Why Must You Pay Sales People Commissions?

https://a16z.com/2017/09/11/sales-commissions/

by runesoerensen • 9 years ago

277 307 9 years ago

calinet67• 9 years ago

A strong argument would at least consider the systemic consequences of commissions, rather than just extolling the assumed virtues in a circular argument. What is their impact on product? On support? Engineering morale? On the customer experience itself? Just a myriad of effects not even considered here when commissions are looked at in isolation, the system be damned.

It's probably very true that it's not plausible to do anything but commission-based sales in this market, and competing with other companies offering so much more money for the same job is just not worth the effort. But it's lazy to assume that their isn't a better holistic model, taking into account the whole company system, and not solely myopic sales metrics.

Edit: is Pluralsight a big enough counterexample? Maybe some food for thought from Aaron Skonnard here: https://www.inc.com/aaron-skonnard/why-sales-commissions-don...

ThomPete2• 9 years ago

You have to find a way to measure it though. As long as you can't that it doesn't matter if there are a more holistic way to think about it (my guess is that there are but it requires a lot more data pick-up-point)

calinet67• 9 years ago

Do you though? At an individual level? The only measurement that matters is profit, which is pretty easy to measure.

beachy• 9 years ago

Maybe it is lazy not to investigate better models than commission.

But on the other hand, the world of enterprise sales, from software to jet planes to insurance, has worked this way for decades/centuries/millenia.

So trying to find a better way is less "not lazy", and more heroically quixotic.

ghaff3• 9 years ago

Mostly. Going back a ways to companies like Digital Equipment Corp., sales commissions weren't originally used--or at least they were limited. The theory was that you wanted to form long-term partnerships with customers, not encourage selling things they didn't need, etc. This was a minority practice though and DEC itself eventually abandoned it.

Although it's not directly related to commissions, as others have touched on, sales is generally a very performance-oriented culture. You don't hear about the challenges of interviewing for sales because it's really pretty simple. You often hire based on past performance and, if you hire someone who doesn't make quota for a quarter or two, you get rid of them. A useful quote is: "I've never met a sales manager who has trouble firing people."

tlb• 9 years ago

It's not a circular argument to point out that excellent sales people will take the commission job, while bad sales people will take the salaried job. All the things you mention (support, morale, ...) are second-order considerations -- the first order consideration is getting the best people.

calinet67• 9 years ago

This assumes a specific philosophy of how companies work (good individuals) while an alternative model of good working systems is also effective. A systems view is less dependent on good individuals.

As W. Edwards Deming said, "A bad system beats a good person every time."

chowells• 9 years ago

You've illustrated the circle nicely. Salespeople are paid on commission because salespeople are paid on commission.

What if there was no commission job available as an alternative?

PeterisP• 9 years ago

It's important to note that what counts in the end is the bottom line of the company.

Revenue brought in by sales has a direct effect on the stuff that matter. The effect of product quality, support quality and engineering morale matters only to the extent that it affects revenue.

A salesman getting some CFO to sign on the dotted line has a clear and guaranteed impact on your profits.

An engineer developing an excellent new feature or removing a major future scalability problem might have an uncertain (though possibly large) effect on your profits in the distant future. Maybe the feature will drive new sales, and maybe it won't. Maybe the company won't ever reach the volume where the future scalability problem will matter, as they'll go out of business.

Companies are in the business of using money to make money. Selling a feature doesn't work will get you money that might allow to make that feature. Making a great feature that's not sold is money and effort that's completely wasted.

robocat2• 9 years ago

Thinline misposted response to the inc.com article:

Interesting last comment (from November 2016) to the original article: "Important Update * I am currently employed at Pluralsight, and I feel obligated to point out that the author of this article, our CEO, no longer believes or stands behind any of the content in this article. Pluralsight does not operate under the Deming philosophy. As of January 2017, Pluralsight will be implementing sales commissions again. We have reverted to the typical high-pressure, high-stress quota models found in most companies.

calinet67• 9 years ago

Thank you—that's revelatory and mildly disappointing. I'll have to look into it more closely.

phkahler3• 9 years ago

Why do sales people get commissions and engineers don't? Because the sales person knows exactly how much money they bring in and can claim "if I didn't make the sale, that money would not be coming in" even though it's not always true it's a good story. An engineers actions are so far removed from revenue that they can't make a claim so directly. Also, if they did want to claim a portion of product revenue they could just as easily be fired and the revenue would still flow. Such is the delay between engineering work and revenue.

Waterluvian5• 9 years ago

Also personality. Good salespeople are... Good salespeople. They apply their craft when negotiating compensation. What am I going to do, make a single page app about why I should be paid more?

...actually that's not a bad idea.

KekDemaga• 9 years ago

I wonder if that's how Glassdoor was started.

jbooth• 9 years ago

At the end of the day, a salesperson not making quota is going to be fired. The best salesperson in the world could maybe buy themselves an extra year, at best. But eventually, if they're so great, where are the numbers? And their next job search isn't gonna look so great. They can't solve a problem on a whiteboard to make up for the fact that their prior business was a bad fit for the market, or whatever.

A salesperson who is making quota and running way over it into big bonuses is by definition earning their money.

Sometimes people are in the right place at the right time, of course, but in general it's hard to say a sales person is overpaid unless they're completely useless and failing to earn their base pay.

samstave• 9 years ago

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You sign right now and I promise you I'll take dis deal all da way to the top and get the CEOs personal sign-off on dis deal so dat you get da best pricing you ever seen!!

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/oracle

dingo_bat• 9 years ago

single page app about why I should be paid more?

Isn't that a resume?

Fordrus3• 9 years ago

When I was still in the humanities (German Literature Major), my program was making a MAJOR push for all graduates of the major to be able to articulate to others and interviewers the skillset they'd gained during their time at university, and I found it quite useful and helpful, even though I can't remember too much about the specifics.

I even talked to one of my professors personally about the push, in which I mentioned how the humanities in general are not amazing at 'selling' their contribution to human progress (she enthusiastically agreed - this was a sign that some of us were 'getting it') - part of that deficiency shows is via the incredible antipathy the internet holds towards the Literature major who then becomes a starbucks barista.

I don't always love salespeople, and I often chafe at the thought of having to emphasize my own efforts in an attempt to gain leverage with those of higher status than myself (a situation known to some as 'playing politics') - yet salesmanship is literally universal to the human condition (really want yammer more and explain what I mean by that, but it is time to shutdown for the day. :) )

greedy_buffer• 9 years ago

Depending on who you are pitching, it might turn out something like http://getcoleman.com/

vidarh4• 9 years ago

Most engineers would do vastly better simply by negotiating at all when receiving an offer. I hardly ever experience engineers trying to negotiate when I hire people, yet when I've taken permanent jobs myself I have always negotiated and it has always yielded a higher offer (never once have I experienced anyone pulling an offer or refusing to raise the offer; sometimes they've not raised it enough for me to take it, though).

caf5• 9 years ago

There's often a considerable delay between sales work and revenue, too. "Sales" are generally counted on the day the client signs the contract, but the company doesn't see the revenue until actual delivery.

