay someone to ensure that the compensation plan is not a regular topic of conversation?)

It should go without saying that it would be foolish to propose that salespeople (or any team members) take a cut in pay when you transition to this new model. Most of our fellow, silent revolutionaries shift their salespeople to a salary that’s equal to, or slightly greater than, their average total earnings over some prior period, often three years.

Both parties are getting a terrific deal here.

Salespeople are receiving a not-insignificant pay gain. Obviously, the potential to earn a certain amount of money is not worth nearly as much as the same figure, guaranteed.

Meanwhile, management is increasing the volume of effective work performed by each salesperson. In our experience, companies that have reengineered the sales function to a team approach, using coordinated scheduling and division of labor, have realized sales-productivity improvements that are worth far more than an incremental increase in salespeople’s compensation and the cost of a sales coordinator.

The transition to this reengineered environment can be difficult for sales managers. However, if the ones who have transitioned were to refer to a previously compiled list everything they thought they knew for sure about sales, almost every statement on that list would now be false.

Justin Roff-Marsh is the founder and president of Ballistix, a sales management and marketing consultant, and author of the new book “The Machine: A Radical Approach to the Design of the Sales Function” (Greenleaf Book Group Press, October 20, 2015).

14 responses to “Companies Should Stop Paying Sales Commissions”

  1. I could agree as long as the company is practicing differentiation and holding employees accountable to performance, rewarding top performers, mentoring the middle 60-70%, and discharging the bottom 10-20%.

    • Hi Bruce, I’ve thought a lot out that your theory over time and could not agree more. I think if you are hiring great people then there is no need to discharge anyone annually. Also, a great manager of a team will recognize that each individual can add positively to the team and that a very successful team is balanced. Territories and accounts are never created equal and sometimes those that are “top producers” are those with better account packages. If you match a fantastic prospector with a fabulous closer and a great ongoing coverage person as a team, the team will perform better than the individual. I’ve seen it work well. It makes the client feel that they are getting much better value out of the relationship because more people are working for them. In addition if one individual leaves the firm you don’t loose the entire relationship. An old school cut throat environment where some people win big and others can’t pay their mortgage can result in people manipulating numbers and or accounts being assigned to friends. If you are chopping 15% each year even the most skilled salesperson could have a bad year due to a change in the health of their account package. If you have to chop 15% a year out of a group of “A” students then ask yourself if you are hiring the wrong people or if you are not structuring responsibilities or rewards to get the most out of the smart people you invested in.

  2. The commentary in this article is Incredibly naive and filled with inaccuracies.
    * Commissions offer companies and sales people a risk / reward structure – both benefit from this model
    * Sales people have a completely different personality than an AP clerk or receptionist (comparing them is ludicrous)
    * Many companies have tried the autonomous agent model. While it is true that this can be an effective sales channel the Pareto principle still holds true (i.e. the majority of the revenue comes through direct sales)
    * If a sales person isn’t motivated by commission, then that person isn’t a good fit for sales

    • Agreed Michael S. Big miss on this one. But, then again, I’m coming from the high-tech vendor and reseller ranks. Without substantial commission structures, companies get mediocrity and those that think that 80% is “good enough”. Or 60%.

  3. This article is big on “platitudes” but as Michael S. mentioned, its naïve and rife with inaccurate assumptions. “Commissions aren’t necessary to motivate salespeople, and in fact they’ll be more productive with a straight salary…” Dead wrong. Commissions are an incentive not to coast, they’re a reward for excelling, and they’re how we keep score. “Productivity” is a measure of effectiveness and outcomes. I fail to see how changing a commissioned sales professional to a salaried one would make them any more productive. That’s not only a reach, but also an oversimplification.

  4. I have to ask, why did you start your own business?
    If you believe what you wrote, then why not give away all of the money your business has made above and beyond your last salaried position? I think you probably started your business because it allowed you to earn more than otherwise while working in your own creative way. Good salespeople are very similar and they will not continue to produce big results that require greater efforts/skills if the reward is about the same as any job providing 3% raises and average effort. That is a recipe for mediocrity and demotivation. It sounds like the owner of the company is getting greedy to me; otherwise why cap the upside potential while converting to a higher paying salary? It is because the owner thinks a big order won’t have to have a big payout. Well the big orders won’t come anymore, and if one does, it won’t repeat because the reward won’t match the effort.

