Posted by: garispang | August 1, 2009

What’s The Best Way to Reward Sales People?

incentives and rewards

I am leading more than ten salespeoples in Singapore; who call on human resouce departments, corporations, professional firms, and institutions for Executive Search Services. For years I have been paid a base salary and commission and I have tried the full commission scheme as well. This is a sales job that requires some Sales and Marketing background, as well as the ability to find new customers since most companies eventually have their in-house recruiters. It is particularly difficult because most organizations would consider outsource their recruitment processes only when they had failed to filled the vacancy or secure the potential candidate or talent/professional on behalf for their organisation growth in term of manpower needs on the cost and time per hire metrics and projections.

As in many other industries, sales compensation practices vary dramatically. Some companies pay straight commission. Others pay only salary. And many others do some combination. I have been to seminars, talked to consultants, and read articles on the subject. (In fact, you can download a PDF file of an article the Times ran on this very topic in 1914.) I cannot think of another business topic that has such contradictory beliefs, experiences, and opinions — passionate ones at that. Everyone who has an opinion is sure it’s right.

The lines of thought run something like this:

Great salespeople are motivated by money and are risk takers. They want all the commission they can get and are confident in their abilities so they are willing to fly without a net. For some companies that works well. In my business, it takes months to find a customer, make a proposal, do the work, and get paid. That is a long time to wait for a commission check. I could give them some draw against commissions which would help during the start-up. There is another problem, though. It is difficult enough to find qualified people. As soon as some applicants hear straight commission, they head for the door. Or they never even come for the interview. Maybe that’s O.K.

Paying base plus commission makes it easier to hire, takes some of the pressure off the salespeople during the ebb and flow of business, and creates more teamwork. The problem with this approach is that it can take too much pressure off of them, which puts more pressure on the company. Also, along with making it easier to hire people, it makes it easier to hire the wrong people.

This is not like other jobs. There is no “work product” at the end of the day. It is months before you can determine if their “prospects” are actually going to turn into sales. Meanwhile, they are making more money than much of your staff. Then there is the question of how much base and how much commission. Half and half? Some people like paying straight salary — here’s a column on the topic by Inc.’s Norm Brodsky — because they can be driven to service their customers instead of driven to create opportunities for commission. It also fosters more teamwork.

Commission is supposed to be about motivation. Commission is also about keeping your cost of sales at a predictable amount and paying people fairly. One person selling a million dollars worth of product is certainly more cost effective than two selling $500,000. But what do you do if the margin is much better for the smaller account? I think everyone agrees that margins have to be taken into account when figuring commissions. Paying a straight commission with the salesperson having some control over margins is a recipe for disaster, at least for the company. If the commission is the same without any correlation to margin, the salesperson can cut all kinds of deals that will generate great commissions but lower gross profits.

What’s the answer? I am sure that it matters what kind of business you are in. I am equally sure that many variations work. It depends on the corporate culture of your company, as well as the mindset of the owner. I would be interested to hear what you think. Actually, more than what you think. What has your experience been? Have you tried it different ways? Are some easier to manage? Are some easier to hire with? What worked and what didn’t? Please weigh in. Try not to yell. Thanks.

P.S.: If you are in looking out for an exciting, challenging yet rewarding career or venture in our trade as a Recruiter a.k.a Headhunter; do drop me an Email or MSN me for a further discussion. Thank you.

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