Estimated read time: 4-5 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
SALT LAKE CITY -- Does your company have a hard time retaining your commissioned employees and can’t figure out why? It may very well have to do with your employees not seeing a return on the investment they are making by selling your product. They also have no fear jumping from industry to industry, as they can sell apples just as easily as they can sell oranges. Sure, it takes time to learn the ins and outs of a new product and company, but a really great employee can learn those things in a relatively short time frame.
In most companies, commissioned employees work in some form of sales. If they close a deal, renew a client for another year or find a new customer, they are paid a portion of what they sell. But what message are you really sending to these employees?
As the employer we like to tell ourselves we are saying, “The harder you work the more money you will make,” or, “If you stay with us for 5-plus years, you can be making six figures and only have to work 20 hours to retain that book of business.”
What the employee hears is, “We’ll pay you if you can sell more than the rest of your team,” and, “We don’t think you are worth investing a competitive salary to retain.” When the actual commission is broken down, the employee understands that his commission is revenue generated minus some overhead expenses that may include marketing, training, and research and development. This formula is not how every company structures its commission, and the key point is that the commission structure can be confusing, involves variables and is a nightmare to someone who bases his livelihood off of that formula.
Another negative impact commission has on your company is the team aspect. Let’s look at a sales force for example. If a salesman was paid 100 percent commissions or a low base salary plus commission on top of that, he would do whatever it takes to sell more widgets than the other people on his team. The team is viewed as competition, because if John doesn’t sell a widget to XYZ company before Joan does, John will miss out on his commission. What loyalty does this employee have to his team? It's all about the next sale to him.
Let me provide you with solutions for combatting these issues and retaining your commissioned employees. The first thing you can do is offer a competitive salary. Instead of thinking of the employee's entire compensation package as a low base salary and commission, change your mentality and provide a high base salary and no commission. When you tell someone they can make six figures during the hiring process what you are also saying to the employee is, “We believe you are someone who can make us a lot of money and we want you to stay around for a long time.”
When you find applicants who are that valuable, why risk losing them? Instead of keeping them guessing on how much money they will make, give it to them up front so they are guaranteed to make that money. This is the same principle adopted at some private schools: “Teach to the top of the class and the others will rise to the challenge.” In this case, you are “paying top- of-the-line and expecting performance will match the wage.” The point is that you believe in them and are willing to put your money where your mouth is.
When a salesman's performance slips and he isn't selling what you would expect him to sell, coach him, work with him and mentor him like any other hourly or salaried employee. Paying a salary also removes competition amongst the team. Joan would be less concerned about beating John to XYZ Company and more concerned that someone within the team close the deal. Your commissioned employees have gone from individual competitors to a functional team — one that is motivated by your coaching instead of fear of losing commission.
If you feel you must have some type of incentive in place, then include a small profit sharing portion in the entire compensation package. This will tie not only your commissioned employees but the entire company to your collective goals and mission statement. By removing a commission pay structure, you will find your best and brightest salespeople will have no desire to leave your company and their results will speak for themselves.
Jared has worked in human resources and compensation design for the past six years. Jared's innovative and strategic approach is designed to retain top talent and improve employee relations.
