Yesterday was a day of firsts for me.

First time in Latin America.  First time presenting via a translator (it worked effortlessly).  And first time I’ve tipped more than $1,000 in a restaurant!  (1,000 pesos equals just $US0.50.)

But there was one experience yesterday that I’m well and truly used to: the reaction of workshop delegates when they determined that we recommend eliminating commissions and paying salespeople salaries.

I didn’t present our position on this explicitly — after all, it’s a secondary consideration, not the primary that everyone assumes it to be.  But our position was inferred and it didn’t take long for delegates to put two and two together.  So when one delegate eventually summoned up the courage to have me confirm that this is, in fact, our position, the room descended into pandemonium.  (A very noisy, animated, ‘Spanish’ kind of pandemonium!)

I want to share with you the three points of clarification I made last night, relative to this issue.

(Oh, and by the way, if you don’t know, I’m currently in Bogotá, Columbia, presenting at the first regional (Latin American) TOC conference (TOCICO)).

Here are those three points of clarification:

  1. As I mentioned above, the salesperson’s compensation is not a primary consideration of SPE.  The key question is: does it make sense for sales to be performed by autonomous agents or by team members?  How you compensate your salespeople is a natural consequence of your answer to this question.  And this issue is not peculiar to sales.  If you have  a plumbing contractor visit to fix a leaking tap, you will compensate this person on a piece rate (commission).  However, if you have a large facility, with enough plumbing work to necessitate employing a full-time plumber, you will almost certainly convert this person from piece-rate to a fixed rate of pay (salary).
  2. In line with point (1) above, you cannot and should not convert existing salespeople in a traditional sales environment from commission to salary and expect an improvement in performance.  You must first — if you deem it appropriate — change your basis of engagement with your salesperson (they must willingly give up their autonomy and become a part of a tightly integrated team).  Second, you must replace your laissez-fair approach to management with a formal management structure — a structure that gives you control over the activities performed by salespeople and (of course) visibility of the relationship between those activities and the results they generate.
  3. Point three is a bit of a reality check.  The reality is, if you put a salesperson on commission, you have given that person permission not to make sales!  In other words, you’re telegraphing to that person that the consequences of him producing less his optimal output is simply an incremental reduction in his take-home pay.  Why would you do this?  Why would you make it optional for salespeople to sell?  What is the (opportunity) cost to your organization of those prospects who aren’t visited and those contracts that aren’t signed simply because your salesperson is comfortable to earn (say) $100k a year (as opposed to $115k).

If you had a plumber on salary, you would not make it optional for this person to fix leaking taps.  It would be an expectation.  If he chose not to, he would be risking his entire salary — not just the potential to earn an extra dollar or two.

If sales are important to your organization, why would it make sense to treat your salesperson any differently.

Performance should not be optional.