This might seem like semantics, but what we call things matters. The names we choose informs how we view things, and how we view things informs how we act. One of the greatest examples was the renaming of jungles as rainforests because climate and environmental charities found it much easier to raise money for rainforests than for jungles. Names matter.
I've spent much of my career discussing sales management and advising organisations on the best way to train and manage sales staff. A significant component of this management is the commission structure. This is because the commission is designed to motivate salespeople and 'manage' their effort and actions when they're out in the field. Salespeople are autonomous - it's the nature of their job. You can't treat them like factory workers and have a manager hovering over them all the time. You need to tell them what's required, give them targets to meet, train them in the best practices to achieve those targets and then let them do their thing. Fail to do this and you shouldn't be surprised if they're not high performers.
So how do you build a good commission structure? Well let's start with the name - I don't like the term commission, and I really hate the word bonus. What you're trying to build is a system for motivating your staff. If you don't incentivise behaviour all you've done is come up with a creative way to unnecessarily spend money.
Of course I'm not saying that calling it commission instead of incentive guarantees it'll be a lousy system, but it doesn't help. When you call it an incentive structure, it's difficult to forget the purpose of the exercise. When you call it a bonus, it's not only easy to forget the necessity to incentivise, it's common. Most of the commission structures I see have little if any chance of successfully motivating the salesperson consistently over the course of a year (or whatever time period you're working to).
Please note I'm also not saying that bonus structures don't have their place. Kingfisher uses one, but we're not naively thinking it'll motivate our staff, and that's not its purpose. We pay bonuses because we want to share the success of the business with the people who work in the business. It's a financial thank you for the good work they've done over the previous year. Where bonus structures are problematic is when they're confused with incentive schemes.
So let's look at where the rubber meets the road. It's easy to call it an incentive program instead of bonus program, but once that's done how do you make it work? Here are some of the things you'll want to think about:
Everyone is different: Not all people are motivated by the same things, so get to know your staff. This is obviously a lot easier in a small office than a large one, but if you're serious about motivating people you'll want to craft an incentive structure that is accurately-matched to the individual you hope to motivate.
Keep it short: Long-term/annual programs are useless. Short-term goals work much better. Expecting a salesperson to be highly motivated in August about a carrot they won't get until next July is ridiculous. There's no issue having a section of the bonus tied to annual performance, but if we're serious about motivating the salesperson the 'carrot' must be easily viewed (ie; right in front of their face). Place it miles off into the distance and it will be unlikely to motivate the salesperson until late in the year when it looms into view, but by then it's too.
Don't be lazy: Too often commission structures are just plain lazy. "Here's your target and here's what we'll give you if you hit it." This simply isn't sophisticated enough to get the result you want. You don't want a commission structure to be complicated, quite the opposite. But simplifying something that is inherently complicated takes time and thought. You need an aspect of the structure that is short-term so that it keeps the salesperson motivated each day they come into work. You need the rewards tied directly to effort. You need various elements of performance to be highlighted (because in most cases it's not just one thing that you want to motivate your staff to achieve). For instance you might want particular types of sales to be prioritised, or you might want after-sales paperwork to be a focus. You also need levers within the structure to provide you with the ability to deal with changes that might happen throughout the year. For instance what happens if they have a good start to the year and are well up on budget? How do you add to the structure to ensure they don't coast for the second half of the year?
Don't underestimate the value of surprise: You can't put a price on 'Wow'. Any time you have the opportunity to make staff (or clients) go Wow it's priceless. The same applies to commission structures and motivation. Once you map out the commission structure everybody knows the rules, so spontaneity is pretty much dead. However the value of rewarding staff when they don't expect it is huge, so be sure to retain an aspect of this in the incentive structure. I used to keep a drawer full of iTunes vouchers so that whenever someone went above and beyond the call of duty I could make an example of them and reward them accordingly. This is great motivation for the staff member concerned, but also highlights to all staff the type of behaviour the business prioritises/rewards and motivates others to act similarly.
Plan for the unintended win: I've seen so many situations where a poor commission structure didn't plan for the unintended win. When a salesperson has a big opportunity land in their lap this creates problems. The sales manager typically responds in one of two ways: (1) Does nothing (as they have few options), the salesperson gets a big payday and the motivation to work hard for the rest of the year is extinguished, or (2) they try to put the salespersons target up, which sows resentment and demotivates the salesperson. So plan for this scenario and have contingencies in place for it (most of the time it's about building an incentive scheme that has tight parameters on what's included/rewarded and what's not so that an unexpected win doesn't upset the apple cart and make the incentive scheme irrelevant/ineffective).
Baby steps: Setting targets is critical. Small increases are fine, but if you chase big increases and give the salesperson nothing unless they hit it, you'll demotivate them. Which means you've spent a lot of time developing a system that encourages the salesperson to do less. Not an ideal outcome. If you're chasing big wins, simply have a tiered approach whereby the salesperson gets a little for improving a little, and a lot for improving a lot. You also need to articulate to the salesperson why the targets are so high. Perhaps you're in a high growth area and the amount of organic growth is significant. Whatever the reason, you need to justify it to the salesperson otherwise they'll simply see it as unjustified greed and act accordingly.
Some sales managers are probably reading this and saying "I don't have to justify my targets to my salespeople". Sorry, but I'm afraid you do. If you want to motivate your foot soldiers to storm the castle whilst getting pelted with arrows you better have a good reason for them to do it. Otherwise don't be surprised when they all desert the cause and leave you to fight the battle on your own.
Focus on actions, not outcomes: An incentive scheme at its most basic is going to be "Hit this $number and get this financial incentive" but you need to avoid the mistake of not outlining the actions you're rewarding. The sales target is an outcome that is delivered by working hard at a range of particular actions (making phone calls, calling on clients, chasing referrals, following up leads, marketing, networking etc). So incentivise the actions, don't just focus on the outcome. Your incentive structure should by its very nature encourage good sales behaviours. Drill down on the actions you want to see from your sales people and include that in the incentive structure. For instance 'Make at least 40 calls a month to irregular clients, top 20% of clients must receive a visit or call each month, must make contact with 10 new targets on LinkedIn each month etc). This way the incentive structure also works to shape the behaviours of your staff, and sets out a path for them to reach the targets you're setting.
Don't forget your strawberry patch: One danger of a hard focus on sales is that the salespeople will go where the money is and forget to tend their original strawberry patch (existing clients). So a good incentive structure will take this into account and have an element that monitors underlying sales performance to existing clients. This ensures that any hard fought wins won't be washed away by churn (existing clients going elsewhere).
Hold focus: Once you have the commission structure in place be sure to have a process for constant monitoring. You should be talking to staff every week about the team's performance, celebrating wins and the people having them, and watching for potential dips and addressing them before they become gaping chasms.
We've only touched on the tip of the iceberg today, but if nothing else I hope I've illustrated some of the pitfalls with incentive structures, and a few of the boxes that need to be ticked in order to develop a system that will motivate your staff over the long-term. If you have any questions or would like to discuss your commission structure, sales staff training or management, drop me a line on firstname.lastname@example.org