Have you been using commission as a tool to motivate your sales team? The reality is, commission isn’t an incentive and it shouldn’t be treated as such.
Uwin Iwin Incentives has been in the industry for 22 years, and one of the most common questions we receive from prospective, and some existing clients, regards the distinction between incentive programmes and commission structures. We are asked: “what is the difference?”, “why use incentives if commissions are in place”, and “aren’t commissions more effective in bettering performance levels?”
In this brief article, I will try to answer these questions and, further, I will attempt to show that incentives offer additional benefits to both an incentivising company and its employees, which commissions miss.
Related: The science of successful incentives uptake
What is commission?
Most often, commissions are earned by sales people who bring a product or service into the marketplace. They may take the form of a percentage per sale, or lump sums that are paid when sales targets are met. In either case, the earning structure should be clearly laid out in the employment contract.
A company may work purely on commissions, or work on a mixed model where a fixed basic salary is paid, regardless of performance, and commission is earned on the basis of performance levels. No matter which model is used, however, commission is strictly a function of normal remuneration: this is to say that it does not reward an employee over and beyond their expectations from the company. In this sense, commission is NOT a reward, but simply what a company owes an individual for work done.
What, then, are incentives?
Incentives do not form part of a remuneration package: these are rewards offered on top of fair payment practices. When an incentive reward is earned, the employee perceives it differently to a pay slip, and this perception is a key psychological element that drives a commitment to increased productivity, increased morale, and increased company loyalty.
In the industry, the abovementioned psychological element is referred to as ‘trophy value’, as the reward is viewed as something that signifies exceptional or outstanding performance. Essentially, the trophy or reward is a physical object or experience that says, “the company values you… you have achieved”. We are often quite surprised at how motivating this simple statement can be for an individual, and it is at a company’s peril to overlook basic drives and needs present in the human psyche.
When to use incentives
Incentive programmes are designed with a specific objective or goal in mind. Objectives may include: increased productivity, better employee morale, increased employee retention and building positive (and therefore profitable) relationships with channel partners.
Credible research consistently shows that companies that implement incentives fare better in the market than those who solely rely on remuneration packages, however good the straight pay and commissions may be. The following statistics more than prove this assertion:
- 92% of employees work harder when incentive programmes are in place
- 82% of employees believe thatrecognitionacts as a powerful motivator
- 78% of employees regardsacknowledgmentof good work as being ‘very’ important
- 20% of employees leave posts due to having good work overlooked.
Related: Making incentive programmes work for everyone
Types of incentives
Incentive programmes should avoid cash rewards at all costs, as cash contains very little trophy value, and is spent on banalities like bills and the servicing of debt. Instead, actual (desirable) goods and experiences are much preferred: for example, in many of our programmes the participants may earn points that can then be redeemed on an online catalogue populated with thousands of quality consumer items (and these items come to represent their achievements).
The favourite incentive reward remains travel experiences as travel is seen as a luxury that individuals cannot justify when drawing up personal budgets. A compromise between cash and travel or goods is what we refer to as ‘branded cash’ – points are monetised and uploaded onto a company-branded MasterCard pre-paid gift card, which can then be used at vendors that accept MasterCards.
In this case, money is not spent on bills, but on items or experiences that retain the very important trophy value. Additionally, the incentivising company’s brand remains top-of-mind with every swipe.
As illustrated, commission is part of a pay package, and employees view it as something that is legitimately owed to them by the company. Incentives are rewards over and above remuneration, and employees view rewards as a special ‘thank-you’ for good work and overachievement. The simple recognition of their efforts further motivates them and their cohorts to new heights, which in turn benefits the business’ bottom line.