Sometimes it takes a crisis to create new opportunities.
I recently read a mind-blowing National Geographic article about the Rwandan genocide in the early ’90s. According to the article, the Rwandan genocide uniquely targeted males in Rwanda, and at the end of the war, upwards of 80% of the survivors of this horrible genocide were women. Before the atrocities, Rwandan women were considered second-class citizens, but out of necessity, they took on an amazing amount of leadership roles, becoming business leaders and politicians. They now make up over 60% of the national legislature.
The current COVID-19 crisis will also change norms. One of these norms will be an opportunity in the next few years to forego commission-only plans for at least a partial base salary. Companies already want it, and reps will start to crave greater stability in an unstable environment.
While commission concepts are not necessarily a bad part of incentive compensation, total commission or dollar-one commissions create unique challenges in driving excellence in deployment execution. When reps are paid on every dollar they bring, it creates immense loyalty to accounts but makes it difficult to make any adjustments to field alignments. With that loyalty, reps fight back against any change because it directly impacts their take-home pay. In dollar-one commission teams, reps have significant power over their managers and the company as they will often threaten to leave and take their business to competitors. At the same time, dollar-one commission plans tend to pay about 85 to 90% on business won the previous year and only 10% on growth. As a rep, I can nurse my historical business to make 90% of my money, leading to complacency in going after new business. While good for the rep, dollar-one commission often isn’t good for the company.
Commission-only reps make 100% of their money through direct selling and relationships, so what happens when the world shuts down, when you can’t go see your customers or when your customers stop working? How do you make money? It’s true that we believe things will get back to some level of normalcy later in the year, but how do we predict when the next pandemic or global warming catastrophe might happen?
One year ago, if you offered a pure commission rep a partial-salary, partial-commission compensation plan with the same level of upside as their pure commission take home pay, they would have laughed in your face. Now, with uncertainties about getting paid when they can’t work and the knowledge that their paycheck could disappear again if there’s a COVID-19 relapse, that same rep might jump at a chance for a paycheck that’s more consistent and guaranteed. That doesn’t mean you can’t still have commission as part of the plan and create a strong upside, but it’s time we stop paying for dollar-one.
With the current COVID-19 crisis, there’s never been a better time for commercial organizations to move away from a dollar-one commission model and begin offering alternative compensation plans. Depending on how entrenched commission is in your organization, you may have to give two options for a period of time, both commission and non-commission. Then you can spend time convincing the sales team of the value of conversion over time. Offering alternative compensation plans will benefit your organization in the long run. Don’t waste the opportunity this crisis brings.