When the chips are down, are sales commissions really a winning strategy?

feature-sales-200Some things in life we know are true. The sun rises in the east and sets in the west. A body in motion will remain in motion unless acted on by an outside force. And the best way to motivate salespeople is by offering them commissions.

But what if we’re wrong, at least about that last one? What if paying salespeople commissions is rooted more in tradition than logic? What if it’s a practice so cemented into orthodoxy that it’s no longer an actual decision? That’s what a handful of companies have begun discovering. To the surprise of many, these firms are showing that commissions can sometimes do more harm than good – and that getting rid of them can open a path to higher profits.

Though this may seem counterintuitive, scientific research on human motivation backs it up. For the past 30 years, a group of social scientists around the world – from pioneers like Edward Deci and Richard Ryan, at the University of Rochester, to a new generation of scholars such as Adam Grant, at the University of Pennsylvania’s Wharton School – have articulated a more subtle view of what motivates people in a variety of settings, including work.

One of their findings is that the effectiveness of motivators varies with the task. In particular, they have discovered that contingent rewards – I call them “if then” rewards, as in “If you do this, then you get that” – work well with routine tasks social scientists dub “algorithmic.” Think stuffing envelopes quickly or turning the same screw the same way on an assembly line. The promise of a reward, especially cash, excites our attention, and we focus narrowly on getting the job done.

However, those same if-then rewards turn out to be far less effective for complex, creative, conceptual endeavours – what psychologists call “heuristic” work. Think inventing a new product or working with a client to tackle a problem neither of you has confronted before. For those projects, you need a broader perspective, which, research shows, can be inhibited by if-then rewards.

That leads us back to sales. In the middle of the last century, selling was fairly simple. Memorise your script, open your sample case a certain way, fire back standard responses to predictable objections – and do it over and over again until the law of averages works in your favour.

Today, though, the transactional aspects of sales are disappearing. When routine functions can be automated, and when customers and prospects often have as much data as the salesman himself, the skills that matter most are heuristic: Curating and interpreting information instead of merely dispensing it. Identifying new problems along with solving established ones. Selling insights rather than items.

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