It's more likely to be because in sales, the individual can have a major effect on the numbers that their commission is calculated on, so (as the article describes) that attracts the strongest performers, because they know that they will be well-compensated.

In positions where your personal performance doesn't have a direct and immediate effect on the numbers, the strongest performers won't be attracted to commissions. If you were part of a software development team would you want a significant part of your compensation to be at-risk based on this quarter's sales numbers? Probably not, because you know that you could bust your ass this quarter getting an important release out but still see your paycheck dive because that big potential lead backed out of signing.

sidlls4• 9 years ago

Commission isn't the only mechanism of performance based compensation: bonuses and revenue and profit sharing (which commissions might be considered a subset of, I suppose) are also things. Equity (real equity, e.g. of a public company or profitable, stable company with a clear, real value) is another form.

Besides that, it's certainly possible to measure at least in aggregate the impact on revenue non-sales team members have, e.g. by the value the products they work on create. It's obviously not as clear or direct as a sale.

richdougherty2• 9 years ago

the sales person knows exactly how much money they bring in

I agree this is the key factor. Any job where a person can argue a clear, direct, measurable link between their work and profit is a job that can be paid based on financial results. Other jobs where you see this: financial traders, consultants with direct client contact.

To take the other extreme, look at teachers. They have the potential to generate huge value based on how effectively they develop society's human capital. Unfortunately the effects of a single teacher are so noisy and indirect that it's basically impossible to measure their performance. The lack of firm data is why the debate about teacher compensation is so fraught.

chimeracoder2• 9 years ago

Unfortunately the effects of a single teacher are so noisy and indirect that it's basically impossible to measure their performance. The lack of firm data is why the debate about teacher compensation is so fraught.

The problem is not that it's hard to measure. The people is that teachers actually have very little ability to make a marginal impact on their students though their performance, except at the very tail ends of the distribution.

In other words, structural factors that teachers can't directly control, like family support or district curriculum standards, have a much larger impact on student performance than teaching quality does. (Except, of course, for the exceptionally bad teachers, but that's better addressed by firing them than by adjusting the compensation strategy).

richdougherty2• 9 years ago

I'll just put one citation into this discussion. Raj Chetty and his collaborators produce amazing research. I attended a talk when he visited New Zealand a few years ago. In this paper he's attempting to address the dream of measuring teacher value, by measuring changes in test scores against changes in lifetime income.

Yes there are other ways of measuring teacher "value" too, but income changes are relevant to this discussion, since they tell us how much a teacher could theoretically ask for in "commission". The paper suggests that an average teacher vs a bottom 5% teacher makes a $250,000 lifetime difference in income (present value).

"The Long-Term Impacts of Teachers: Teacher Value-Added and Student Outcomes in Adulthood" http://www.nber.org/papers/w17699

Take a look. He does a neat job controlling for different factors, trying to tease causality out of correlation.

hyperpallium2• 9 years ago

Though there are private schools that pay more; private tutors can make a lot more, esp to the super-rich.

[For a broader definition of "teacher", there's professional development seminars, and people who tour the lecture circuit. Though you're talking specifically about teaching children.]

Then, consider doctors (esp specialists and surgeons): there is an immediate, direct, measurable link to profound benefits, and though they are well paid, they aren't paid by commission... is it just because it isn't money?

Lawyers, esp barristers, are closer to the money, and do get a kind of "commission" (though some jurisdictions prohibit it).

tosser350• 9 years ago

I think MOOCs are the future based on my own experience. They allow the best teachers to scale their reach. Instead of aristotle giving a lecture to a room it allows an unlimited audience who can also rewind and pause if they don't understand something.

I've been able to learn machine learning and deep learning from Andrew Ng, one of the best AI researchers in the world, among other world class researchers, for free. It's incredible when you think about it, probably one of the most significant things in human history. I've been able to learn how to code by picking and choosing the best classes from MIT, Stanford, Harvard, etc without spending a penny. Why settle for mediocre teachers at state universities when these options are available?

The major thing we need to do is find some other way to grade people other than using a college degree as a benchmark.

rbcgerard2• 9 years ago

Not sure where the idea comes from that teachers are poorly compensated. Relative to some other professions yes, but hardly a low Paying job. Annual teacher salary in California is $73k/year [1] divided by .75 is $97k/year with generous pension an medical benefits that probably push that number up $25k-$75k/year...

[1]http://www.cde.ca.gov/fg/fr/sa/cefavgsalaries.asp

rpwilcox• 9 years ago

Any job where a person can argue a clear, direct, measurable link between their work and profit is a job that can be paid based on financial results

And anyone who can't will be, and should be, outsourced.

Know. Your. Value. To. The. Business.

omarforgotpwd• 9 years ago

The fact that it’s easy to measure sales is part of it, but it’s really about creating the right incentives for the business to succeed. When you pay comissions the sales people will chase big sales for their own self interest — the more they sell, the more they make. Engineers are similarly incentived through stock options to design products and features that will help the company make more money.

ugh123• 9 years ago

An engineers actions are so far removed from revenue that they can't make a claim so directly.

Really? I see it the other way around. How did the salesperson contribute to building the product? A well built technology solution can sell it self in many scenarios. If we didn't have sales people, we could still build a product and push it into the market.

Of course all of this depends on the type of product, but still...

I'm actually in favor of of commissions, and engineering bonuses for the same reasons from this article. But it cannot be said that engineers are so far removed from the revenue.

parasubvert2• 9 years ago

I've been working in software for a long time, and other than inexpensive / simple consumer software or inexpensive departmental IT software, I've never seen products that sell themselves. Marketing at the very least is required, and for anything remotely complex, that's what sales is for.

Sales does something nearly as important as building the software: they map a customer's opportunity or problem to a technical solution, and ensuring they're successful with it. Sales (and marketing, which is arguably the evolution of sales at scale) are the field forces in discovering and exploiting product/market fit. No feature list survives first contact with the customer. Sales creates customers, and thus create markets.

You might have a great piece of software but if no one can explain it, no one will understand it, and it won't sell. This is the difference between software that costs $1k and $100k+. The price is reflective of the value it can provide and who is buying it.

Now in very small companies, the engineers are also marketers and salespeople. But beyond (say) 50 people, the divide between engineering and customers gets wider unless you have very good communication between sales, marketing, product, and engineering. There's too much work for everyone to focus on everything.

puranjay3• 9 years ago

You're not going to sell to large businesses without salespeople. A $10/month product? Sure. But when you're selling a $10,000/month product, you need salespeople.

dsacco• 9 years ago

I think you're getting hung up on the difference between product work and product revenue. Think of this like the terms front office and back office. The back office (engineers, product managers) build the core software and the front office (traders, salespeople) use or sell that software to bring in revenue for the company.

The terminology doesn't refer to which parties did more work to release the product, it refers to which parties are closest to the revenue, and thereby have more quantifiable metrics to be judged upon.

