The Pros And Cons Of A Commission Based Incentive Scheme

Incentivizing employees is a potentially challenging task for managers and business leaders to tackle. Offering the opportunity to earn commission on top of a base salary is commonplace across many industries for this reason, but what makes this such an attractive prospect and are there any problems to consider which might make you think twice before implementing such a scheme in your organization?

Pro – Sales Will Rise

By offering commission, companies can expect their sales team to go above and beyond to chase leads, find new prospects and generally be more productive in their roles because they know that they will be getting a cut of all the new cash they bring in.

Con – Extra Admin

If commissions become a core part of your employee incentive strategy, you will also have to make sure that you stay on top of tracking sales, allocating rewards appropriately and collating all of this information to avoid upset or uncertainty in terms of expenses.

Thankfully there is software designed to make it simpler to monitor and manage commissions, some of which is industry-specific. This includes commission tracking software for real estate that will be particularly valuable when it comes to keeping tabs on high value transactions where commission payments will be sizable.

Pro – Scalable Pay

Labor is a significant expense for any business, and if you operate in a particularly volatile market, you will find that staffing costs are too steep at times when revenues are at their lowest or least predictable.

With a commission based incentive scheme, you can effectively forge a direct link between revenues and the amount you are paying sales specialists. This means that if you are seeing a peak period of revenue growth, you will have the resources to cover commissions, then in quieter times you will not be obliged to keep up such lofty remuneration.

Con – Undesirable Sales Tactics

If sales staff know that they need to rely on their commissions to flesh out their paycheck each month, it is possible that this knowledge will drive them to deploy strategies that are not in line with the culture of the company or the brand image built up around it. They might push existing clients too hard or put off would-be customers by coming on too strong and piling on the pressure.

This is why organizations in certain industries prefer to use commission sparingly, meaning that each sale will net the successful team member a small percentage of the total in return. That way there will not be an all-or-nothing attitude attached to individual sales and employees can be more relaxed, satisfied and secure in their roles while still having the motivation to keep selling.

Pro – Appeal To Talented Applicants

People who work in sales for a long time tend to stick with this type of role because they have the skills to pay the bills, literally. This means that by offering a commission incentive scheme, you will be able to encourage experienced individuals to apply for roles within your organization, since they will want to take advantage of this perk and will ideally have the knowhow to achieve this.

Con – Employee Frustration

Even with a talented sales team at your disposal, differences in commission pay-outs are almost inevitable and this can lead to some pretty stark gaps in how much people of equivalent seniority are earning.

This state of affairs can be both frustrating to those who do not feel like their efforts are being rewarded to the same degree as their contemporaries, as well as generating stress and anxiety. This is of course just a symptom of sales in general, even if commissions can exacerbate it.

Achieving Equilibrium

Ultimately it is helpful to think of commissions as a positive incentive which should nevertheless be underpinned by the provision of a solid base salary which employees are guaranteed no matter their performance.

The proportion of a role’s proposed remuneration should be set aside for commission payments, with a lot of organizations splitting this evenly between salary and performance-related bonuses such as commission. Strike the right balance and your workplace will be full of happy, productive people.