Sep 12th, 2013 - Category: Sales
This new series, “Rethinking Sales” is a modern exploration of the classic challenges involving salespeople and sales techniques. It starts with a Ted talk by Dan Pink about the psychological limitations imposed by commission based compensation. If you watch it, be warned that the talk is four years old, the presenter’s style is over the top, bordering on annoying, but the ideas are solid.
So why post about a four year old TED talk? It was brought to my attention by this post from David Masover, “Sorry TED, you CAN motivate salespeople with money.” David has written two books on the sales process available on Amazon so he represents the opposing view. First, Dan Pink’s conclusions:
“If/then” rewards work really well when there are a simple set of rules and a clear destination to go to. Rewards concentrate the mind and reduce creativity… Rewards don’t work for cognitive tasks and make the situation worse. Financial incentives lead to a negative impact on performance.
He uses the example of “functional fixedness,” which means it is difficult for people to think outside the box in a reward (commission) environment. He sums up his arguments by presenting the ideal environment for motivation:
Intrinsic motivation is the result of the desire to do things because they matter, we like them, because they are interesting, and because they are part of something important. This revolves around three concepts: autonomy, mastery, and purpose. Autonomy is the urge to direct our own lives. Mastery is the desire to get better and better at something that matters. Purpose is the yearning to do what we do in the service of something larger than ourselves. Autonomy is related to management. If you want engagement, self direction works better. Paying people adequately and fairly and then giving them lots of autonomy. An example is one company’s idea for a “FedEx Day” where employees are given day of intense autonomy, but they have to deliver by the end of the day.
Here are David Masover’s opposing conclusions:
A laboratory experiment isolating a single variable about the completion of complex tasks and the effect of financial motivation is not a valid comparison for a sales organization in which salespeople are well managed, motivated, trained and incentivized. In other words, money motivation does work, but like most things in life – you just have to be more than one-dimensional about how you use it to get the results you desire. The role for sales management is more than just dangling the carrot. For incentives to work, managers need to help their salespeople win, then everybody wins, and earns their incentives as well.
Who is right? For many niche technology companies, the Wikipedia versus Encarta story might provide additional insight. Encarta Premium sold for $59 in 2007. CNET gave it good reviews, but Wikipedia had 99% marketshare then, it was free. Dan Pink makes the point that Encarta was created and sold by a group of financially incentivized managers and engineers while Wikipedia was created and maintained “collaboratively by largely anonymous Internet volunteers who write without pay.” The case can be made that the financial motivation within Microsoft fostered functional fixedness that caused Encarta to stagnate and become marginalized by Wikipedia. There is even an interesting Quora article on the topic and another interesting post called “Microsoft Is About to Get Scroogled,” which is a play on Microsoft’s Google bashing ads, like this video.
So should niche technology companies stop paying commissions to create an environment of engagement, creativity, and motivation? As usual, “Yes, No, Maybe” is the answer. Yes: In my experience commission motivates salespeople to act in the self interest of maximizing commission, but does not always lead to more or better performance. In specialized markets, salespeople do not seem to perform worse without commission, but pursue projects based on other motivational factors: prestige, interest, and compatibility. No: With a well designed compensation plan, those self interests are aligned with company interests such as maximizing motivation, sales, and profit. Maybe: Examining specific company cultures and sales environments can lead to a reduction or even elimination of commission structures. Human motivation is complex and sales are a company’s lifeblood, the right balance can lead to higher levels of organizational health and success.