Sales management myths: Straight commission

by Dave Kahle

I just hung up from a phone conversation with one of my clients. He was explaining to me on the sorry state of his sales force. His group of seasoned, experienced salespeople, each making a good income on a 100 percent commission compensation plan, wouldn't promote new products or seek new customers.

They were content to stay within their comfort zones of established customers and familiar products.

That contentment is more typical than most of us are willing to admit. Many distribution sales managers and principals continue to strive under the myth that salespeople are forever motivated to sell ever-larger quantities. And, we attribute much of that motivation to the 100 percent commission compensation plan.

Unfortunately, straight commission plans rarely motivate an established sales force to sell more.

The problem is that there is a bit of truth in the idea that 100 percent commission pay plans motivate salespeople. Straight commission plans do encourage new salespeople to strive for greater sales. Until, that is, they reach a level of income at which they are comfortable. Then the incredible power of ingrained habit and the allure of comfort take over, and most of them plateau.

Straight commission programs do reward certain salespeople -- the top 5 percent of any workforce -- to continually press for greater levels of achievement. But these are salespeople who are driven by the need to achieve. They will seek higher levels of performance no matter what the compensation plan.

Having just identified the exceptions, I'm convinced that the rule is the problem. And the rule is this: For all but the new and the internally driven salespeople, straight commission plans merely reward the content sales person to maintain the status quo.

Just look around at your sales force. If you are paying them 100 percent commission, you'll have a significant majority of them who have become content and complacent at their income levels.

These 100 percent commission plans also generate certain other additional problems. There is the issue of directability. Directability is a characteristic of a sales force such that, when you give them a direction, they can be reliably counted on to follow it.

We, of course, expect directability in every other employee. Imagine a delivery driver, for example, who, when you gave a direction to go to an account and pick up a return, nodded his head yes, and then totally ignored your direction. I'm not sure he would be around for long.

Or, imagine a purchasing manager, who, when you told him to bring in beginning inventory on a new line, nodded yes, and then never did it. Again, his job would clearly be in jeopardy.

Yet, we routinely allow our salespeople to ignore our direction. We have a product or a line that we want to promote, or a process that we expect of the sales force. Calling on new customers, for example, and yet a significant number of our salespeople can nod yes at the sales meeting, and then go off and ignore our direction.

The culprit, in addition to our lack of management guts, is the straight commission programs that we inherited from our predecessors. Pay a person 100 percent commission, and that person tends to think of himself as independent -- an entrepreneur who runs his own business. Your direction is just a minor irritant to him. His real direction is to do that which brings him his comfortable commission checks.

There was a time when straight commission programs made a lot of sense. When you didn't care what your sales force sold, as long as they sold something, then straight commission programs were appropriate. But in today's world, what you sell is important.

You probably have lines that are strategically important to you. You may have made a commitment to a specific manufacturer or group of manufacturers. Or there may be lines that you want to promote because of changes in your market. Or, you may just want to sell more of what brings you the best gross profit. In any case, it's likely that you want your salespeople to sell more of something and less of something else. If that's the case, then straight commission is counter-productive. It rewards the sales person to sell more of what ever is easiest to sell.

Not only are there product lines which you probably want to promote more heavily than others, there are probably also customers that you want your salespeople to focus on, to the exclusion of other customers. You may have target accounts, high-potential segments or customers to whom you want to sell more. Straight commission programs, of course, reward the salesperson for selling anything to anyone. So, if there are customers you want to more deeply penetrate, your 100 percent pay plan will be counterproductive.

Straight commission is a vestige of days gone by. Much of the reason for that has to do with the sophistication of your IT system. There was a time when the only measurements you could easily create were measurements of sales and gross profits. It made sense, then, to use those measurements of sales and gross profits as a means of rewarding a salesperson. However, today's information systems are far more sophisticated, allowing the astute manager the option to measure sales behavior much more finely than just sales and gross profits.

Measurements of things like these are relatively common:
• increase in the number of categories sold per account;
• increase in sales, gross profits and categories in key accounts; and,
• increase n the number of SKUs sold per category, per account.

With the ability to measure sales behavior much more finely, the prospect of rewarding sales behavior much more finely is now easily done and administered.

All of this leads us to an obvious conclusion. If you are currently paying your sales force on a 100 percent commission plan, it is time to examine some alternatives.

Dave Kahle is a consultant and trainer who helps his clients increase their sales and improve their sales productivity.  He can be reached at The DaCo Corporation, 15 Ionia SW, Suite 220, Grand Rapids, MI 49503, by phone at , or via e-mail at .

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