Paying salesmen and saleswomen commissions is, as we all know, de rigeur pretty much the world over.
But is there a better way?
Not too long ago, a company called ThoughtWorks (and a handful of others) tried something different, as Stacy Perman wrote recently on The NYT:
At the start of 2012, ThoughtWorks, a software company based in Chicago, decided to upend one of the sacrosanct principles of sales. It eliminated commissions and placed its entire sales force, a team of 40 stretching across 12 countries, on straight salary.
Over the years, ThoughtWorks prided itself on developing a culture based on collaboration. But some parties in the sales equation appeared to be operating at cross purposes. “We made the decision to take the individual incentive out of the picture,” Mr. Gorsline said, “and instead focus on the customers and their pain.”
Throughout 2011, the company worked on a strategy. During that time, Mr. Gorsline and his team brought the entire sales force together to discuss the new direction, explain the rationale and provide a forum for discussion. “It was all very transparent,” he said. Next, they met with individual sales representatives to establish a new compensation plan. A start date of January 2012 was set.
According to Mr. Gorsline, the straight-salary structure took into consideration high performers, offering them compensation close to what they had earned with commissions. Still, all of the representatives took pay cuts — although they did gain something: a steady paycheck. “We operate in a cyclical industry,” he said. “This provided them with a sense of security whether it was a good year or a bad one.”
More important, Mr. Gorsline said, the company’s annual growth increased between 18 and 22 percent in each of the last two years. “We still demand revenue generation,” he said. “The only thing that changed is the way they are compensated.”
Of course, as the rest of the article says, this is not for everyone. And, the ultimate success – or failure – of such a compensation model depends strongly on the behavior of customers and competitors. Still, an interesting innovation that might be selectively successful, one assumes.