Unsurprisingly, software engineers can make just as much or more than salespeople if they work in roles that happen to be very quantifiably attached to revenue generation, this just isn't the norm.

adventured2• 9 years ago

A well built technology solution can sell it self in many scenarios. If we didn't have sales people, we could still build a product and push it into the market.

I don't how much sales experience you have, at either the management level or the hands-on sales level, but products almost never sell themselves. You're better off changing that to never sell themselves, because of how rare the examples of it are.

It's practically universally agreed that most companies love to squeeze whatever angles they can for another dollar of profit, particularly around employee costs. So why does sales persevere in such a big way across all companies? They're not doing it for fun, they're not doing it because their products sell themselves, they're not doing it to waste large amounts of money. They do it because they have to, all of them; basically every single company on earth has to sell.

peteretep4• 9 years ago

    > How did the salesperson contribute
    > to building the product?

I've worked at several companies where we've sold things we hadn't yet built in order to finance building them, generally with the client's knowledge.

I note as well that Uber was selling rides quite a time before they had any kind of real engineering backend.

AndrewKemendo• 9 years ago

A well built technology solution can sell it self in many scenarios.

I don't think this is actually true - and in fact I'm loathe to come up with any examples where it was the case. In some cases fewer active sales efforts are required, if the product is really perfect, but even those are exceptionally rare and generally are utilizing pre-existing networks where the high touch process is already done.

scarface742• 9 years ago

An engineers actions are so far removed from revenue that they can't make a claim so directly.

Not always. I've worked for two companies that customize software for customers. I knew exactly what the company was charging for every hour I worked.

erikb3• 9 years ago

If you work as an engineer in a big company you often face decisions that will influence big time results. And you can make a big impact, by deciding which competitor for your time (manager, co-department, company's partner A or partner B) will get you to build the result they desire. I can guarantee you that even ina 600 ppl team there will only be a few engineeers who can really plan, push others, understand the technical problems, and communicate to all parties, so that a result can be achieved. These people will either work their 40 hours, tell everybody maybe, and then work on their side business the other 30 hours, or they spend 50-70 hours on your project and get the result you need to even start calling customers. It is also very accountable, because no technical results means no deals.

Thus, the same logic as with sales people also applies for engineers. It's just that they are cheaper, because fewer of them know, and fewer people actually are smart enough to make them offers accordingly.

In the end it's always how to make the biggest impact with the limited amount of money you have. And there's no natural reason that would stop engineers from being in key positions to your success.

KGIII• 9 years ago

We gave bonuses and profit sharing. The now-parent company stopped that practice, I am told. I still own shares in the parent company, I should sell them.

terryf• 9 years ago

Sales also has a different culture than development. Sales really is brutal and soul wrenching in a completely different way than software is (yeah, I've been on both sides, less on sales part).

The measurability of money has two sides - one is that you can argue for a commission, the other is that it's very easy to point to numbers that say you didn't really sell anything this month.

In sw dev, if you're mildly competent, you can coast for many months, if not years.

So, essentially it comes down to different risk/reward profiles . Which of course selects for the right kind of people and the cycle feeds itself.

tiggybear2• 9 years ago

Sales can get a percent of the value they generate because they have more leverage than engineers. Plain and simple. They have direct relationships with customers and the value they bring in is easier to show.

This line from the article was pretty gross to read, "Do your engineers like programming? Might they even do a little programming on the side sometimes for fun? Great. I guarantee your sales people never sell enterprise software for fun."

Personally, I don't do that much programming for fun and a lot of the crap I have to do for work I would never do for my own projects. It reads as though they are aware that they can get away with paying engineers less because they like to create valuable things just because. So it's easier to trick them into giving up the valuable things they create for cheaper.

Who cares why someone creates something? No businessman is entitled to someone else's creation because it was created for fun.

I mean, if all these VCs and founders are sooooo passionate about their work, they should't need equity or much of salary, right? It's the same line of thinking, but of course it doesn't apply in those situations for...reasons.

johannes1234321• 9 years ago

From a company's perspective the nice thing there is that they can push some risk to the sales people. If they build a shotty product nobody wants the sales people earn less, while not being responsible ...

HeyLaughingBoy• 9 years ago

How exactly is that a good thing for anyone in the company?

blubb-fish• 9 years ago

They are also closer to management - having drinks with higher ups and important customers, going to events. They tend to be more fun to be around and in a better mood. I'm an engineer and I am really not happy about this industry habit. I think it is simply not fair.

m-app• 9 years ago

Sales is also a rather short-term, target-oriented activity. If you would incentivise developers on those same short-term goals, this would have a negative impact on the quality and innovation of your product, since they'd also start chasing the quick wins. This is not to say that developers do not deserve a bonus when performing well, I just don't think it should be tied to Sales.

jasonkester3• 9 years ago

As an engineer, the way you get paid for the value you create is by starting a company. In fact, that's the way you do it in pretty much every profession.

The only difference between the guy who owns a successful Veterinary practice and the guy working as an underpaid veterinarian is that one of them went out and leased some office space.

simonswords822• 9 years ago

The only difference between the guy who owns a successful Veterinary practice and the guy working as an underpaid veterinarian is that one of them went out and leased some office space.

I understand the point you're attempting to make but the guy who owns the <type of business> has done much, much more than simply lease an office.

Many business founders put their life savings on the line. Those who don't have that luxury ramp up thousands of dollars of personal debt.

On top of that they work every waking hour. Time is a precious commodity and cannot be replaced, so risking so much of it to enjoy the slim chance of being a successful business owner is not something most people care to risk.

kurtisc• 9 years ago

The difference between an underpaid processor designer and Intel is a billion dollar fabrication process.

nthcolumn• 9 years ago

Glad you know that most vets are underpaid. Entry costs are massive - you can't just rent some office space and you cannot really do it alone, there are some single vet practices, they don't make much.

If you think some of the equipment is 100k, x-ray 30k per plate. You also need a territory before you start. It is too easy for bigger practices to starve you out to just pile in 250k and hope for the best.

You have to join a small practice, crawl up through the ranks, getting paid next to nothing, somehow kill your colleagues before they make partner and then you might be in a position to jump ship stealing customers as you go or organize a coup take over the practice by joining with another bigger practice nearby and buying out the seniors.

If you had said lawyer now... I don't know maybe - but I got your american dream point.

GuB-42• 9 years ago

When you start a company, you are a business owner first and an engineer second. It is not the same job.

You may be the best engineer in the world, if you don't know how to find customers and get paid, make good investments, and do all the bookkeeping, or, alternatively, hire the right people to do it for you and manage them, then your business will fail.

