Compensation\/Commission Thoughts from Daniel Pink <\/em><\/strong><\/h2>\n

In case you haven\u2019t noticed, we have been doing a lot of research on the topic of commission-based compensation plans.\u00a0 During the discussion, topics from Daniel Pink\u2019s Drive, The Surprising Truth about What Motivates Us keeps coming forward.\u00a0 I recently re-visited parts of the book and wanted to share a few points to further ramp up the discussion of the matter.<\/p>\n

The common belief is summarized by Pink this way: \u201cRewarding an activity will get you more of it. Punishing an activity will get you less of it.\u201d\u00a0 This certainly falls in line with the sentiments of distributor managers.\u00a0 When we asked the question, “Why do you employ commissions with your sales department?” the answer came back to drive both quality and quantity of effort (in that order).\u00a0 One-on-one examination of many plans revealed instances where distributors had applied greater rewards for selling select groups of products as well as rewards for selling into poorly performing or inactive accounts.<\/p>\n

Pink went on to site research done by the University of Rochester\u2019s Edward L. Deci which states:<\/p>\n

\u201cCareful consideration of reward effects reported in 128 experiments lead to the conclusion that tangible rewards tend to have a substantially negative effect on intrinsic motivation.\u00a0 When institutions \u2013 families, schools, business and athletic teams, for example \u2013 focus on short term and opt for controlling people\u2019s behavior they do considerable long-term damage.\u201d<\/em><\/p>\n

The intrinsic motivation referred to is the person\u2019s internal drive to make things happen and achieve success in the work environment.\u00a0 This is the opposite of the extrinsic motivation, which comes from outside, i.e. the manager.<\/p>\n

Looking further, Pink quotes from a London School of Economics study: \u201cWe find financial incentives\u2026 can result in negative impact on overall performance.\u201d\u00a0 This seems like a real bummer for those of us who have heavily invested in commission plans through the years.<\/p>\n

The Starting point in Motivation<\/strong><\/em><\/h3>\n

The starting point for motivation is a fair and equitable salary.\u00a0 Here, the author refers to what one of the distributors we interviewed called the \u201cCurrent Market Value of a Salesperson” possessing similar skills.\u00a0 If an employee feels as if they are being shorted by the organization, it creates distractions.\u00a0 These distractions, even in their most benevolent form, result in under-performance.\u00a0 In the worst case, under compensation results in loss to a competitor. Your organization; however, doesn\u2019t need to have the highest compensation in the market.<\/p>\n

OK now what?<\/strong><\/em><\/h3>\n

\u201cAny extrinsic reward should be unexpected and offered only after the task is completed\u2026\u201d says Mr. Pink.\u00a0 This is exactly the same advice long given by management expert Ken Blanchard; catch someone doing something right, as a tool for employee empowerment.\u00a0 Both experts go on to state that intangible rewards work; often better than money.\u00a0 Formal recognition and compliments on a job well done join fun awards as motivating tools.<\/p>\n

Pink goes on to state that \u201cproviding useful information,\u201d which describes how the work impacted the situation, can be a major motivator.\u00a0 Here, an example might go something like this, \u201cJohn, the work you did introducing this new product goes way beyond a simple sale.\u00a0 This product is part of our overall strategy for breaking into a new technology in the market.\u201d<\/p>\n

How does this apply to distribution?<\/strong><\/em><\/h3>\n

Most distributors cling to a half century old compensation model throughout their sales department.\u00a0 Change is tough.\u00a0 As a matter of fact, most distributors recognize a lack of performance and candidly admit their plans often don\u2019t drive the right kind of behavior.\u00a0 Band-Aids have been applied, but largely we\u2019ve played \u201ckick the can\u201d postponing the inevitable.\u00a0 Despite research and other evidence to the contrary, sticking with commissions.<\/p>\n

Make no mistake, changing compensation plans comes with inherent risk.\u00a0 The wrong move can create internal strife and many times can result in loss of scarce and valuable talent.\u00a0 Unpredictable behavior by management scares the heck out of employees.\u00a0 Making any kind of change without a researched and well-thought-out plan is not advisable.\u00a0 Now, while times are good, is the time to begin the decision-making process.<\/p>\n

In the meantime, there are some steps we might consider to garner trust and support within our team.\u00a0 Here are a few thoughts:<\/p>\n

\n
• Set reminders to \u201ccatch someone doing something right\u201d and create a habit of rewarding the right behaviors after the fact. Be specific as to the reason for the reward and why you feel it is worthy of praise.<\/li>\n
• Many companies honor someone on their team via a \u201cPresident\u2019s Award\u201d or other annual award. At the same time, we hear the award often goes to the guy with the highest sales numbers or largest commission check. This is not a problem, as long as the recipient also follows company process, encourages the right cultural behavior and sells the right stuff.\u00a0 Awards based on sales \u201ctonnage\u201d alone should be reconsidered and avoided.<\/li>\n
• Up the ante on information provided. Sellers need to understand not only what is expected of them but why certain behaviors are important to the company. Arguably, and I say this because I know many successful folks who are not this way, Baby Boomers were receptive to following orders and \u201cgetting the sale\u201d at any cost.\u00a0 The next generation doesn\u2019t see things this way.\u00a0 They need to understand the reason behind the instruction.<\/li>\n<\/ul>\n

  Allow me to leave you with a final thought from Drive.\u00a0 Employees respond to culture and culture is never exclusively about profitability.\u00a0 Instead, profitability is a by-product of the right atmosphere.\u00a0 While one of the purposes of a distribution business is adding to the bottom line, there is more to the equation.\u00a0 Our style of business improves customer productivity while creating a stronger local economy.\u00a0 Our business serves the employees; good paying jobs, opportunities and career advancement come to mind.\u00a0 We also sponsor little league teams, scout troops and contribute to local charities.\u00a0 We are the pillar of the main street business you hear about on TV.\u00a0 We have a purpose and a higher calling which extends into the future.\u00a0 Getting our compensation model right is a critical component of making it all happen.<\/p>\n

  If you don\u2019t have a copy of our white paper comparing the major compensation models in the wholesale industry, drop us a line, we\u2019ll be happy to send it your way.\u00a0\u00a0 As always, there is no obligation, no sales pitch and we promise not to fill your inbox with emails.<\/p>\n

  email Frank at frank@riverheightsconsulting.com<\/p>\n

   <\/p>\n

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