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Are Your Employees Commissioned or Co-missioned?


Over the years of both managing my own team as well as coaching business owners that have teams of various sizes, I’ve seen many compensation plans.  Most are decent, some are exceptional, and frankly... some are a mess.  They are always built with good intentions, but often they end up incentivizing the wrong behaviors.  For this reason, I wrote this post. 


For compensation plans that include some type of additional pay above the base, they generally fall into four categories.  For the purposes of this post, I’ve labeled them: 1) discretionary bonuses, 2) incentives, 3) commissions, and 4) “co-missions” **.   


Discretionary bonuses.  Although I list these first, they can be quite impactful.  These bonuses are the type that can’t necessarily be predicted by the employees, so they don’t impact production as much, but nonetheless they are generally much appreciated.  They are best used to show appreciation, build loyalty, and reward employees when the organization does well overall.  However, the downside is that they can become expected, or even judged over time, if they are given out on a regular basis.  For this reason, it’s truly best if they are “discretionary” with respect to when and how frequently they are used as well. 


Incentives.  Different than discretionary bonuses, incentives are tied to a measurable factor.  However, what they have in common with discretionary bonuses is that they are sometimes tied to factors that aren’t necessarily under the control of the employee and may not be 100% beneficial to the organization.  Organizations frequently find that they are ‘incentivizing’ a behavior that is something that they don’t want long-term.  It’s in those cases that such incentives can have devastating effects on company culture.  If employees do better by performing behaviors that aren’t in the company’s best interests, this obviously isn’t a good situation. 


Commissions.  These are the supplemental pay amounts based on factors that can be measured AND have a direct benefit to the company.  Generally, the measurable is a sales number or a profit number, but depending on the industry it could be a volume of business or other measurable KPI.  As the measurable improves for the business and thereby makes the business more profitable, the employee makes more money as well.  Commissions are in effect very focused incentives, and therefore usually better for both the organization and the employee.  However, when taken to extremes, commissions can also work against the organization if they encourage behavior that although profitable, is contrary to the culture you are trying to form. 


“Co-missions”.  Yes, this is a play on words, but it’s done to make the point memorable for this blog post. As mentioned above, although commissions can be beneficial to both the employees and the organization, it’s important that they don’t work against the culture you are trying to build.  If the action benefits the employee and the employer, but is detrimental to the team, customers, or any other stakeholders, then it’s out of alignment with the long-term interests of the organization.  When building compensation plans, it’s important to consider what could happen if incentives are too effective.  Is it possible to “game the system” such that the employee makes more money, but to the detriment of customers?  How about other team members, could they be adversely affected while one employee (or a few) strive to better their own compensation?  These are important questions to answer.  Adding factors outside of merely sales and profits can help, but it also requires a strong culture and ingrained corporate values.  Including a measure of customer satisfaction, team performance, or quality control can help counteract any negative effects, but it usually comes with come trial-and-error or in-depth analysis in advance of implementation.  Ultimately, you want to ensure that whatever additional pay can be earned by employees is done by furthering the organization's mission, not just the individuals involved.  The best designed compensation packages include this feature. 


Designing compensation plans is hard.  I’ve done it many times for several different companies, and inevitably there is some flaw that must be adjusted down the road.  It is possible to eventually land on the right plan, but it does take in-depth analysis as well as good judgement about what works best for your unique organization. 


If you need assistance determining how to properly compensate your team, please reach out to us on our Contact page. 


As always, I wish you the best in every aspect of your business. 


Mark Goldman 


** (Note: The term “co-mission” came from a leadership conference I recently attended.  Credit where credit is due.) 

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