The top 3-4 reasons why management, within a mature company, may want a non commission plan are the following:
- Mature companies with successful business strategies and an efficient go-to-market approach should, over time, see sales person pay go up with the labor market while sales productivity goes up faster. This means that comp % sales goes down. You have more control in continuing to align pay with the labor market and productivity with company expectations using a cost-of-labor plan (not a cost-of-sales = commission plan). If you have a commission plan, you are stuck communicating a lower commission rate every year (or at least every few years), which makes sales people nuts.
- Market leaders with strong brands and value creating products have the right to claim the value they have created over time. This means they have the right to assign a sales person to a territory/book, expect them to maintain and grow it, but not expect to pay for the size of the territory/book in a linear fashion. So a person assigned a $6M territory should make more than a person assigned a $3M territory, but not twice as much. It is much more straightforward to manage the dampening of the comp delivered to keep that relationship non-linear in a quota-based cost-of-labor type plan.
- True commission plans take a lot of tinkering and often involve a fair amount of discretionary adjustment, complicated mechanics and side deals. This becomes unwieldy in a significantly large sales organization. How fair can management be with such a system across 700+ people?
- In a complex sales model with multiple people involved in the sales process by design, a commission plan does end up double-paying when you offer credit to multiple individuals. A quota bonus type plan will allow you to directly manage your cost of comp as you hold the right people accountable for their contribution to securing the business.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.