My friend Robin works in a jewellery store. He works alongside Henry and Candice.
Each of them earns a basic salary and participates in the monthly commission program. Every time they sell a piece of jewellery they earn a % of the sale price in commission. There is a monthly store target and an individual target - 50% and 50% for each. Collectively they can reach the store target but Robin occasionally misses his individual target because Henry and Candice log more sales.
It's a lot of money for him each month, but they look after themselves first.
As the month progresses, Robin gets more and more anxious about achieving his target, but he doesn't work on Sundays and can miss out on a strong sales day. Eventually, despite being a good salesman with strong product knowledge, he leaves.
The commission program is driving the wrong behaviour - the three salespeople are competing with each other because they must reach their own targets. They jealously hold on to prospective customers, they don't share them. They don't work as a team.
They just lost someone who took time and money to recruit, onboard and train.
When you're designing a bonus or commission program the very first thing to consider is what behaviour you want to drive with it:
Do want to encourage individual performance or team work?
Are you wanting front-end, level-load or back-end performance each month?
Are you interested in one-time or repeat customers?
Are you concerned about the speed of delivery? Or consistency? Or quality?
Are you happy to log a commission when a sale is made, or when the cash is collected? Or when the product or service is delivered?
If you want team performance, then have a team target, where everyone shares either equally or pro-rata to some criteria. If you want cash, then reward on that.
Robin has joined another jewellery store, where the monthly commission is divided up into the number of days worked by all the staff. Those who work 10 days a month get half the commission than someone who works 20 days. And they all work to a store target, which encourages team work. The business owner doesn't want to stop there, so the commission increases by 25% once the monthly store target is reached. He wants to encourage over-achievement.
Bonuses and commission payments can be an important motivator but when you're designing yours, make sure it reflects the behaviour you want.
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