In today’s competitive environment, companies are constantly striving to survive and grow by pushing their sales department to grow sales and in turn their bottom line. As a great motivational tool, most companies that rely stronly on their sales force will use incentives contracting such as commission based pay.
According to Washington (2009) , commisions are “a form of variable pay by which staff earn a cut of the income they create for their employer”. As a result, the company directly links its perfomance to those of its sales staff so that their income is dependent on the company’s sucess.
According to Interest and Octaviani (2009), a selling agent has two direct tasks: (1) prospecting for customers and (2) advising on the product’s suitability for the specific needs of the customers. Consumers usually rely on information and advice provided by representatives of a seller when purchasing unfamiliar products. Therefore, having a knowledgable and ethical sales force is key to having a high customer service company that will lead to customers being satisfied.
Yet comanies fail to realize that having their sales staff on commission based pay will only increase sales and higher profits in the short-term. Long-term it will have a negative effect on the company’s reputation and growth. This paper will argue that having a company’s sales force on commission-based pay will lead to lower customer satisfaction and in turn hurt the company’s bottom line. As customers become aware of fradulent selling techniques, customers will loose trust with the company, decreasing customer satisfcaion. This will, in turn, lower custoer service brand image and therefore, loss of those customer. As a result, the company’s sales and profits will decrease.
This paper will start by first discussing the benefits of commission based pay such as having a transparent reward structure, having access to resulr oriented employees and having the ablity to share risks with sales force. The paper will then discuss all the risks associated with adopting a commission only compensation model such as creating disloyalty to the organization, severe flunctuations in earnings for the sales staff and having a short-term focus versus a long-term focus.
It will continue to discuss the effects it has on the company’s customers such as making the wrong recommendations, overstating benefits and loosing customer trust. The company also is negatively affected by commission based pay by having negative effects on employee relations, loss of reputation and the liability of being sued.
The paper ends with giving recommendation on the best way to overcome the problem and suggests that companies that care about customer service levels should adopt a mixture of commission and salary base pay.
Benefits of Commision Based Pay
Commission Based pay can be rewarding for both the employer and the employee. It gives staff assurance and confidence that they are contributin to the company’s sucess ( Washington, 2009). Having an engaged and motivated sales staff can be vital for some comapanies as they can be the only source of income for the company. Commissions are usually a common way of rewarding top performers in a company. According to Washington ( 2009), “ commission based pay leads to a transparent rewards structure based on success.
Aggresive selling through commission based pay is not something that companies should always fear. Meyers ( 2010) argues that agresive selling will sometimes increase customer satisfaction levels especially when the firm offers a product or service the customer was not aware he/she needed. The difference between bad aggresive selling and good aggriseve silleing is making sure the customer feels as if they can trust the sales person’s advice.
MacAlpine, a McKinsey consultant, which is dicussed in Meyer’s article ( 2010), discusses that selling solutions to people’s problems while making their...