However, if the only thing you know is how to do business, then all you need to do is hire a competent engineer and you will succeed.

glynjackson• 9 years ago

"An engineers actions are so far removed from revenue that they can't make a claim so directly"

This statement is simply not true in my experience as an engineer in the tech industry for over 15 years. Sell a bad product 'once', and the sales person 'ability' to sell it again will decrease. Sales people ultimately sell a project and its features, interpreted by engineers. You must incentivise an engineer to be creative, write better features and good code or you run the risk of having something that destroys a sales person reputation along with the companies revenue!

wiz21c2• 9 years ago

The money the sales person needs to live is probably the same as the engineer. Therefore, if sales people get commission, then their salary must be set lower than the engineer so that on average (that is, when the ratio between actual sales and missed sales is average), they earn the same thing as the engineer. (this in a context where the added value by the company is equally shared between the engineer and sales people)

alien_at_work2• 9 years ago

I don't understand what you're saying here at all. Are you under the impression that money someone needs to live has something to do with compensation? Labor is a market like any other. A sales salary has nothing to do with how much a sales person needs to live but rather perceived value of a sales role.

In my personal experience, sales people tended to have higher salaries along with strong commission.

Maybe your comment is constrained by your idea that revenue is shared equally between engineers and sales people, but why would that be the case?

craigvn• 9 years ago

This is pretty much spot on, they get a commission because it is easy to work out, and has the added bonus of an easy to calculate monetary incentive.

matco11• 9 years ago

Getting commissions does not necessarily mean getting paid more. Often people paid on commissions have smaller base salaries.

Payments with commissions are a managerial tool to incentivize a certain behavior, the same way there are other structures to help organizations behave in a certain way.

For example, you can incentivize people based on an easily measurable metric fully under their control (e.g. $ sales, customer support tickets solved, factory throughput, etc.), or choose to align everyone's behavior (e.g. Profits of xyz division of the company - hardly under a particular person's control).

That's the same principle behind giving CEO and other senior executives incentives based on stock options: you want them to create value and get share price up, while leaving them maximum freedom on how to get there.

Each approach has its pros and cons in terms of how easy it is to explain to employees, track the metrics, create a collaborative environment (or not), incentivize intra-company communications (or not), and the impact it has on workforce productivity (also, it depends on how you measure productivity...)

In designing an incentive plan, one has to decide which one of these factors one wants to prioritize.

Because of the salesperson role, and because of the type of mindset/profile these people predominantly have, it is easy/common to have their pay structure heavily based on commissions.

Looking at things from the other side: if you ask a salesperson about compensation structures, possibly she would be wondering why engineers' or designers' pay is not linked to sales, so (instead of working on interesting and beautiful stuff) they would prioritize shipping features that help her sell... (as an example of not so beautiful designs that sell more think about the design of certain low cost airlines websites) ...Then again, possibly, the salesperson only knows what would help her sell more easily TODAY, and not what she is going to need in a year's time... you need an engineer not directly incentivized on current sales to think about that!

dkersten• 9 years ago

The difference is that often sales commissions have no (or much higher) upper limit. That is, if you are skilled enough (and lucky enough, for sure, since there are certainly many factors outside of the salespersons control), then they can potentially make a large commission. On the other hand, a salaried engineer has a hard upper limit (their salary + any bonuses that may exist) which can only be raised through a promotion or renegotiation.

A problem for me is that there's little incentive to work b tons what my contract stipulates and what my manager feels is acceptable productivity (and whatever I need to get bonuses, if I get bonuses at all), because I get the same compensation (in terms of money or time off or whatever -- I don't get to leave early if I finish my work early: I move on to the next task instead) no matter how hard I work or productive I am. So why would I wear myself down by working harder if I can be less stressed and work less hard for the exact same compensation?

At least a commission-based role puts some of this into my hands. If I feel I can make more sales by working harder/longer/faster/smarter, I can get paid more.

cafard• 9 years ago

Well, yes and no. I have seen "sales" types get accounts handed to them, after which they are essentially collecting rent. If their protectors are sufficiently powerful, this can continue indefinitely.

carlmr3• 9 years ago

Account managers would be the ones mending the existing clients. They get less commission but they can coast a little more easily.

Eridrus2• 9 years ago

A coworker once suggested to our CTO that we should get bonuses as a % of the money we save by optimising our AWS costs. I was super on board with that plan at the time since I had been thinking about an unmaintained system and had figured out we could shave off a huge chunk of storage saving us 20k/month with no impact on functionality, and I got the change deployed. Instead of a bonus I got laid off a few months afterward.

brianwawok• 9 years ago

Is there a reverse incentive here?

*IF we bloat AWS costs for 1 year, then at year end find a way to cut 50k.. bam, big bonus?

Maybe if the adding to AWS cost team is a different team from the lowering cost team...

rbcgerard2• 9 years ago

In my experience it's all about where the sales target gets set with sales people, as it can be really hard to differentiate the "seat" from the person. I.e. An all star salesman at one company, given a different product/company might not be able to make their numbers. Hence the old saw that good salesman find easy products to sell...

matchagaucho• 9 years ago

A great Salesperson can sell a mediocre MVP on the promise of future enhancements.

This can help start-ups defer fund raising by bringing in operational cash. This can also bury start-ups by making promises that can't be kept.

ChemicalWarfare• 9 years ago

What about sales engineers though? I've never seen them get commissions even though in a vast majority of cases they are the ones doing the heavy lifting of convincing the client's tech team[s] to go with the product/solution the company is selling?

A little less obvious case, but still - what if we're talking professional services type situation and the architect/engineer assigned to the customer does such a killer job the customer decides to spend more money on their services. Sales person's job at this point is minimal but they still get the commission but the tech person doesn't.

pheldagryph• 9 years ago

There's lots of ways to compensate a cat! Not all sales compensation plans are commission-based (a percentage of the sale). Commission-based plans are much less common for sales engineers vs. salespeople, unless they are working with only a single salesperson.

In general, sales engineer variable compensation plans are going to be based on some mix of sales numbers, with less variability and risk than the salesperson's plan. Ideally providing goal alignment with money, smoothing out the stresses, but also encouraging some level of independence for the sales engineers. A ward against salespeople who might be seduced by the Dark Side.

The less obvious case you raise, a single engineer directly responsible for causing a customer to spend more money: structurally or ad-hoc, that person should probably be getting paid. Maybe the customer-facing people aren't engaging efficiently, and it's a sign of something a bit out of alignment with customer operations.

Salespeople can provide big value in getting engineering attention to the right customers at the right time... but the best ones know it's a team sport. I know salespeople that give envelopes of cash to difference-makers, though that's exceptional.

anonyxyz• 9 years ago

If you haven't seen sales engineers get commissions, then you're working for the wrong companies. Very common for sales engineers to have up to a third of their comp commission based.

networkguy• 9 years ago

I work for a Major ISV and I get a commission.

How it works is there are various clip rates

0-80% 80-100% 100%+

On 0-80 I get a percentage of the deal, on 80-100% I get a percentage and there is a small multiplier and above 100% I get a larger percentage and a significantly improved multiplier.

My quota is divided quarterly and yearly; the incentive is set out that if you overachieve on a couple quarters, I might exceed my "On Target Earnings" even though I didn't hit the yearly number.

You are correct that the Sales Engineer does a lot of the heavy lifting; and in most cases we are the deal -- without us selling the technical, the deal usually doesn't get done. So should we get paid the same as the Account Executive? No Freakin Way.

