Socialism in the Sales Department?

When people hear about the principles that underlie the Teamwork Selling approach—especially the idea of eliminating individual sales commissions—one reaction that crops up fairly regularly is: That sounds like socialism. It’s a reaction so common that it’s probably worth exploring a bit.

SocialismThis objection is based on the notion that salespeople are motivated primarily by the prospect of earning large amounts of money through individual sales commissions. Greater individual efforts lead directly to larger sales commissions, so the story goes. The company benefits because each salesperson wants to make more money and they can only do that by selling more. If companies didn’t pay sales commissions, defenders of traditional compensation ask, then how could they motivate salespeople to sell? The entire sales organization, they tell us, would devolve into mediocrity.

It’s an argument that’s rooted deeply in traditional sales culture. It’s also one that’s facile… and wrong.

For one thing, the arguments in favor of paying individual sales commissions closely mirror the arguments that were made three quarters of a century ago about piecework payment for factory workers. In each case, the basic message to workers was the same: If you work harder, you can earn more money. Also in each case, management believes that it’s saving money by not having to pay for poor performers.

The theories of W. Edwards Deming (and the research that informs them) made it clear that piecework provided false economy and undermined a company’s overall manufacturing performance. In the case of factory work, it is now widely understood that—just as Deming contended—workers respond more positively to  things like improving trust in the work environment, reducing fear, and breaking monotony all contribute to improvements in morale and productivity.

And, as a few cutting-edge companies are beginning to demonstrate, the same basic dynamic applies in the sales department. Salespeople, like other employees, respond to a wide variety of workplace factors. Overall compensation is only one of those factors… and it’s not even the most significant one. If managers really want to motivate salespeople then there are much more effective ways to do it than perpetually dangling carrots in front of them.

But here’s the real giveaway in this debate (what gamblers call the “tell”). If we believe that some sort of individual performance incentive is the best way to motivate employees then why don’t we pay other employees that way? Why don’t we pay service technicians based on how many calls they handle? Why don’t we pay cashiers based on how many customers they process? Why isn’t everyone paid based on individual performance?

As it turns out, there are two basic reasons. First, we’ve learned that focusing solely on throughput numbers inevitably results in a decline in the quality of output. Work gets careless—even sloppy— in a singleminded pursuit of inflated output. When it comes to business-to-business interaction, there are very few situations in which quantity is ultimately more important than quality. (In the world of sales, we see this play out all the time in the wake of a sales contest or some other kind of sales incentive program. Deals unravel as a result of opportunities being crammed through the pipeline without regard to suitability or quality.)

The second lesson we’ve learned about this type of compensation is that it reduces the cohesiveness of the organization. Managers are more effective when their employees are more oriented towards the company’s success than towards their own immediate remuneration. Employees are more focused and more effective when they’re not weighing every assignment according to whether or not it enhances their own income. (I’m confident that anyone who’s ever managed a sales organization will confirm the fact that commission disputes are the great bane of their professional existence.)

So, should we believe that there is something different about people in the sales department that makes them different from people in every other department? Or should we go with the simpler, more likely conclusion that it’s time to rethink the way we run our sales organizations? The latter choice isn’t socialism. It’s realism. Or at least it is for those sales executives who are willing to look beyond the traditions of the past towards the opportunities of the future.

The Opposite of What You Believe Is Also True

SiversOld school sales executives reflexively dismiss the idea of a compensation mechanism besides commissions for the sales department. It’s certainly true that plenty of people who’ve worked in sales for years—even decades—have never worked under such a system. The idea ignores a tradition and culture in the world of selling that dates back over a century. And it would be just about impossible to find a sales training methodology that wasn’t based on the assumption that salespeople are working to earn more money through commissions. (Heck, it would be impossible to even find a single book that’s not based on that assumption.)

And yet, my perspective after decades of experience as a salesperson, sales executive, and sales management consultant brings me to a radically different conclusion. I’ve come to believe that in today’s business environment sales commissions are holding our sales organizations back and creating unnecessary barriers between our companies and our customers. They’re no longer serving us well.