  5. Could not disagree more! As a consultant, do you get paid? Perhaps you could also go on a straight salary. Say at maybe $15.00 an hour. Heck, that should be motivation enough according to your parameters. For the record, Sales People are a different breed. There are good and bad in every line of work. But, as a very seasoned professional I have experienced all different scenarios: salary/bonus, salary/bonus/raise, draw/commission, straight commission. It is completely up to the management team to monitor the activity of the sales person BUT it is the successful salesperson who knows their goals, consistently STRIVES to beat them and become the #1 or close to the top leader.

  6. Comparing the challenge of creating a sale from nothing to a receptionist answering the phone shows that the author has no clue what it’s like to be a sales rep and is ill informed of the motivational benefits of compensation.

  7. Wow. A lot of incredulity: not many well-formed arguments yet!

    So, I have an advantage over most commenters here. For 20 years I’ve been convincing our clients to transition away from performance pay and towards normal salaries and towards a more conventional approach to the management of the sales function.

    Consequently, I’m privy to insights that others don’t have. Bottom line, is that eliminating commissions does NOT cause reductions in sales performance, as middle management tends to assume that it will. And the transition to salary definately DOES render salespeople manageable.

    Happy to answer questions about our experiences in practice. Or, of course, considered criticism of my ideas (in theory).

  8. I completely agree with you Justin. As a 30 year successful sales veteran I never understood why an employer felt he/she needed to dangle a commission plan in front of me to motivate me to do my job!!! Looking at salespeople as “different” than other employees is another great misconception. This is exactly why there is such paranoia and dysfunction in the business community in regard to how and who to hire in Sales and how to pay them. The angst I see is ridiculous and can be eliminated with viewing Sales as an equal and normal department in a well functioning business.

  9. If a company switches from paying their Sales Reps a Base pay + Commission to paying a Base Pay + Bonus (at the end of the year) which they are saying will likely be higher than the OTE Promised in the previous agreement but are refusing to increase the Base Salary is that fair? I am asking because I am in this situation and was relying on the commissions I was making to pay my monthly bills and got this notice with little to no warning and am completely blind-sighted, I feel it is very much up to my managers discretion and anything can happen and interfere with my bonus between now and Jan 2021. Additionally, we are supposed to get a company bonus, team bonus and individual bonus and what if the company does not have a great year? What if you get laid off or need to resign or change jos mid year…no compensation for sales? ANY advice would be greatly appreciated, thank you in advance!

  10. Could not disagree more.
    As a commission salesperson in capital equipment sales, I start earning dollar one in commission at 85% of the company’s forecast. If I perform above 100% of plan I make a tremendous commission. If I fail to make the 85% threshold I barely get by. The system you describe would work if salaries would be adjusted to what a salesperson would have earned at 100%. That never happens. Unfortunately we all know that this idea put forth by CFO’s is usually a way to pay performers less, with the assumption that the performance will be the same allowing the company to put more net profit to the bottom line. In 40 years of my sales career I have seen this approach several times before. It’s not new or revolutionary thinking. It also never works. The sales department become farmers instead of hunters and the rate of growth is invariably slowed. The idea that the more the sales professional sells, the more the company makes seems lost on the financial people who seem to imply that sales are easy, salespersons are overpaid, and nowhere near as valuable to the organization as say, a CFO. I have experienced Wharton School MBA’s and Harvard Business School grads who have tried to implement this approach. In the end, they simply fail to realize that customers buy from people they know will support them and do what they say they will do. Brand awareness, marketing programs, even pricing, have less of an effect on sales than the interaction between buyer and seller.
    This is the difference between counting fish in the boat and not fully understanding how they got in the boat in the first place. Then again, put the plan in place…kiss double digit growth goodbye and welcome your company to the world of 3% annual growth rate.

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