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North Central Business Journal News

WILL COMMISSIONS MOTIVATE SALES PEOPLE?

(February 2002 issue)

by Sandra Kay Neal, Ph.D.

            A reader contacted me with a problem regarding whether people are best motivated by a commission system.

            The answer is not a simple one.  Sales is a job category that covers a vast array of different aspects.  If the job is inside sales, a small commission is useful but a needs to be added to a salary since the tasks involved in inside sales include taking care of business details that are not directly tied to a specific sale.  The small commission operates like a bonus for good work and helps motivate employees to do more than just “mind the store”.  However, it is not helpful to pay inside sales people solely based on commission because the company expects those people to be present during store hours, whether they make a sale or not; therefore, they need to be paid for their non-productive time.

            If the job is outside sales, the answer is still not simple.  Some sales people enjoy the thrill of making a lot of money through commissions.  These people prefer a large commission percent without a base as they can make more money “working for themselves”.  But because they are working solely for themselves, they have minimal company loyalty and will be likely to leave if they perceive the least amount of difficulty.  Increasing the commission percentage is one of the few means available to a company to keep a commission-only sales person working for the company.

            There are other sales people who prefer the security of a base plus commission.  The advantage to a company using this pay system is that these people are paid by the company to do business details, and may develop more company loyalty.  This pay system is particularly beneficial if the amount that can be made in this sales job is relatively modest (e.g., between $30,000 and $40,000 with both base and commissions).

            Companies that offer the pay system known as draw plus commission may wish to rename the system “base plus commission”.   Although companies understand that “draw” means that the person is “drawing” against expected commissions, the employees tend to think that the “draw” is their guaranteed income.   Since that is how they tend to think, it is beneficial for the company to treat it as such.  The company also has clout in expecting the employees to attend sales meetings, participate in sales training programs, as well as handle business details that are not directly connected to sales.  A certain volume of sales can be incorporated into the job description for purposes of performance reviews.

            If the sales employee begins to generate a large number of sales, it is helpful to “promote” that sales person to a larger commission percentage.   Some company owners balk at doing this because when they look at employee costs, the line item increases drastically.  However, if these owners look at the total income, they will notice that these sales people are generating a substantial increase in company money.  Increasing the commission percentage still provides the company with more money than existed before – it is a win-win solution for everyone.  Gradually increasing the commission percentage rewards the employee for exceptional work, which tends to increase company loyalty and reduce the prospect of a top-quality sales person quitting. 

          Sandra Kay Neal holds a Ph.D. in Industrial/Organizational Psychology and has 19 years experience helping organizations solve human resource issues.   Her company, Synergistic Organizational Solutions, specializes in aiding small businesses.  Dr. Neal can be reached at sos_hr@localaccess.com.

 


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