Taking Commissions Away

by Dave Kahle

Question:

Our president recently suggested that we penalize the sales people for not meeting their goals by taking commissions away from them. Do you have any thoughts?

Answer:

Wow.  My initial reaction is that it sounds so harsh.  Put that way, and you are liable to lose 90 percent of your sales force, just on the principle of it.

     But, let’s spend some time thinking about this, as it is more complex than it appears.

If you mean that you want to take back money that you have already paid, I can’t imagine that you could, or would do that.  So, for example, you paid a salesperson $20,000 in commissions during the year, along with a salary, and now, at the end of the year, you are saying that you are penalizing him for not making goals, and “Please give us $2,000 back?”

     My guess is that is illegal.  I certainly do not recommend it.  As an employer, you are expected to take some risks with every employee.  The $20,000 that you paid the salesperson was paid.  It’s his, not yours.

     So, that’s probably not what you meant.  Maybe this is the scenario:  You have set up a salary and commission program.  Let’s say the commissions are four percent of sales, paid on every dollar of sales.  The salesperson has a goal to do $500,000 in sales.  He actually does $400,000.  The next year, you reduce his commission rate to three percent of sales, thus “penalizing” him for not meeting his goals.

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have less of a problem with that, but I’d like for you to build in some incentives, as well.  How about something like this:  A three percent commission rate on all sales up to $400,000.  A three and a half percent commission rate on all sales between $400,000 and $500,000.  A five percent commission rate on all sales over and above $500,000?

That protects your risk but also gives the salesperson an incentive.

In general, I believe it is your responsibility, as the employer, to assume the risk of a salesperson that underperforms.

Rather than attempt to take money away from him, I’d rather see you work with him to help him become successful.

     Often the reasons for an underperforming salesperson belong to others as well as the salesperson.  Generally, there are things that you could have and should have done to encourage his/her success that you may not have.  For example, did you train that person in the fundamental competencies of field sales?  Has he been schooled in time management, and in making effective decisions about the investment of his sales ... CLICK HERE TO READ FULL ARTICLE