The purpose of the Account Exec isn't to close a deal; that's table stakes. The purpose of the Account Exec is to open doors and exceed quota, 100% quota attainment isn't a high-five moment as the expectation is 110%+. Take a good hard look at the sales people you know and look where they are and where they have been -- these people are hired for their contacts and usually once they have exhausted their contact list they are done and they move on to the next organization unless they are exceptional at developing new pipeline and new relationships.

I've seen firms go through 2x Account Execs in a year because they weren't hitting the numbers fast enough; that wont happen with a Sales Engineer we get a lot of job stability and protection but we wont get a 30% commission.

Raphmedia• 9 years ago

An engineers actions are so far removed from revenue that they can't make a claim so directly.

That's not true for everyone. I worked for an agency that did e-commerce integrations and developments and we had eyes on the client's budget and profits along with our agency's. We were not paid on commission either despite knowing the exact value of our work.

To be honest, being so close to the money was demoralizing. It skews perspectives (or should I say it enlighten you?). Hard to stay motivated working for xx.xx/h salary salary when you know very well that you create yyyyyy.yy$/day in value.

carlmr3• 9 years ago

Yeah, in my last job I saw I was making the company over a million Euros a year, if you split the projects among the employees working on them. And I got an entry level salary.

It was demoralizing, I switched to a bigger company that pays well. And it's so soul sucking that I yearn for my last job. Money isn't everything. Life is still unfair.

sidlls4• 9 years ago

I like how he inadvertently admits that engineers are compensated less well in part because they mistake their jobs for something fun they'd do anyway.

Finnucane• 9 years ago

Yeah, certainly there are a lot of programmers writing software because it's fun for them. They're contributing to FOSS projects because they believe in them. Are they doing what _you_ want them to do just for fun? Probably not.

mturmon• 9 years ago

I agree with your observation, that was a badly broken analogy within the OP. Of course the OP can "guarantee your sales people never sell enterprise software for fun."

But I'll bet those salespeople take more than a passing interest in buying a car, tending an estate sale, dividing up household responsibilities, or negotiating a lease.

sidlls4• 9 years ago

What does that have to do with the article or my comment? I write software in my limited spare time for fun, too and I have even had a PR or two accepted by an open source project in my time!

I just don't think that means I should be compensated less well, or told that it means I should appreciate being paid (for my job, obviously) while doing something I love, etc.

caf5• 9 years ago

Commission or Salary is orthogonal to Well Compensated and Badly Compensated.

Those students selling paintball packages in the mall are paid on commission, but they sure aren't being paid well.

(The article isn't "why sales people are paid a lot", it's about why their pay structure is based on a commission structure).

sidlls4• 9 years ago

Sure, but in the context of this article engineer style compensation compares poorly. That is, it's essentially a statement that engineers aren't compensated as well as sales workers, and one of the reasons given as to why that's possible is because engineers "have fun" doing engineering work even outside their jobs.

Swizec• 9 years ago

I would totally write code for fun and I do! But engineering ... that shit ain’t fun. Most of it is monotonous and boring and rife with managing process and people and working around things you built 2 years ago that no longer fit but you don’t have time to change. For every hour of coding, I am rewarded with 2 hours of engineering. Bleh

OtterCoder• 9 years ago

Thank you. That puts into words something I've been feeling for a long time now. Building a lean, fast, elegant website with complex business logic and interesting invariants: super fun code. Adding the Nth server side validation check for a zillion similar but subtly different fields: boring engineering.

vacri• 9 years ago

You make it sound like engineers are the odd ones out, when in fact they're the norm and sales work is the weird one. Apart from some hospitality jobs and other tipping work, most permanent jobs have a set rate per hour. From the janitor to the financial controller, almost everyone knows exactly what they're going to take home next month.

ryanmarsh• 9 years ago

Are there any examples of competitive sales organizations that don't pay commission of some kind?

calinet67• 9 years ago

Not competitive exactly (it's not necessary when you don't have commission) but Pluralsight: https://www.inc.com/aaron-skonnard/why-sales-commissions-don...

robocat2• 9 years ago

Thinline responded to that article in another post:

tyingq• 9 years ago

Thoughtworks doesn't pay commissions, and I think that's highly unusual in that space.

No idea if that will change now that a PE firm bought them.

koolba• 9 years ago

Best advice I've ever heard on this subject is never hire just one. Sales teams need competition to thrive so it is to be at least two people.

csours2• 9 years ago

Putting prediction hat on before reading article: "because your competitors pay commission"

Company A pays commissions and, if you do what you know you can do, you will earn $1M/year. Company B refuses to pay commissions for “cultural reasons” and offers $200K/year. Which job would you take? Now imagine that you are a horrible sales person who would be lucky to sell anything and will get fired in a performance-based commission culture, but may survive in a low-pressure, non-commission culture. Which job would you take?

There it is.

quickthrower2• 9 years ago

Survivorship bias. If you were wrong you wouldn't have posted :-)

csours2• 9 years ago

Hush, you!

alexasmyths• 9 years ago

Their contribution to revenue is so direct that this kind of bonus can be incentivized in a very valid way.

Engineers at Google get 'bonuses' as well, all of them, so you could very well ask 'why are they paid bonuses'.

If Engineers could be incentivized so directly, I'd imagine they would be.

0xbear3• 9 years ago

Google actually had to dial down the bonuses circa 2011. For one thing, to keep the comp looking competitive, it makes sense to have a larger component, because until this rebalancing bases were unimpressive there. For another too large a bonus creates more competition than one would like in the engineering discipline, where the overall success depends on people working well together. So they just cut the bonus in half and added it to the base.

matwood3• 9 years ago

I’ve personally seen this in action, and it leads to all sorts of issues in engineering where the team output is really what matters.

ericfrenkiel4• 9 years ago

Sales people earn commission because their work is "non-deterministic," meaning they could execute a perfect sales strategy to win an account but the opportunity could still fall through for circumstances beyond the rep's control (budget is yanked, project is delayed, etc.)

By comparison, an engineer's work is "deterministic" in that is fully under his or her control to complete the goal.

Sales is a risky job and it's compensated accordingly. It doesn't matter if you crushed your numbers 2 quarters ago. It's the reason why there's a saying that a sales rep is always just 6 months out of a job.

alttab• 9 years ago

By comparison, an engineer's work is "deterministic" in that is fully under his or her control to complete the goal.

I hope you don't manage engineers.

ericfrenkiel4• 9 years ago

Having empathy for fields outside your own is exactly why this article is written.

It sounds like you only have a single perspective, which is fine, but having more perspectives would help you move beyond being so rigid in your thinking.

paulddraper• 9 years ago

Not engineers. Resources.

hackits• 9 years ago

Wouldn't call engineer's work `deterministic` its the least `deterministic` field i've been in.

calinet67• 9 years ago

Isn't that an argument not to pay based on deals won? Doesn't that make it a random or unpredictable reward structure, and therefore not very effective?

ericfrenkiel4• 9 years ago

It really depends on the type of business - if it's a high-volume business, then your proposal is often used by sales organizations. You might call this an "order taking" business - low ASP (average sales price), simple product, etc.

