Do you cap commissions for your top performing sales people so that there's a more equitable rewards distribution across the team? How does your company think about this?
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If you can afford it as an organization - Do NOT cap commissions
We believe in fully incentivizing our top performers. Capping commissions can demotivate those who are driving the most revenue and innovation within our team. By allowing unlimited earning potential, we encourage excellence and reward outstanding performance.
If your company can afford it, implementing commission levers for overperformance can be highly effective. These incentives push top performers to go even further, driving greater results for the entire organization.
Concerns about equity among the sales team should be addressed by examining territory assignments and opportunities. Ensuring that all reps have equitable chances to succeed is crucial. This approach helps in fairly evaluating your salespeople based on their abilities and effort, rather than limiting their potential earnings.
Rather than capping commissions, I suggest focusing on fair opportunity distribution and incentivizing over- performance to foster a highly motivated and successful sales team.
If you want to take it one step further, build territories that play to certain sellers strengths- maybe have an Enterprise, Mid-Market, Emerging Market or vertical focused and construct quotas and commissions based on the type of territory they have. Each territory mentioned above should have different quotas and incentives, because they are totally different and the length of sales should play a major part in this decision.
No caps.
Treat your sales people as business owners. They are incented and rewarded on the revenue they drive; it's a win for the organization and them to not have caps.
Outstanding salespeople are akin to entrepreneurs, shouldering significant personal risk rather than just capital. Their credibility on achieving desired business outcomes hangs in the balance. Like dedicated business owners, they assume sole ownership and unwavering commitment. Restricting sales staff personal income & rewards is tantamount to restricting results. It's a guaranteed approach to stifle growth.
Circuit City, once the darling of Wall Street (Read: Good to Great), followed that trajectory before the book detailing their success was published. They were leading the field. However, when 'new' and 'fair' accountants attempted to increase profits by terminating 3,400 of their top-tier salespeople, they plummeted within a year. Resorting to capping often leads to predictable mediocrity.
We don't have a cap, although there is a top rate at which they can earn. The highest attainment actually triggers lower commission rates as a way for us the manage cost of sales. More to the point, we have a 200% target incentive achievement review by our compensation committee at year end. Any sellers that earn >200% of their TI have their earnings temporarily capped and a review is triggered to ensure the earnings align to seller effort and not lucky market conditions or some other market windfall dynamic or benefit from quota that is too low. Our sales enablement team conducts an evaluation and makes a recommendation for the compensation committee to review. I cant say this approach is terribly popular but it creates some needed controls that protect the organization.
We protect commissions with a 200% target incentive review process at year end. We review for seller contributions/effort and commissions are limited to 200% if there appears to be limited seller effort and/or a windfall that was not attributable to the seller. Unfortunately, I think seller's perceive this as a cost of sales play, but our statistics suggest a more measured approach that strives to achieve fairness for both the company and the associate. Looking at equitable distribution of commissions is not a focus, but we do strive for consistency in applying our policy.