8 Tips on Commission Based Comp Plans
Peter Smith
Consultant helping Suppliers/Retailers build Brands. Executive Coach. Expert Sales Training. Hiring Workshops. Keynotes. Columnist: National Jeweler, Author of Hiring Squirrels, Sell Something, and The Sales Minute
A friend reached out this week to ask if I could recommend any articles on setting up commission plans. Her company was moving in that direction and she wanted to educate herself on the respective nuances.
Creating a commission and/or bonus structure seems like it ought to be the simplest thing in the world to do, but it is, in both my decades of practical experience, and in my reading on the topic, anything but simple. ?
There are, however, certain themes, principles, and truths that ought to be considered before constructing a commission/bonus plan.
No Comp Plan Will Fix Under-Performance
You can throw all the money in the world at a sales problem, but there’s precious little evidence to support the idea that doing so will fix poor hiring, lack of training and development, an irrelevant brand, questionable product quality, or consistently poor customer service.
Transparency and Fairness Matter ?
Studies have shown that people would rather make less money, than make more money if they believed others were being compensated (unfairly) more generously than them. If the comp plan lacks transparency, the salesperson default mode is often that they’re being screwed.
Make the Payment Closer to the Performance Metric
Our brain releases a rush of dopamine when a reward is close at hand. That becomes muted when the payout is deferred to some far-off date. The longer you wait to make the payments, the less effective the incentive will be.
Frequent Pay Outs Are Better Than One-Off Payments
People would rather receive four $5,000 commission checks than one $20,000 check. Touch your sales team with more frequent payouts.
Compensation Plans Should Reward the BEST Performers
Poorly constructed sales incentives, usually put together by well-intentioned HR folks, can serve to demotivate top sellers. The only reason to have a commission or bonus plan is because you have determined that a meritocracy will drive more profitable business. Having made that decision, don’t undermine it by giving participation trophies to everyone, or attempting to level the playing field.
Pay for What You Want To See Happen
Paying for top line sales, while allowing discounting, or encouraging low-margin business, can reward the wrong behavior. Your plan should forward the best interests of the business and your customers. ?
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Avoid All Or Nothing Plans
There’s a reason some people refer to all or nothing commission plans as a cliff plan. You either get it, or you walk off a cliff with empty pockets. These kinds of plans can result in salespeople giving up when the ask is deemed to be out of sight, or patently unfair.
No Comp Plan Will Suffice in the Absence of Recognition
Money is a scorecard. It matters to top performers. It should matter to top performers, but it does not serve as a replacement for ongoing recognition from a manager. Those two things are not mutually exclusive.
?As Abraham Maslow said, "Recognition is a need we all crave, and there are no exceptions."
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Peter Smith consults retailers and brands. He is a keynote speaker and executive coach. He teaches sales pyschology classes and hiring workshops. Smith is the autor of three books, Hiring Squirrels, Sell Something, and The Sales Minute, and he is a columnist for National Jeweler and The Jewelry Book.
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Showcases, Jewelry Display’s & Packaging, Lighting; Hirsch Watch Straps
1 年Spot on Peter.
Director of Sales, Proven Top Sales Producer & Sales Trainer In the Luxury Jewelry Industry.
1 年Thank you for understanding that not all sales people produce the same level of performance and therefore should not be compensated equally as non performers. It’s a “no brainer” that actually requires a brain to comprehend. ??????
The Jeweler's Coach
1 年And it seems so simple.