Why do we pay sales commissions?

I have trouble with a comparison between incentive comp schemes for programmers and sales commissions. One of the biggest problems with programmer incentive comp is the need to align it with business goals --- which is why you'd have to be an idiot to pay per-line-of-code. Programmer comp is several layers of indirection away from company income.

The same is not true of sales comp. Salespeople earn commissions on money they are bringing into the company. It's much easier to measure and while it's not easy to perfectly align incentives (which is why sales teams have spiffs and regions), it's at least possible.

Remember also that the alternative to "no sales commissions" probably isn't "lower paid account managers"; it's "account managers paid nearly as high, but on a salary basis". The best sales account managers can virtually print money; the median sales account manager can't sell bottled water in the Sahara Desert. Most companies that do direct sales need to attract talented sales teams.

But even with a perfect sales team, most products have sales cycles stretching weeks-to-many-months. Which means it can take a quarter or two to see how a sales account manager is going to work out. If you're paying them fixed comp, that's an awfully expensive experiment to run.

I have no idea how well this works with "inside" sales teams ("dialing for dollars" operations); maybe fixed comp makes more sense there.

I'm sorry to say that this is wrong on so many levels. We engineers like to believe that the author is right and our guy gut tells us that "hey why do the sales people get commission and I don't??".

So why is the author wrong?

While there certainly ARE cases where commission is being used in the wrong way, there is nothing inherently wrong with it.

1) The author misinterprets the research and states that people perform worse when under an incentive. This is only true for INTELLECTUAL tasks. If you tell one group of people that they get $50 if they solve a math problem in five minutes then that group will perform worse than another group without an incentive.

But if you tell one group of people they'll get $20 for every brick they move from A to B in five minutes you can be sure they'll move the bricks much faster than a group with no incentive.

2) "The problems include infighting over who gets credit for accounts and sales." Again, a problem with how you set up the system. This fighting can easily be avoided. Just make sure it is clear who is responsible for each customer.

3) The author also forgets one of the great features of a commission based system. If you are a small startup you may not be able to hire a large sales force. In that case, you can hire great sales people at a low base salary and make sure they only get paid when you get paid.

TL;DR: commissions are a tool among others. Use it well and it will help you. Use it in the wrong way and it won't. Use common sense.

I worked in a commission sales environment and had a completely different experience. Probably your company management sucked. As it is I had my reservations about my management too, but the payment of commission has the neat effect on focusing attention on boosting their bottom line and diverting oneself away from most of the other dubious metrics they liked to distract me with.

I raised an eyebrow when Joe referred to system-gaming by "making fake phone calls to hit call numbers". If you're incentivising staff with ensuring they adhere to largely meaningless metrics like that you're doing it wrong (it's more or less exactly analogous to judging programmers by their lines of code). Beating them with a stick for not meeting those sort of targets is "coercion", not to mention requiring data-collection time sink; offering a carrot for things sold, which presumably requires tracking anyway, isn't.

Commission sales specifically attracts people who consider themselves to be better than average salespeople. Yes, sometimes they have sociopathic tendencies (although they tend to be the ones who only think they're good). Yes, without going to the ridiculous lengths of some recruiters, good salespeople do tend to have a more mercenary attitude towards work than programmers (they don't have weekend cold calling projects either!), just as programmers on average have somewhat different motivating factors at work from investment bankers, academics and actual rock stars. Even if greed isn't always good, sales roles with an absence of commission and commensurately higher salary incentivises those who suck at selling (or who despite impressive credentials suck at selling your product specifically) to stick around longer. If you're a startup, you're probably not able to offer your staff as attractive a package as Fog Creek or select your salespeople so successfully in the first place.

I agree with the original poster that sales jobs are a good idea for hackers considering starting a startup

I think it's a stretch to say the author is wrong. He was very clear in stating that aren't necessarily bad, just that they come with costs. In his case it looks like the costs outweighed the benefits.

Can you elaborate on what you mean by "how easy it is"?