Leading an  audience of skeptical sales execs to such a dramatic conceptual shift won’t be easy. Over time on this blog, you’ll read about the issue of sales compensation in a much larger context than you might be used to. It’s part of a top to bottom rethinking of how we run out sales organizations. (If you haven’t read it yet, the Teamwork Selling Manifesto is a concise overview of my ideas on the subject.)

I understand that making this case—the case for radically reimagining the way we run our sales organizations—is going to take some time. And I’m quite content with that. Asking business professionals to rethink some of their most deeply ingrained assumptions requires a shift in perspective that demands a meticulously laying of the groundwork. That’s what this blog is all about.

What I’d like to do in this post, however, is to simply plow a little bit of intellectual ground. I want to nurture the beginning of a different way of seeing what’s right in front of us. For that, I’ll turn to Derek Sivers: a musician, entrepreneur, and business theorist extraordinaire.

Take two minutes (literally) and listen to this mini-lecture Sivers posted on YouTube. Unless I’m mistaken, I think you’ll find the grip of your unconscious assumptions about life and business will begin to loosen perceptibly.

Leave your thoughts in in the comments section below.

What Really Motivates Salespeople?

There are some ideas that are so obviously true that we’re willing to accept them without question. We see them as self-evident and axiomatic, conceptual building blocks that provide a solid foundation for the systems and structures we construct in our culture and our institutions. And in the world of selling, there’s no principle that’s more fundamental than the idea that salespeople are motivated solely by the prospect of making more money. For over a century, we’ve built our sales organization on this premise and have scarcely bothered to question it since John Henry Patterson established the world’s first sales training school at the National Cash Register Company in the late nineteenth century.

Man's hand holding cash
A fistful of motivation?

But what if that idea is wrong? What if salespeople can be managed and motivated by something other than pure selfishness? Actually, there’s a growing body of research that suggests a radically different approach might turn out to be far more effective. Recent research suggests that cooperation in achieving collective goals might be a far more powerful motivator than simple self-interest.

Business theorist and consultant Mike Lehr has dealt extensively with the question of cooperation versus self-interest in his always excellent blog. It was Mike’s writing that introduced me to a fascinating article by Harvard Law School professor Yochai Benkler that appeared in the Harvard Business Review in 2011.

The article is well worth reading in its entirety but here’s a crucial bit of data, referencing the latest research on the subject:

In experiments about cooperative behavior, a large minority of people—about 30%—behave as though they are selfish, as we commonly assume. However, 50% systematically and predictably behave cooperatively. Some of them cooperate conditionally; they treat kindness with kindness and meanness with meanness. Others cooperate unconditionally, even when it comes at a personal cost. (The remaining 20% are unpredictable, sometimes choosing to cooperate and other times refusing to do so.) In no society examined under controlled conditions have the majority of people consistently behaved selfishly.

The implications of this research for our sales organizations is dramatic. It suggests that our sales compensation system (i.e. sales commissions) is designed to motivate a relatively small segment of the sales force even though it likely undermines the motivation of a much larger segment.

If employee motivation was the only issue on the table, it might be possible to argue that the damage inflicted on our sales organizations by compensating salespeople with commissions is tolerable. However, when we take into account all the other problems that commission-based compensation causes (and I’ll be examining these other problems in depth in future posts), it seems pretty clear that a top to bottom rethinking of sales compensation might be long overdue.

Will Rogers once famously said, “It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so.” As we finally begin to question the way we structure our sales organizations, we just might find that what we think we know about the benefits of commission-based isn’t as true as we once believed.

The conceptual key to unraveling all of your sales management problems

If you’ve been paying attention over the last several years, you’ve probably Apple-logo1noticed that more and more businesses are advertising that they don’t pay sales commissions to their salespeople. Sometimes, they will use advertising to tout the policy, citing a more relaxed buying experience as a benefit to the customer. More often, they’ll simply state that they don’t pay commissions in a way that suggests the benefits of not doing so are self-explanitory.