For a low-volume business with high ASP, it's typically a complex product that takes longer to close which introduces some degree of unpredictability, and so a business must compensate the individual with a reward (commission) program reflective of that.

tpeo• 9 years ago

I don't see see anything which would intuitively suggest that some degree of uncertainty regarding a worker's output would make per-piece payments preferable to a fixed wage in the eyes of the firm. There's such a thing as an uncompensated risk.

tucif• 9 years ago

I think the whole (non)deterministic thing is off.

Engineers could also execute a perfect development strategy to deliver a product and it could fail through for circumstances beyond engineering team (budget is yanked, project is delayed, etc.)

But I do agree sales is more risky as it is the "last-mile" of the business and they have a target to make, so it's their neck on the line and we live in a system where we reward how much neck someone is sticking out and yet survives, rather than work performed on the backstage. Same thing applies for C-level compensation.

AstralStorm2• 9 years ago

Ooh are we really now. Then why the CEOs and CTOs and especially legals are paid so highly, especially in big companies? They don't risk directly at all. Founders of small companies, sure... If they mess up, the whole company tanks, sure, however they are not paid a commission most of the time.

(Please read The Gervais Principle.)

Retra• 9 years ago

The "risk vs reward" is not a natural tradeoff. It is an artifact of creating situations driven by elevated risk, which is not always a rational approach.

JamesBarney• 9 years ago

CEOs tell everyone if you want great CEOs you gotta pay them.

If you wanna great salespeople you gotta pay them.

You want great devs. You should put in a ping pong table and give out free soda.

The myth that great developers aren't interested in compensation is terrible for our collective pay.

jetsnoc2• 9 years ago

Nailed it. A commission structure is key when it comes to sales and a good one puts all of the right motivators in to all of the right places. It keeps them hungry, selling more, and they are motivated to structure deals and sell the product. Devs, the very best ones, don't want to punch a time clock either and they aren't a production line. We want to build good reliable products that are sold and ultimately used by clients. We too want our company to be competitive and to hit important goals and milestones to become bigger and stronger and compensation tools from management should reflect that. A good balance of 'Smart, Get things Done and Doesn't Jeopardize the entire business by building crap' must be handsomely rewarded and free beer doesn't cut it. It's hard to find those people, but, I know it's hard to find really good sales people too that are interested in selling aggressively, meeting goals but also building sustainable and fruitful relationships with clients instead of building a house of cards. I think startups nail this with the first few hires, they are incredibly critical to get right and they usually get a pretty good amount of stock.

chii• 9 years ago

A good balance of 'Smart, Get things Done and Doesn't Jeopardize the entire business by building crap' must be handsomely rewarded and free beer doesn't cut it.

Those who do are called founders. It sucks, but the reality is that if you aren't an owner, you don't get rewarded.

caf5• 9 years ago

I know it's hard to find really good sales people too that are interested in selling aggressively, meeting goals but also building sustainable and fruitful relationships with clients instead of building a house of cards.

I think it's down to the incentive structure. Commissions need to be split between sales and earned revenue from prior sales, and the split needs to be just right in order to incentivise building long-term profitable relationships with clients but without making it too easy to just coast on last year's results.

RcouF1uZ4gsC• 9 years ago

You don't see CEO's being CEO's in their free time. Nor do you see sales people selling stuff just for the fun of it. With open source, developers will spend time and effort building very valuable stuff for free. This perpetuates the perception that programmers like programming so much they would do it as long as their living expenses are met.

I honestly think open source has depressed the wages of programmers. Linux probably has generated billions of dollars of value, but it has not really accrued to the programmers. In addition, open source allows companies to get very valuable intellectual property without having to write it themselves or buy it from someone. Basically it devalues the cost of software and there the value of programmers.

dragonwriter• 9 years ago

You don't see CEO's being CEO's in their free time.

Of, say, nonprofit labor-of-love side projects, which they sometimes end up leaving their for-profit CEO gig for, sure I do.

Yhippa• 9 years ago

It's interesting; in the past companies were afraid of open source because some of it had no direct support, you couldn't yell at someone if something goes wrong, and "how can you trust something you just downloaded from the internet?"

Now I see private and government organizations mandating the use of open source because it's mostly functional and most importantly, it's free (as in beer).

blhack• 9 years ago

You don't see CEO's being CEO's in their free time.

Every single successful business leader I know[1] is a leader at more than just their business. They also sit on charity boards, sit near the top of their social circles etc.

We as devs have to get over this adversarial relationship with other departments. Sales people, business people, accounting, etc. aren't really that different than engineering.

[1]: It's frustrating to me that "CEO" seems to have morphed into a generic term that means "business leader".

hamandcheese• 9 years ago

I honestly think open source has depressed the wages of programmers.

I strongly disagree. Linux and many other amazing open source projects have helped build a tremendous amount of software products leading to the incredibly high demand for tech workers we see today. Good open source software lets smaller players enter the game, standing on the shoulders of giants. See: Rails

fulafel• 9 years ago

I think this is analogous to the "lump of labour" fallacy. You argue there is less demand for software engineering because lots of software is available as open source, but actually there is more demand because this enables a wider range of software to be made in a cost effective way.

aggie• 9 years ago

Nor do you see sales people selling stuff just for the fun of it.

Do you hang out with many sales people? In my experience, it's a very personality-driven field and they certainly do at least act like sales people outside of work, even if not literally selling a product or service for money.

jibberia• 9 years ago

I do see sales people doing sales in their free time, though. The best ones in my company always seem to be at parties and events with potential clients. They make it look fun!

rokhayakebe• 9 years ago

The myth that great developers aren't interested in compensation is terrible for our collective pay.

It really does not matter what people think. Set your price, hustle and be patient. The price for engineers is set by other engineers who are willing to work for less.

bayonetz• 9 years ago

I'd really love to see software developers unionize...

tayo42• 9 years ago

Dev salaries are pretty high? Are sales people really making what engineers make? I took a quick look at glassdoor for my company and it doesnt seem like it.

toocool• 9 years ago

I personally know sales folks in large enterprises (say Cisco) who do a lot of travelling and are able to get base salaries of ~250k and commissions of ~400-500k a year, on top of essentially life time personal unlimited travelling due to millions of miles points accumulated. So yea, pretty high.

CommentCard• 9 years ago

There's a simpler explanation: people are afraid of rejection. Sales is difficult because it requires acknowledgement and constant interaction with rejection.

It takes more of a psychological toll than engineering, and some people don't want to deal with it, or do not have the personality to brush off repeated rejections in order to get a sale.

unabridged2• 9 years ago

It comes down to quality of product vs competitors. Where you have a very in demand brand, you can get away with no sales people (eg Telsa).

In a field where your products are indistinguishable from competitors, you need to pay for sales people.

