I recently hired someone* to handle my advertising on Money Spruce. She gets paid 100% on commission, so if I’m not making money, she’s not getting paid by me.
She’s doing a great job so far, too. A few times I’ve felt bad asking her to check on things for me or send emails, but then I realized: I shouldn’t feel bad. She must want to do this work because she gets paid a portion of everything I get paid.
That’s the beauty of commission-based earning.
On the opposite end of the spectrum, I’ve never had a job offering any significant commission, and that’s de-incentivized me from doing my best work.
I worked in retail, where I always got paid close to minimum wage. Store managers often threw weekly sales goals for the store at us employees, but I never really cared since I would get paid the same wage whether the store brought in $30 or $30,000,000 that week.
When incentives were offered, the best they could muster was giving cashiers $2 every time we convinced someone to pay $20 to sign up for a store membership card. Needless to day I didn’t put much of an effort on selling the memberships.
No Motivation to Work Hard
Many jobs don’t offer much in rewards for working hard and doing your best.
I guess the possibility of being fired or laid off is somewhat of an incentive to do your best at a job, but I’m still not convinced that’s the best incentivizer to get employees to try their hardest.
Other jobs offer the opportunity to advance to a better position with higher pay, which seems like it would be another good reason to do you best at work. But there are some jobs where there are really no opportunities or ability to achieve a higher position no matter how hard you work.
Some employees may not desire to advance from their current job anyway and instead plan to move on to other companies or places in stead.
Incentives = Entrepreneurship?
If you’re a really into working based on incentives, even if there are no guarantees that you’ll make anything, is entrepreneurship the way to go?
Short answer: I say “yes.”
What you earn is 100% tied to your own efforts. You aren’t restricted in what you can do (whereas you probably are restricted in at least some way by your job), and you can adapt your projects to changing markets and conditions.
For the driven, deriving what you earn almost solely based on your own effort and knowing that’s how you’re going to be paid is the greatest incentivizer of all, especially if all the profits are coming your way, too.
For those of us that like to work hard and put in whatever hours necessary to meet our goals (like me), having performance tied to pay is crucial.
But, of course, it’s not all great news.
Not all good
I realize that working for incentives isn’t going to be amazing all the time. If a majority of your pay is based on incentives or commissions, I imagine it can be unsettling at times not to know you’re definitely going to earn a certain amount on our paycheck.
I also bet that working with commission-based sales can be tough based on a lot of factors like the product you’re selling, the market for that products, the current economic climate, and more. This CNN article points out that earning based on commission is great, but you can’t simply “coast from paycheck to paycheck. Needless to say, working on commission isn’t well-suited for the unmotivated.
As far as waitstaff working for tips, that may not be completely related to work performance, either. According to this Planet Money Podcast on why we tip, many customers tip because they feel guilty and not because their server did an exemplary job. This is surprising and goes against intuition, but based on my tipping habits, I can definitely see some truth in it.
I’ve never worked at a job where a significant portion of my wages are based on performance or commission, but I would imagine that the best combination of pay involves a base salary with bonuses attached. Working entirely on commission is a little scary, but I can see doing it if it’s something I’m confident I can succeed at.
Have you had a job with performance incentives? Did you or would you prefer it? Am I missing any important considerations?
* that “someone” is Crystal, and you can check out her services here
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photo by: Kumar Appaiah
I guess it depends on what motivates you. I always feel bad if I don’t believe that I’m doing the best that I can, so even when I was working overnights at a supermarket and I had no direct supervision for 90% of my shift I always tried my best to be friendly and efficient for the customers and to get through the list of cleaning and organizing tasks that the management would give me. I feel like my reputation as an employee is on the line, and the reputations of anyone would recommended me for the position or acted as a reference are also on the line. I find it’s even more true for me now that I’ve gotten jobs in my field because I want my coworkers and supervisors to see me in a good light not just because of how it will help me in the short term in terms of getting better projects, interesting travel opportunities, or promotions, but also how it may help me in the future if I ever need a reference from one of them. I don’t feel comfortable asking for those kinds of favors unless I feel like I’ve earned it in my own mind, which means working my hardest even if it doesn’t directly benefit me right now.
I do understand, though, that other people aren’t motivated by those factors and will get more out of monetary benefits. I can see how for those people working on commission or being an entrepreneur would help them to be more effective at their job.
Great points, PPP. In my mind, there are a few different levels: you can be a great employee, a good employee, or a bad employee. Perhaps the “great” employee is a shining star, but the “good” employee could be doing an okay job but not the best job. Maybe this good employee could become a great employee if they’re given even more reason and motivation to do so.
This is purely hypothetical and theoretical, but I’ve often felt that I could get by in my crappy retail jobs by doing the minimal amount possible to not get noticed as being a bad employee.
I think it really depends on what kind of job you are doing. Not all jobs get commission. For example I work in health care. Commission isn’t appropriate. However, flexible hours, autonomy and so many weeks holidays a year works out great. I think all jobs should have incentives for staff but depending on the job those incentives change.
Miss T, I totally agree commission isn’t appropriate in your field, but do you think there could be performance incentives (like bonuses) for doing your job well and meeting goals? That seems to make sense for me in almost all fields.
I got my mortgage broker license a few years ago, thinking that it would be good to do on the side, but never used it. Then, when the crash happened, and I saw the effect it had on brokers who couldn’t keep up with their bills I realized it was a good thing for me to have not gone that route.
When it comes to commission-based employment, it’s usually feast-or-famine and I’m just not comfortable with that. Having bills and responsibilities, it’s important for me to have a steady, regular income. Plus, I don’t like the idea of having to rely on outside factors for getting paid. In a bad economy, spending is cut back on almost all fronts, so most sales-type jobs are going to be negatively impacted regardless of the skill and motivation of the workers (it’s just how it goes). Plus, if you need motivation to do your job well, and to want to improve then I really feel sorry for those people and maybe some of them should get checked out for ADD or something 🙂
I think motivation is based on personality type more than the way you are paid. At least it is for me. I was making $35,000 a year as a customer service rep and I still wanted to do a great job all of the time. I actually only set up the ad business to be solely commission based for three reasons – it was way easier to keep up with, new clients would see that they had nothing to lose to try me out, and I knew that the commission would be enough to pay my bills since I didn’t quit my day job until the business was going along smoothly and bringing in more than I was regularly paid. Thanks for the mention! In general, I avoided commission-based pay until I had my own business, which was all the incentive I needed anyway. 🙂
PS And never feel bad sending me a question – it is my job and I do love it!
Thanks for weighing in, Crystal. I was happy to give you a shot since there really was nothing to lose, so that pay structure can benefit both ends (something I didn’t cover in this post, actually).
Let me twist this back to my current ‘In Real Life’ setup. I’m a software engineer and my wife is in Interior Design Sales (there’s an uncommon mix!).
So… my salary has a steady cadence with predictable bonuses and a fixed income. Promotions/raises come at the same time every year. I have the full stable of benefits, etc.
Here income is completely commission based – she’ll have lean (read: $0) months and months where multiple sales go through. She is on my benefits plan.
Let’s call it the hybrid model – and we enjoy the setup we’ve got going right now, if other people are looking at that lifestyle.
I like the hybrid idea a lot. Seems like the best of both worlds, and I think having at least some incentives like bonuses and promotions drive people to work harder.
Please see this article for an answer for your question.
http://ezinearticles.com/?Commission-Sales-Vs-Salary-Sales&id=2068590
Krish
http://www.easy-commission.com
http://www.qcommission.com