Are our commission rates too high?

I was asked recently about a sales force that has been on a simple commission plan now for years -- 50/50 split of deal profit between the sales person and the company. However, in recent years they have been hiring less technically skilled sales people, and it no longer seems worth it to the company to share so much of the profit with them. The company is hiring more sales management, providing technical training, and technical support people to ensure the product is sold well.

Typically as a company grows, the company adds value (brand, product breadth, back office systems, marketing, etc.) and the sales person should therefore be able to sell more with the same level of skill and effort. This means that, while sales compensation should continue to increase year over year (with the labor market), sales productivity should increase even faster -- which means that over the long run, commission rates generally come down. And at some point in this process the comp plan may switch from a commission mechanic (% of sales/margin) to a bonus mechanic (earn the target payout for meeting quota, more for more, less for less).

This company has experienced both the maturing of the company, and they have added a decrease in the capabilities of the sales people to the usual combination. So the answer is that, yes, the commission rates need to come down. However, just adjusting rates down and leaving all else alone is probably not the best answer. They should probably have a look at their basic pay structure, sales roles, labor market, key strategic imperatives -- and make some structural changes in the plans all at once. Ideally they also support this with training, great coaching and mentoring, exciting new product introductions and lots of reassurance and encouragement. The goal is probably not to reduce total comp delivered per sales person, but to improve the ratio of sales comp to sales productivity. So while earnings continue to increase for sales people, sales productivity goes up even faster.