Paying your sales team commission isn't always the best driver for results

Published on March 28th, 2017 by Jamie Summers

Every time we run our Socially Intelligent Selling workshop our stakeholders ask us for our thoughts on paying commission as a reward for performance. The answer largely depends on the industry but we base our thinking on the research done by Edgar Schein which shows that only a staggering 17% of those surveyed were driven by a cash reward. So if you have a sales force of 200 sales people and you reward their performance with a financial incentive then you run the risk of motivating only 34 of your sales professionals.

Interestingly in an article written by Daniel H Pink for Harvard Business Review, he outlines that cash incentives do indeed work for what he describes as “if then” rewards. So “if you do this, then you get that” which social scientists dub as algorithmic tasks. These are pretty basic tasks like stuffing envelopes quickly or screwing a screw into the same hole in the same direction on an assembly line. His research shows that the idea of a cash reward in these circumstances often excites us and drives us to get the job done quickly.

But what surprised me most was that his research also shows employers who use this method of rewarding for more complex tasks, such as selling to a technical audience, is less effective in driving performance. He is referring to tasks that require a much more creative approach – psychologists call this “heuristic” work. Things like problem solving with a client, planning or inventing something, anything that requires a broader use of expressiveness. In fact, creative thinking is inhibited by “if then” rewarding.

Today’s sales force has to demonstrate skills in new areas such as being relatable as a person, using emotional intelligence, skillful questioning techniques, advanced listening skills, relationship management, and demonstrating a level of self awareness. All of which require much broader inventiveness, which means ‘if then” rewarding is actually damaging the performance of your sales team.

In his article, Pink shares a story about Mitch Little, VP for Global Sales at a microchip technology company. He switched his sales force from a 60/40 reward package (60% base salary plus a 40% individual performance cash reward) to a 90/10 reward package (90% base salary plus a 10% cash reward). Interestingly the revised 10% cash reward was for overall company performance, not individual sales performance.

This is fascinating. Eliminating a large sales performance bonus with a much smaller company performance bonus seems counter-intuitive. But it worked. The sales team galvanised their efforts and were rewarded for pulling in the same direction.

The result? Now Microchip is worth $6.5 billion, the cost of sales is the same, attrition dropped and retention rose. They are now one of the top performing companies in their sector.

The CEO of RedGate Software in Cambridge decided to make the same switch in 2009. He sat back and watched sales rise. In 2010 GlaxoSmithKline joined the 90/10 club for all its US reps.

So back to my answer. Do I think that a cash reward drives performance in the tech sector? Well, the studies clearly show something different.

I want to leave you with a couple of points to consider. Are you still trying to motivate with “if then” rewards? If so, can you be sure they are working for you?

Find out what motivates your team by downloading our Career Anchors exercise, this will help you identify what drives your team, regardless of position.