Sales Commissions
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Page 987
Paying a sales commission is a way of compensating salespeople. Under so-called "straight" commission arrangements, the salesperson receives an agreed-upon percentage of the revenue brought in by a sale that he or she makes. Companies use commission arrangements to sell products as well as services. But some employers choose to pay salespeople a straight salary instead. The most common form of sales compensation—other than in retail sales—is to combine a salary with commissions.
The chief advantage cited for straight commission is that commissions cause salespeople to work harder. Detractors contend that uncertainties surrounding such a form of compensation may drive off good salespeople. Furthermore, their complete dependence on commissions may lead them to develop bad business habits. But even detractors admit that pure commissions incen-tivize and move people to try harder. As a consequence the majority of businesses that employ a sales force use some combination of base pay and commission—also known as incentive pay—to compensate their salespeople. Sales clerks, however, tend to be paid salaries or wages.
Under straight commission arrangements, the seller gets a percentage of the sales price. The percentage may vary from product to product. Observers of the sales function estimate or guess that fewer than 15 percent of American firms pay their salespeople a straight commission—but those that do are satisfied with it: it motivates people to work hard enough to get the sales such companies need. Salespeople prosper in good times but are not a cost in during a downturn.
The straight salary route has its disadvantages as well. Some very able salespeople may also be lazy: they may work hard until they have what they need and then tend to sit back. They cherry-pick what they sell, moving high-commission product at the neglect of other lines. They by-pass difficult-to-reach customers when traveling or favor large buyers over small. Other, highly motivated salespeople view straight-commission selling as demeaning and cannot be attracted. Others view themselves as independents and move at frequent intervals, able to secure new jobs relatively easily. Pure commission salespeople tend not to develop high loyalties to the company...
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