That’s the question I examine in my new monthly business column for the Sunday Telegraph of London, which debuts today.

In the piece, which takes about four minutes to read, I describe the experiences of two companies — Red Gate Software in Cambridge, UK and System Source in Baltimore — that have eliminated commissions for their sales force . . . and seen sales increase.

It’s a bit weird. But once you understand the logic of these companies’ founders, it actually makes a lot of sense.

9 Responses to “Do commissions motivate or demotivate salespeople?”

  1. Tony Woody says:

    This post is timely for me – I just started reading ‘Drive’ last night. I thought the part in your ‘Sunday Telegraph’ piece about the company that continued to create more complicated commission structures which were always counteracted by the sales staff’s ingenuity was interesting. I think this is a great example of the shortcomings of Motivation 2.0.

  2. Doug Hensch says:

    Dan – Finished Drive several weeks ago and have incorporated much of it into my consulting work and even how I interact with my kids. I LOVE the idea of eliminating commissions for salespeople. My experience working in Fortune 500 companies is that they 1) make the commission system too complex, 2) salespeople put lots of effort into gaming it, and 3) as execs need to move to different metrics (eg; gross sales to gross margins), they change the system regularly. Seems pretty inefficient to me. Thanks!

  3. Lori Turec says:

    Dan – I agree that too many sales commissions are too complex, but I also have seen the data that indicates many top sales producers want to work for commission. It is a big incentive to them. Perhaps instead of eliminating commission, you simplify it to focus on what you actually want to achieve. Monitor the process closely, provide feedback as needed, and close higher-margin business.

  4. Love the heresy! I’m sure that the customers of these two firms have a better sales experience – there’s a lot more opportunity to build a real partnership together. I’m convinced it leads customers to become fans of the company and therefore sell more for you by WOM. Thanks Dan.

  5. This is beautifully put together.

    And, the problem with this presentation is that it does not take into account differences in personalities. It acts as if people are all the same.

    For example, if I wanted to hire a salesperson for my company, I would try to find the kind of person that is motivated by commissions. On the other hand, if I wanted to hire a bookkeeper I would look for someone who was motivated by being of service.

    In fact good management is finding the right person for the job and motivating them depending on who and how they are as individuals. Putting everyone into one box won’t work.

  6. Bill Paulk says:

    It seems there’s an underlying assumption in these comments that all salespeople within the aforementioned organizations were paid at the same scale. Can you speak to that, Dan? Are “top producers” still earning greater than a lower producing salesperson, with commissions removed?

  7. David says:

    It’s a great point, although working in high tech myself, I’d like to see more examples from industries besides software & IT services.

    But just as acceptance of Copernicus was a symptom of advancing literacy, which itself was a symptom of the printing press, perhaps the real story here is the shift to hiring salespeople who are more comfortable learning new things than buying new things. I’ve had to work with old school guys with slicked back hair and suspenders who think clients want a salesman who looks like Gordon Gekko. They have had a hard time adjusting to the fact that #1 – half of our clients wear t-shirts to work and #2 – it’s not 1986 anymore. While they would never give up their commissions, you wouldn’t them working for you in the first place.

  8. Sue Barrett says:

    Thanks Daniel, I couldn’t agree more. This commission bonus schemes in Australia have created more problems than they are worth, especially when we try to emulate the US and their sales practices – its a case of ‘same, same but different’ with our value sets being quite different here although we look the same from a far. Then add to that the GFC which as the classic example of how self serving, unregulated commissions schemes and poor finance / business models based on gambling have created havoc on a world scale. The potential competing motivations commission schemes can create are often never discussed let alone thought through as to their impact and consequences at a leadership level. Which raises the issue of the lack of quality of leadership on show in business today. enough said for now. I am a great advocate of your work and spend every day working towards creating ethical, honorable sales cultures. Thank you again. Yours sincerely in support of a better world for all. Cheers Sue Barrett.

  9. Juan says:

    This might work for a small company and also if the flat salaray is negotiated in pay-for-performance basis, otherwise for me it would be very, very difficult to understand while I am givin it all out there to bring great sales numbers and performance while my coworker is just getting by to get paid the same.

    My drive is to do and be the best by working harder, learning harder, reading books more than everybody else, if I do that it makes me feel better and my family gets better as well.