Straight Commission Can Deliver Twisted Results1

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The Pipeline Guest Post – Michael Villeneuve

Let’s start by imagining your only sales goal is to get reps to bring in revenue. That no customer ever buys more than once. And that only the sales rep interacts with the customer. Then, commission-only could work. It’s simple to calculate and execute. It’s easy to understand. It motivates.

But it creates a lone-wolf culture that, let’s face it, can be short-sighted.

Compensation style dictates breadth of view and company culture
Compensation affects every employee’s focus and breadth of view. If you’re a career sales person you’ve probably seen deals signed with off-target customers just to meet the quarter. And you’ve seen organizations pay the long-term price of those deals.

Straight commission rewards and drives individual effort, typically at the expense of collaboration. It pays out only for today’s top line results.

One person is the hero; the rest of the people in the office are drones. Even within the sales team, the hunters are rewarded, the farmers and service reps, not so much. Cue workplace tension!

Aligning your compensation with your goals
When Andrew Bulmer was recruited in 2011 as our Senior VP and Managing Director, he defined our goals in broad strokes as:

  • Build internal trust in order to get synergy and work as a team.
  • Build external trust through long-term robust partnerships with customers.
  • Focus equally on retaining on-target customers and acquiring new ones.

But we quickly realized these goals were tough to achieve when our account, sales, and media teams each had their own compensation system and culture.

Creating internal and external alignment through trust
Active International helps companies sell slow-moving or obsolete assets in return for Trade Credits. These credits are then combined with cash to purchase business goods and services, such as media, printing, freight and logistics. The big upside for our customers is that we help them avoid expensive write-offs that negatively impact their bottom line.

Trust is especially critical with our business model. First, our customers have to trust us to deliver on a faith transaction – they give us assets and we promise that they will get something in return. Next, we – and by we I mean our sales people, our account managers and our media people – have to trust each other and collaborate to make it all happen.

Now, everyone’s a salesperson
To move towards that trust, we chose a type of EBITDA compensation that rewards all of our people the same way. The EBITDA-based reward is based on the longer-term sale effects, not the immediate pay-off. So now, everyone’s a salesperson.

And it was astonishing, literally astonishing, to see how immediate the effects were on culture and behavior. Our previous system, which was more commission-based, had stood in the way of how people really wanted to work.

Suddenly everyone was seeing how they could work together to get and retain on-target customers. Now it was to everyone’s advantage to solve each other’s problems. And it was in everyone’s interest to negotiate the right contract for the right customer.

Compensation is one part of the big picture
Of course compensation is not the only factor. At the same time as we changed compensation, we gave our people greater access to decision-making. We allowed them more control over their own schedules. And we launched a peer recognition program.

Sharing connections, generating results
We used to lean more on cold calls. But now we use a referral sales approach. The first step was to get everyone on LinkedIn. Once we did that, we had 10,000 connections, including happy clients, to act as references and help with introductions. Next was to work out who our target customer was – their goals, their challenges, their needs and their key decision makers.

Results? The culture shift has pushed us to the next level of growth. Top-line sales are up more than 30% and we’ve added six major on-target customers in the past 12 months.

Can commission-only work in the corporate world?
I love the process of establishing trust with what were once arms-length prospects. And now that we’ve got a compensation system that motivates us to show the customer just how much we can offer, we’re all incented to go that extra mile

I’ll go out on a limb and say straight commission is no longer a valid model in corporations that rely on (and really, who doesn’t?) customer loyalty. It divides and separates – colleagues from colleagues, and sellers from buyers. I’ve always agreed with Benjamin Franklin’s words: “Gentlemen, we must hang together, or we will surely hang separately.”

Michael VilleneuveAbout Michael Villeneuve

Michael Villeneuve is Group Vice President of Sales at Active International Canada. Connect with him on LinkedIn.

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1 Comment

  1. Jerry Hegarty

    Michael, Great comments on goal alignment, that is the starting and ending point of any good sales compensation plan design effort. The choice of plan type (quota based sales incentive, straight commission or hybrid) , may vary as much on industry and sales organization structure as anything else. Sales compensation can be a great tool if used correctly, A great resource for Best Practices in this field can be found at: http://www.netcommissions.com/blog/

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