And in field where your product is probably worse than cheaper (or free) alternatives, you have a company entirely made of sales people (eg Oracle)

idlewords2• 9 years ago

Tesla has a sales team, you're just not looking in the right place. Their sales team works with investors, and sells them on a story.

unabridged2• 9 years ago

Definitely but I think goes into the marketing/advertising category. But either way almost every other car company has an end sales person used to jack up the price, while tesla can sell cars at a fixed price off a website. And this is solely because of the perceived quality of the product.

gozur882• 9 years ago

If you didn't pay commissions sales people would start coasting once they made their numbers. Imagine you have to make a million on sales per quarter, and three weeks in you strike gold in the form of a $1.1m contract.

Sure, you get bonuses for exceeding your numbers, but you could spend the next two months slacking off, which would probably be worth the lost income.

Worse, from the company's perspective, you might try to make sure your new prospects don't close until next quarter, just as a little bit of insurance in case it turns out to be leaner than this one. You're already drinking the coffee - what's the rush?

Sales is a tough job. It's a lot of travel, a lot of rejection, and a lot of stress. If I had to do sales you can be damn sure I would expect a lot of compensation.

caf5• 9 years ago

Worse, from the company's perspective, you might try to make sure your new prospects don't close until next quarter, just as a little bit of insurance in case it turns out to be leaner than this one.

This has a name in sales - "sandbagging".

tptacek2• 9 years ago

The theory of not paying commissions is that salespeople will be incentivized the same way other employees are. You don't code on commission and tend not to coast once a revenue number is hit.

gozur882• 9 years ago

I've met quite a few software developers who pad their estimates heavily and then coast when the job is complete.

Chiba-City• 9 years ago

Salespeople also come in tiers with overlapping recruits and cattle calls. The recruits get bigger or quicker commissions on "who-they-know." Some cattle call younger salespeople find a mentor or get lucky. But attrition rates are high. I brought in IBM fed sales head for a talk years back. IBM only adjusted base salaries once around 1974 or so. They just let them die on the vines otherwise when sales go down.

savanaly• 9 years ago

To me, it is obvious why sales people are paid by commission. It's because the most efficient thing for a company to do is pay someone their precise marginal value, not more or less, as that leads to the incentive of people doing the best they can given special constraints that only they personally know such as their own personal productivity function and how much they value their own time and effort.

Companies would do similarly for managers and engineers if there were a discreet non-gameable measurement of their output (I'm sure you don't need much imagination to see why paying per JIRA task completed wouldn't work). Unfortunately there's no such measurement system, so the best solution companies have found so far is pay them a salary and try to incentivize effort through bonuses, raises or promotions.

scarface742• 9 years ago

Companies would do similarly for managers and engineers if there were a discreet non-gameable measurement of their output

The sales process is gameable especially in software. The salesperson can sell vaporware and promise the customer that the company can deliver. That puts pressure on software development to work overtime - unpaid - to meet the deadline.

peteretep4• 9 years ago

This can be easily worked around. In a previous CTO role we started talking about development costs coming out of sales commissions, and the problem went away.

NickNaraghi• 9 years ago

Isn't this pretty much what the DAO was trying to solve for?

arximboldi2• 9 years ago

It's because the most efficient thing for a company to do is pay someone their precise marginal value, not more or less [...]

But if they did so there would be no surplus value left for shareholders. Paying for labor less than its contribution to the value of the product is the basis of capitalism.

thinline2• 9 years ago

Interesting last comment (from November 2016) to the original article:

"Important Update *

I am currently employed at Pluralsight, and I feel obligated to point out that the author of this article, our CEO, no longer believes or stands behind any of the content in this article. Pluralsight does not operate under the Deming philosophy. As of January 2017, Pluralsight will be implementing sales commissions again. We have reverted to the typical high-pressure, high-stress quota models found in most companies.

I'm sharing this because I don't want anybody to read this article and follow the bad advice found here. Maybe commissionless sales organizations can work, but apparently not at Pluralsight."

jasode2• 9 years ago

I'm confused why you think the old Pluralsight comment is relevant to this article:

1) The author Ben Horowitz is a VC and not the CEO of Pluralsight.

2) The article explains the psychology & incentives for sales commissions instead of advising companies to pay their salespeople zero commissions.

trevyn• 9 years ago

thinline's comment is just misposted at root level; several of the other comments on this page refer to: https://www.inc.com/aaron-skonnard/why-sales-commissions-don...

erikb3• 9 years ago

Weird. Have I misread it? It seems like the blog post is exactly supporting that statement: You need to pay commissions to sales people.

clairity• 9 years ago

a competitive selling environment, which is horowitz's conclusion in the article, is definitely part of reason to pay commission, but it's actually larger than that.

whether you have sales people or not, and whether you pay them commission or not is dependent on all parts of the marketing mix: your product's scope and complexity, its price, its visibility in the market, and how it's delivered.

the more complex your product is, the more customization it requires, the more (higher-skilled) people the customer will need involved in deploying your product. that requires more convincing (i.e., sales). the higher the price, the more senior people are needed to be involved in the decision, requiring sales. the more complex your product, the less likely an ad will be effective, and the more likely that the purchase is a big deal.

sales is the marketing channel of choice for highly complex, customizable and expensive products precisely because sales is very effective, yet expensive, so it only makes sense for products with high costs (typically at least 5-figures). you'd typically use less expensive account managers for 4-figure sales, and other marketing channels for less than that.

and lastly, the percentage of compensation that you pay as commission is directly correlated with the riskiness of the sale. the harder the sale, the higher the commission as a percentage of comp. account managers, who typically do sales via email and phone, usually get most of their pay as salary. outside sales people typically get a large percentage of sales as commission.

askari01• 9 years ago

Sales is very important, a salesperson can sell shitty app and still make money, meanwhile i have seen some really good softwares n products being dumped for lack of budget. So I think hardworking smart salesman deserves to be paid well. And marketing is very important.

tensor2• 9 years ago

I suspect that developers are not so much upset at salespeople getting commission, but rather why they get paid so much compared to developers.

Personally I don't buy that sales skills are so much more difficult to find or are in higher demand than software development skills. Some of the difference in equity certainly has to do with the higher risk of getting fired for poor performance in sales.

But beyond that it's probably that sales and business people are motivated mostly or only by money and thus have spent decades as a collective optimizing getting more money for themselves. In contrast, developers and designers are motivated by accomplishing and creating good things before money and end up not focussing on optimizing money making.

If developers were compensated like lawyers, I doubt they'd be so worked up over salespeople getting commissions.

watwut• 9 years ago

The other reason is sales being motivated to sell no matter what - meaning they have all motivation to lie or mislead customers just to sell and none for the opposite. That leads to engineers being blamed for product not having (oftentimes mutually excluding) features that were sold or not being done in ridiculously short time.

Which in long term oftentimes costs more money then the non-existing feature was sold for. And it leads to bad relationship with customers - and somehow it is engineers who deal with those problems s not sales.

varjag• 9 years ago

Sure we like what we do but in the end of the day the engineers wake up and commute to the office to earn money for their services. Given FU money upfront, many would still code for fun of course, but unlikely the same kind of corp CRUD app or Uber for pets or cloud staging scripts, year after year as on the job.

