Should Sales Managers Be On Commission Plans?

We recently had a client interested in changing individual salesperson plans from quota-based to a commission structure. The company is in somewhat of an “old school” industry where commission plans are sometimes found, even in mature organizations. After much discussion, the company simply felt a commission design was the right near-term choice to create renewed sales force energy, and the design questions soon moved on to the sales managers. They asked the question whether sales managers should be on the same type of commission plan or should remain on goal-based plans.

Our advice was to use goal-based plans for a number of key reasons:

  • Managers should be focused on delivering a total expected number rather than thinking about what share (commission %) they “get” from each dollar of sales – commission plans, when used, are best left for those involved specifically at the deal level.
  • Manager goals should serve as the building blocks to the total goal for the organization – almost all companies have total goals that need to be delivered to investors.
  • The leaders accountable for the total goal should push the hardest to have their direct reports on the hook for delivering a specific goal – this increases accountability and helps ensure overall results are achieved.

Some of the company’s leaders had a misconception that pure quota plans are “growth-oriented plans” when in reality, goal-based plans include growth expectations and then offer the opportunity for incredibly attractive acceleration once a goal is beaten. The flat rate commission plan being advocated lacked any tie to goals and had no bar to meet to reach accelerated levels of upside. If anything, pure commission plans reward for any growth or just absolute dollars, which may or may not actually match up to definitions of good performance or align to the growth results a manager needs to deliver to ensure the organization achieves in total.

Goal-based manager plans often feature high thresholds and strong accelerators, which ensure the appropriate downside and upside expectations. With the right design decisions, the company was able to create exciting manager plans that drove performance, ensured cost effectiveness, and increased the company’s overall chances for success.