Sales compensation and lottery tickets.
Sales compensation is often a controversial topic. Big checks invite jealousy and second guessing. The best way I’ve found to calm down the jealousy and second guessing is to encourage the team to view sales compensation as being a lot like lottery tickets. Let me explain.
When you pick the right numbers for powerball, you might win $80 million. Do you “deserve” $80 million? It depends entirely on what you mean by deserve. Did you provide that much value to society in any direct tangible way? No. But if the winner doesn’t get paid, nobody would play the lottery. And the rules say you get paid, so at least in that sense you “deserve” to get paid.
I remember a story of an old time texas gambler who went to an illegal poker game. Something set off his danger sense so before going into the room, he asked the security guy at the door a question: “If I were to win a lot of money in this game, would I be able to leave with it?” He didn’t get the answer he wanted, so he didn’t play. Good decision.
I view sales compensation a bit like playing the lottery. You have to be able to count on being paid when you get lucky, or the whole system breaks down. When a sales rep earns a big commission, I pay it. I don’t think about how much they really deserve it. They may have gotten lucky by having the right account at the right time with the right supporting team, but somehow they showed up with the winning numbers. Occasionally someone who actively screwed up a deal gets lucky and closes it anyway. And they get paid. They may get fired if they screwed up badly enough or often enough, but even then they get paid.
I hear a lot about companies that find ways to not pay their sales reps. Almost every sales compensation plan has an escape valve where the company can decide not to pay. Some companies use it liberally. I know not because I do it but because I hear about it – in interviews of top performing reps whose employers found a way not to pay them. Once you’ve hit the winning lottery numbers and not gotten paid, it makes it hard to buy another ticket for that lottery. I sleep easier at night knowing that none of my sales reps are interviewing because we didn’t pay them what they earned.
How about jealousy? I have talked to a lot of technical people who are jealous of the big check their sales colleague got when a deal closed. I grew up on the technical side and only took on responsibility for sales teams later in my career so I have great sympathy, having felt that jealousy myself. Having now lived on the other side, my response is in two parts.
First, I explain that the sales team is, metaphorically, paid in lottery tickets, and this rep just got a winner. I remind them that being paid that way, and held accountable in the way sales is, has some downside too. When the deal closes they’re a hero and make a lot of money whether they “deserve” it or not. When the deal doesn’t close their income takes a hit and their job is at risk whether they “deserve” it or not. It’s not fair to have the downside without the upside.
Second, I ask if they would like that job. I do believe that’s the truest test: if you wouldn’t switch places with someone, don’t complain about them being overpaid. Heck, when I was a college student making $9 an hour doing tape backups on a VAX at night I was jealous of Alaskan fishermen making $2000 a week, but not jealous enough to quit school and do that. Not only does this usually end the jealousy, but sometimes we discover a hidden sales talent – I’ve had some hugely positive experiences with technical people migrating into sales roles.
Finally, one corollary is that if a rep always gets paid on the deals they close whether they “deserve” it or not, then a rep shouldn’t get paid on deals that don’t close whether they “deserve” it or not. It may sound obvious that a rep shouldn’t get paid on a deal that doesn’t close, but from time to time I am asked. Of course there’s always a good reason: the customer would have bought if the product had shipped on time, the customer would have bought if we’d fixed their bug faster, they would have bought if the company had agreed to xyz terms, the deal would have been bigger if xyz, etc. Often they are right, but I don’t care. To be precise, I care but not as much as I care about something else. What’s more important is the process being objective, so that the sales rep who does close a big deal doesn’t have to worry about whether they’ll get paid. Because once subjectivity and whether they “deserve” to be paid enters the picture, the whole system falls apart.