Salespersons, Prove Me Wrong

In an economic downturn, sales commissions go down. In the housing market catastrophe, realtors are not making much money. Suppliers' salespersons who sell to companies whose business is down are also getting less income. Are they any less talented? No.

During the converse, in the past several years, they earned more money because the economy was growing. Were they any more talented? No.

During a downturn is when you want your sales people to work harder and uncover new business if they can. However, their income is down so they're probably less motivated to put lots of energy into the effort.

Sales commissions incent the wrong behavior. They're counter-cyclical to the effort needed given normal economic cycles. Poor decisions are made with the wrong incentive also--see Freakonomics. We had a sales commission structure where certain product lines were emphasized to help grow the business. Unfortunately, those product lines were at the tail end of their life cycle. Based on the sales person's recommendations, we chased small, incremental sales while investing too much in support staff and inventory. It didn't pay for itself. The ROI was non-existent. We'd be better off investing in a savings account (and you know how low the returns are there). Sales commission blinded the person to the organization's investment. He could only see that, when we said "no quote", he was losing commission. He's demoralized.

Also, why reward the person who gets the sale more than the people in the organization who fulfill the sale? The initial sale is the sales person's. The subsequent sales are the organization's, by proving to the customer it is worthy of more business.

Shouldn't sales people be salaried and given the a share of the positive, profitable results along with the rest of the organization in whatever form of bonuses, profit sharing or long-term compensation available?

Non-profit executive directors or CEO's cannot be rewarded by a share of the increased funds being raised. Guidelines suggest it's unethical.

Why wouldn't it be the same for sales people, in that it's unethical to be rewarded for raising more funds, i.e. revenues?

There's a presentation that shows how one company transitioned from sales commissions to company-wide bonus plan. I think this move is the best direction to take. A friend had a conversation with me soon after I published this about how unique sales people are and how the good ones are really driven by commissions. Okay. But still the questions are worth asking.