Eliminating Sales Commissions at Air Force Oneby John Hunter
Over the past few years, Air Force One CEO Greg Guy did away with commission pay for all sales associates and general managers.
“The performance has been great and I would never consider going back,” he says.
Of the HVAC contractor’s 170 employees, pay changed for about 20 people, but Guy pitched the idea first to his Cincinnati office.
Rather than focusing on sales goals or credit, they would measure system inputs — number of new leads, number of opportunities, etc., — trying to reach certain metrics, and then all share in the results.
This result is seen at many different organizations as they focus on improving systems to deliver customer delight instead of focusing on using extrinsic motivation on salespeople: Why ThoughtWorks Eliminated Sales Commissions (2013) – Eliminate Sales Commissions: Reject Theory X Management and Embrace Systems Thinking (2012) – Righter Incentivization (2008).
Air Force One, CEO Greg Guy attended the 2013 Deming Institute Annual conference and was able to begin to learn how to put into action a management system to address the problems created by a commision based culture. The need to address this problem first became clear to him in reading Daniel Pink’s Drive: The Surprising Truth about What Motivates Us.
“In trying to optimize the performance of a system, it doesn’t really work when you’re trying to think about who gets credit for this client or that client, or this deal or that deal,” Guy says.
For the first transition, Guy rounded up the team’s past three years of total earnings and averaged that to set each person’s weekly compensation.
The new system started in the fall of 2013. By the end of 2014, the Cincinnati office’s total revenue was up 120 percent over the prior year.
“Sometimes organizations celebrate salespeople, and they bring them across the stage and there’s the big round of applause and they give them the nice award,” Guy says. “And what gets lost is all of the people that are back in the office that are actually supporting that person and doing all of the heavy lifting.”
When you view the organization as a system there is no justification for paying commissions to one part of that system (salespeople) while ignoring others. Also putting the stress on salespeople for significant portions of their pay based on closing sales creates a climate that often puts the interest of customers and the business behind a need to make the next sale, which often leads to very bad consequences.
What works to grow and sustain business over the long term is to focus on the desires of customers (including potential customers) and continually improve your organization’s ability to delight those customers (which includes innovation and process improvement).
Categorised as: systems thinking