Why Commissions Can Ruin your Team

I know a few business owners who have screwed up their businesses (or at least part of their business) by cavalierly offering commissions. I dabbled in this also here at Gravity Switch and at home with the kids and it didn’t work. I didn’t know why.

Think about it. Why isn’t EVERY pay structure a commission?

If it worked, everyone would to it for everything. Your grocery store would pay their baggers based on the number of bags filled, or the number of smiles they got from their customers.

There’s the story in Freakonomics where Levitt and Dubner talk about a daycare in Israel that was sick and tired of parents picking up their kids late. So they put in place a fee structure for late pickups. What happened? MORE late pickups than ever.

What they unknowingly did was turn an emotional decision into a financial decision. From:

If I show up late poor Mary is going to get home late to HER family so I’m going to try to pick up my kids on time

To:

For $5 I can finish this proposal before I pick up this kid, and Mary’s getting compensated for her time so I have no guilt or stress over that.

But recently I read a book called Drive. Like all business books (and maybe this blog post) it over talks its point, but it talks about WHY people do what they do and commissions aren’t usually the best way to motivate people.

For example they did a test with the Red Cross where they paid people to donate blood, and the amount of blood donated when DOWN. Interestingly they also did a test where people didn’t get money but could choose a charity to donate the same amount to. In this 3rd test they got the same amount of blood as no incentives other than goodwill.

Even crazier is the studies that show how a commission de-incentivizes people.

There was a study  where they brought a bunch of college kids into a room and asked them to solve puzzles with a short break in the middle of the session. The first group was the control. They just solved puzzles. The second group was offered $10 for each puzzle they solved and not surprisingly they solved *slightly* more puzzles than the control group.

But the second time they came in, they solved LESS puzzles. And they also “fiddled around” less while waiting for the test to start than the control group. So while the control group was getting more engaged at solving the problems even on “free time”, the paid group wasn’t putting in any extra effort.

But the third time they did the test was the real eye-opener. Instead of paying the second group they said “sorry, we can’t pay you for solving puzzles today, but would you still be willing to solve some for us anyway?”

What happened was sort of obvious.

The control group posted their best numbers ever, but the “paid” group performed significantly worse this last time. They were completely demotivated.

I’ve seen this with my kids and I’ve seen this with paying people for leads.

  • Charlie and Max enjoy babysitting Tristan, but as soon as we let it count as a chore point and as soon as we paid them for it (once), they don’t volunteer for it any more. It’s no longer a challenge, or a privilege, but instead a job.
  • We did try a sales contest once at Gravity Switch. Everyone was excited. We talked about it. And a week later I just took the $100 bill down from the cork board. Everyone had lost interest, not only in the $100, but all interest in the challenge.
  • At Gravity Switch we get business by word-of-mouth. People say how great we are and refer them to people they know. Over the past 17+ years we’ve talked with about 100 “lead generators”. Some are friends. Family. Clients. Or just cool people we’ve met. We’ve gotten hundreds of leads from them, but out of the 20 or so who we have a commission structure with I can only remember two leads that came in. Both were small projects from the same person who asked us not to pay her a commission in both cases because she honestly just wanted us to help the people she was referring to us.
  • I’ve seen plenty of sales people who fought hard for their commission structure but are happy with their base salary. It’s just easier that way.

Would I ever hire a sales person?

Sure.

Would there be a commission?

Maybe.

There’s something to be said for having a sales person be compensated based on their numbers, since they’re so easily trackable, but there are some dangers too.

  • Their incentives might not line up with ours.
  • Money in isn’t the same as “clients we want to work with” or “profitable clients” (as we learned the hard way).
  • Also, we’re training them to care about the dollar most, so we’re inherently training them to think of their own dollars above everything… which means the minute they spot something that might be better for them financially they’re going to jump ship. This doesn’t make them bad people, but I think if we hire another sales person they won’t be based on commission.

I mean think about it.

Do you love your job?

Do you do it well?

Are you holding back and just waiting for that $100 to float by your face to give your 100%?

Why would anyone else be any different?

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