Is there such a thing as the ideal commission scheme?
Should we have a deficit scheme?
If we have a deficit scheme, should we wipe the deficit at the end of the year?
How frequently should we pay commission?
Should commission be paid based on invoices or cash received?
When should commission kick in?
Should we pay commission to support staff?
Can we hold back commission payments when staff leave, in order to cover potential future credits?
Can we change the commission structure, even if the employee doesn’t like it or agree with it?
What’s the best commission scheme you have seen?
This is a sample of the questions about commission and bonus schemes that I have received over the years.
I am no expert on these matters (is anyone?) although I am happy to offer my qualified opinion when it is sought.
As an employee, I was disappointed (rather than demotivated) by an unfair (in my view) commission scheme but not motivated by a fair one. I expected a commission scheme to be fair, and I motivated myself by wanting to do a great job, not by the likelihood of earning a lot of extra money via a commission scheme.
Of course the concept of what’s ‘fair’ is a slippery and subjective slope, especially when it comes to base salaries and commission schemes; ‘fair’ according to whom?
Industry legends Geoff Morgan and Andrew Banks have a bit to say about the topic of commissions and bonuses in their book, Flourish & Prosper (Penguin Books, 2004).
‘…reward systems ensured employees felt valued and remained motivated. At the bottom line it was basic – those who billed more and placed more candidates were paid more. That was very clear and there was no argy-bargy about that’ (page 57).
‘Bonuses were paid to everyone when warranted, including support staff.’ (page 57)
‘Without clarity on the question of rewards, the performance of your sales force will be less than optimum. Be sure to tie rewards to sales activities and the results that you are expecting. Then deliver on your promise.’ (page 58)
‘If your company is not a market leader, you may have to offer higher base salaries, or guaranteed bonuses for an initial period, to attract the best sales people, until you have a track record of high bonus payouts.’ (page 58)
‘…if you are launching a new division or product range and salespeople are carving out new territory, they have to be given support for a reasonable period. They mustn’t me made to feel like ‘losers’ compared to sales people in a sister division, for example, where sales are easier to come by because it is a more established or mature marketplace.’ (page 59)
‘Employees respond favourably to KPIs. Wouldn’t you want to know how your performance was going to be measured in relation to feedback, promotion or monetary rewards?’ (pages 99-100)
‘…there was no substitute for a system that rewarded high performance and penalised poor performance.’ (page 100)
Here are a few additional points I would add, based my experience:
- Don’t have different commission schemes for people in the same team doing the same job. If an earnings differential is appropriate within the team (whatever the reason) then create it with base salaries.
- Consultants are suspicious of commission schemes that constantly change. Be very considered around any changes you make.
- When presenting commission schemes include two or three examples of how the scheme works so the consultant can equate specific results with specific commission payments.
- Ensure that the caveats or ‘details’ are clearly explained and provided in writing. eg how superannuation is treated, how a resignation affects commission due, when payment will be paid, whether any business or individual costs can be recouped from commission payments, etc.
- In advance of a commission payment being deposited into a consultant’s bank account, provide the consultant with a calculation of the payment and the PAYE deduction, so they know the net amount they will be receiving.
- If you are relying on your commission scheme to be ‘market leading’ or ‘the highest’ in order to attract high performing staff, then you will most likely attract and employ people who are overwhelmingly driven by money and for this reason they will inevitably leave you for a more attractive commission scheme being offered elsewhere.
Whatever you decide to do, remember one thing – you will never make everyone happy.
If everyone is happy then you, most likely, have created a culture in which people expect commission payments simply for doing their job, rather than delivering excellent results.