In fact, the most successful operation in the history of retailing — the Apple Store — made the calculated decision to not pay commissions before the doors of the first store ever opened:

At Apple, the decision not to offer commissions was made, Ms. Bruno said, before a store had opened. The idea was that such incentives would work against the company’s primary goals — finding customers the right products, rather than the most expensive ones, and establishing long-term rapport with the brand. Commissions, it was also thought, would foster employee competition, which would undermine camaraderie.

In other words, Apple came to the conclusion that sales commissions act as a structural barrier between a company and its customers.

Traditionalists might argue that sales commissions are an integral part of the culture of sales, that they provide the motivation that salespeople need in order to do their jobs… but Apple’s unprecedented sales success certainly calls that argument into question.

Eliminating sales commissions is a strategy that we’ll be examining in detail on this blog over time. (As you know, it’s one of the five fundamental axioms in the Teamwork Selling Manifesto.) For right now, though, just consider this: Paying sales commissions is simply a business convention. It’s not required by law, it’s not universally practiced, and it’s by no means been proven as the best way to compensate a sales organization.

Just let the thought marinate for a while: There are other ways to compensate professional salespeople besides paying commissions. Once you wrap your head around that idea, you might find that the other pieces of the sales management puzzle suddenly get a lot easier.

Building tomorrow’s sales organization today

The past is a foreign country: they do things differently there. (From The Go-Between, a 1953 novel by L. P. Hartley)

Piece WorkAt the turn of the last century, “piece work” was the rule rather than the exception in American manufacturing. In other words, factory workers were paid based on the number of inventory items they were able to produce or assemble. It was an approach to compensation that seemed to protect manufacturers from the risk of unproductive employees. By the middle of the century, however, manufacturers abandoned piece work in favor of hourly pay.

Of course, we know that the change wasn’t motivated by any sense of altruism. Instead, it was motivated by the counterintuitive realization that an emphasis on raw productivity was expensive and, ultimately, counterproductive. Manufacturing is a process. Like every process, it needs to be viewed from end to end. When companies started doing so, it became clear that the best results were achieved when all the elements of the process were calibrated to effectively work together. Driving productivity in one single aspect of the process  — as piece work sought to do with labor costs — instead produces suboptimal results. Today, the idea of piece work seems altogether outdated and misguided.

In fact, the philosophy behind piece work has been abandoned in the modern corporation altogether with one notable exception: The sales department. Using a specialized brand of piece work known as sales commissions, our sales organizations are paying their salespeople based on a ideas that everyone else in the corporation ditched more than a half century ago. Justifications that were widely discredited by the end of World War II  remain the basis for the compensation plans that most corporations still use to maximize sales productivity. In fact, forward looking businesses are beginning to realize that sales commissions are every bit as outdated and misguided as piece work on the factory floor.

In this blog, I’ll be outlining an approach to sales that’s optimized for the twenty-first century. It’s a philosophy I call Teamwork Selling and it’s based on five simple premises:

  • Business-to-business relationships need to be generated and maintained at an organizational level, not at a personal level.
  • Commission-based sales compensation places unnecessary barriers between a company and its customers. It’s counterproductive and is the single biggest impediment to effective sales management.
  • Sales is a process. Effective sales managers are skillful process managers.
  • Successful sales organizations use information to enhance customer experience and improve sales results.
  • Effective sales management means using all of your resources intelligently.

I’m convinced that tomorrow’s sales organization will look far different than today’s — not just in the area of sales compensation but in their entire approach to interacting with customers. It’s time to move away from a model with its roots in the nineteenth century and, instead, think about building a sales organization designed from the ground up for the twenty-first century.

History and the world of technology both provide us with glimpses of what a more modern sales organization might look like someday… but why wait? I’m looking forward to exploring these ideas with you, getting your feedback, and making a serious attempt to move the state of the art forward.