We’ve recently made the somewhat controversial decision to entirely eliminate the idea of “sales commissions.” It’s not a move many companies make because it bucks conventional wisdom. However, we think this move will help us achieve even stronger organizational alignment and greater results.
Let me explain.
Conventional wisdom tells us people in sales roles are “‘coin-operated”: you get the behavior you incentivize. It’s usually used in a derogatory sense, yet I do find there is a kernel of truth there. People will generally spend their time and energy on what will most impact their income. That's the idea behind commissions – to create an incentive for the sales person to get out there and sell, sell, sell.
Since I agree that compensation drives behavior, we’re trying to create incentives for the right kind of behavior, which, for us, means behavior that most benefits our partners and by extension, our company. So instead of paying commissions to people in “sales”-type roles, we’ll pay them a significantly higher base salary, along with incentives based on a combination of achievement of goals and overall company financial performance.
We think this is a better reflection of who we are as a company. Here are the driving factors:
Business Reality: In our business, we don’t actually “sell” anything. We supply technology that is embedded in our partners’ applications. When their sales are up, we benefit too. These partnerships need to be mutually beneficial and long-term focused (truly, these relationships last decades). We don’t ever want a sales individual to be in a position where there is tension between creating the right long-term, mutually beneficial partnership and maximizing their own personal compensation. It’s not good for our partners, and it’s not good for us.
Maximum Flexibility and Utility: Sometimes we may want a member of our team to spend some time doing something other than the kind of work that gains them a commission check. This could include exploring new markets, training new employees, supporting a channel partner, attending conferences, assisting other departments, etc. Under the commission model, a manager is continually mindful that although these assignments may be good for the company, they have a negative impact on an individual's ability to be out in the field selling. As soon as you see situations where a compensation package causes someone to avoid doing things that will have a long-term positive impact on the company, you have the classic "tail wagging the dog" problem.
Global Partnerships: More and more, our partners are global companies with multiple international locations. Previously, there was often the question of “who owns this account,” a proxy for the question “who gets the commission?” That does nothing to help the partner, who should be able to engage with the right people, wherever and whenever it best suits them.
Professional Respect: Our Partnership Managers are all experienced at building win-win partnerships. They have consistently proven over the years that they perform well and exceed their goals. It doesn’t seem right that in a commission-driven system we ask them to “chase carrots” every single month in order to earn their keep.
One Team: Companies benefit when there is a true spirit of cooperation and suffer when there is any unresolved tension. Most organizations have some amount of tension between the product “producers” (in our case software engineers), and “sales” (in our case partnership managers). In many companies, the producers often wonder whether pressure from someone in a sales role is driven by a personal desire for a commission check. What we want to ensure is that everyone knows that absolutely everyone else in the company is focused on the same thing – the long-term success of the company, and therefore our partners.