Private enterprises often say: "Heroes are judged by performance, and those who collect more payments naturally earn more commission." However, performance is merely the "effect"; few consider the "cause" that ensures performance.
As a senior marketing executive in the FMCG industry, I have long pondered: Why do successful and enduring companies seem to avoid commission-based pay? This is especially true for Western firms.
As a passionate football fan, I yearn for the Chinese national team to "break out of Asia and go global," but it rarely happens. Is it because the rewards are insufficient?
Given the investment in the Chinese Super League, if the national team qualified for the World Cup, the financial rewards would be substantial. The key reason for repeated failures is simply lack of skill. Football requires strength; without it, results won't be good!
In business, top decision-makers may inadvertently forget that there is a cause before an effect. Commission-based pay, piece-rate pay, and target-based assessments are all outcome-oriented incentive methods.
As the external business environment changes rapidly, the market has shifted from scarcity to surplus. In such times, blindly adhering to outcome orientation without considering external changes makes salespeople feel that despite all efforts, performance targets are unattainable, leading to low morale, reduced income, and even severe attrition.
During favorable macroeconomic conditions, outcome orientation indeed fueled "barbaric" growth. But when the macroeconomy enters a plateau, persisting with outcome orientation may cause a sharp decline. Ultimately, business responsibility lies with management, not frontline employees. Outcome orientation shifts operational responsibility onto salespeople, while the key responsibility rests with decision-makers and their strategies.
Performance depends not only on salespeople's motivation but also on many constraints. For example: product quality assurance, new product market fit, brand and pricing positioning, marketing strategy and tactics, supply chain efficiency, and so on.
These constraints are beyond the control of mid- and low-level sales staff; only senior management can address them. If these constraints persist, can sustainable good performance be expected?
Through years of observation, sales commission systems have many drawbacks, roughly as follows:
- It is difficult to motivate high-performing salespeople to move to strategic priority regions, where current sales are unsatisfactory, because it would affect their commission income.
- It encourages short-term behavior, where salespeople prioritize immediate sales volume to earn commissions, ignoring long-term company interests. Often, distributors are left with large inventories while retail outlets are empty.
- Many commission schemes set a minimum target; only by achieving it can salespeople earn commissions. When monthly sales fall short, salespeople may give up and defer collections to the next month to secure commissions (or even bonuses). This disrupts inventory turnover and balanced production, affecting capital returns.
- Those earning less commission may not be less capable, and those earning more may not be more capable. Regional differences and company investment also determine performance. Ignoring objective conditions and judging solely by performance can cause internal discord.
Kazuo Inamori, founder of Kyocera, wrote in "Amoeba Management": "Kyocera does not implement outcome-based pay because when performance declines and commissions are cut, most employees feel dissatisfaction, resentment, and jealousy. In the long run, outcome orientation disperses morale. Kyocera operates on a strength-oriented approach."
What is "strength orientation"? It means shifting focus from mere "quantity" to "quality." It involves taking on the operational responsibilities that decision-makers should bear. Under correct strategies and tactics, pursue excellent product quality, cultivate employee abilities and ethics, and focus on customer/consumer satisfaction. If these are done well, results will naturally follow.
Strength orientation is not a "big pot" (egalitarian). It requires smooth internal processes, rigorous management systems, and a rational management framework to ensure the implementation of business policies. Additionally, scientific assessment mechanisms should be set across four dimensions: finance, customer, systems, and growth. This may be the future direction for private enterprises and a trend in human resources. Pioneering companies will surely reap the benefits!
Cast aside impatience, build strength, and let results come naturally!
Source: China Marketing Communication Network
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