There's no reason to envy sales people being "paid so much" anyway. For every high earner there's a dozen who are living fairly stressful, very unstable lower income life. It is a very competitive line of work, directly reflecting the competitive nature of market economy - from which many of engineers are blissfully shielded.

peteretep4• 9 years ago

    > I don't buy that sales
    > skills are so much more 
    > difficult to find or are in 
    > higher demand than software 
    > development skills

Sure, and sales people don't understand why the entire engineering function of the company can't be done on eLance for $10/hr.

We can talk about 10x developers all we like, but if you sit in a sales meeting of many companies you'll find there are 10x sales people whose presence is easily measured.

tensor2• 9 years ago

There may or may not be 10x employees in either camp, though I don't quite see what that has to do with the income difference. Should a 10x salesperson earn three times what a 10x developer earns? If so why?

k__2• 9 years ago

I think hiring sales is much more of a lottery than hiring engineers.

rb808• 9 years ago

I suspect that developers are not so much upset at salespeople getting commission, but rather why they get paid so much compared to developers. Personally I don't buy that sales skills are so much more difficult to find or are in higher demand than software development skills.

You should do it then! Seriously I know a few people that have made the switch. They felt vulnerable at first but wouldn't want to go back now.

TheCoelacanth2• 9 years ago

It's objectively not true that salespeople in general get paid more than software developers. Maybe the very top salespeople get paid more than the very top software developers, but that is just because of how easily the top salespeople can prove that they are at the top.

megiddo• 9 years ago

What an enormous echo chamber. I moved from senior dev to sales.

My contract is 100% commission, because it aligns performance with business requirements. Good sales is every bit as difficult as good dev, maybe harder.

The only people who think devs are not well compensated are devs who can't negotiate or are marginal.

If you've never told an interviewer to go fuck themselves over stupid questions or whiteboarding in an interview, you're probably not making an effort.

AstralStorm2• 9 years ago

Try negotiating your salary in a corporation, see how well it works, then attempt censure.

People find it easier to up the salary by moving instead of negotiating and it is not due to lack of skill. Otherwise they wouldn't be getting raises that way. You essentially did that by moving to a managerial job. Some people become contractors to expedite this process.

The whole structures are designed to prevent you from negotiating. From useless reasons to not give one a raise like easy to misinterpret and worthless KPI, through bureaucracy preventing even slightly risky projects, office politics, levels of indirection, use of statistics on personal level etc. Even if you are great you may have real trouble showing that you are. So people hop jobs. When hopping, what matters is the resume and salesmanship indeed.

Only very small companies don't have those bureaucracies and instead they cannot just offer you what they don't have. Unless they have huge VC funding, but that can also evaporate bringing it back to job hopping.

Even measuring the effect of your work is difficult, much less selling it, even less so in a way that bypasses all the layers of junk.

ryandrake2• 9 years ago

I wonder what an org would look like where engineers got compensated as well as salespeople--as a percentage of sales, where if you made a great product that sold like gangbusters, you got showered with money, but if it doesn't sell you get very little or fired. I bet at the very least the products would look very, very different.

matwood3• 9 years ago

You might be onto something. Paying devs this way could stop the rewrite in new the js framework flavor of the month over and over, and instead put focus on adding features and fixing bugs.

probablybroken• 9 years ago

It could also lead to a too many chefs situation, since every contributor would have a steak in the outcome.

mcmoose75• 9 years ago

You could make the argument that in (growing) startups, this is closer to the way things are- engineers create value over longer time periods (and efforts are often harder to tie directly to economic value creation). Equity-based comp is a good way to compensate for these kinds of efforts.

gersh• 9 years ago

You gotta be careful with commission-based sales people. They will promise the sun, the moon, and anything to close the sale. While this may work for some products, it can lead to pissed off customers.

Commission can encourage a short-term attitude that doesn't consider the long-term relationship with the customer.

quadrangle• 9 years ago

No chance of this happening, but the ideal is on the other side: customers should refuse to buy from anyone who gets a commission. The conflict-of-interest is too strong. If customers all really understood that, then all the sales tactics that get commission-based sales people to be so rich would stop working. Then, you wouldn't need commissions.

neilwilson• 9 years ago

I'd let the sales person generate the $10 million elsewhere and get the commission.

Because I can guarantee you that you'll make more profit from the low pressure sales.

Commission based sales leads to a turnover based culture and as the saying goes - turnover is vanity; profit is sanity.

If you want to align sales people, give them equity and pay a dividend.

Or run a cooperative. Then everybody gets a share of the spoils.

hyperpallium2• 9 years ago

I guarantee your sales people never sell enterprise software for fun.

A funny line, yet his "sales people" are really consultative problem solvers. Such people probably would apply their skills in areas such as community projects (e.g. sporting clubs, hobby/user groups, scouts, school, church), politics (e.g. local councils) and charities... for free.

These probably bear about the same relation to selling enterprise software as an engineer's side projects have to making enterprise software.

notahacker2• 9 years ago

Such people probably would apply their skills in areas such as community projects (e.g. sporting clubs, hobby/user groups, scouts, school, church), politics (e.g. local councils) and charities... for free

They wouldn't necessarily volunteer to deal with the absolute tosser at BigAccount, make the 4am call to Asia or spend their entire time at the conference trying to find new customers as opposed to having a leisurely chat with someone who isn't going to buy though. For similar reasons, engineers who would happily write code all day for free get very highly compensated to work on fixing bugs on the somewhat similar but less exciting corporate CRUD app.

lordnacho• 9 years ago

Here's something that's only touched upon:

Sales people can vary a lot in the amount of money they bring in, and the variance isn't necessarily explicable by things in their CV. In other words a guy can talk a good talk as well as have a positive record, but when you drop them into your org, you're taking a chance on whether they manage to get anything done. (Which is true for devs as well, but people tend to think -wrongly- they know how to identify devs.)

So paying them on commission is necessary because if they fail you want them out and you cannot afford to pay them anyway. If they do well they share in some of the upside from the uncertainty crystallising to positive.

staunch2• 9 years ago

Why? Because sales people are good at sales! Their whole job is negotiating the highest possible compensation for the value they provide.

Apple doesn't need sales people to move millions of their products into "the Enterprise," and neither does any other company with products as good as theirs.

It's just that most companies make shitty "Enterprise software" and then try to push it with aggressive sales tactics.

There's more than one way to succeed, and making great products is a lot more interesting than a cocaine-powered salesforce.

ghaff3• 9 years ago

Except Apple actually does. [1] Yes, it's relatively limited but Apple has selectively hired sales people for enterprise sales.

[1] http://www.techrepublic.com/article/apple-posts-huge-gains-i...

staunch2• 9 years ago

Ah, technically correct, the best kind of correct ;-)

It's true they have some people who will talk to you if you're a big customer, and even let you use the VIP room, etc. But, it's nothing like the model that A16Z promotes, where you push bad products with aggressive sales people.

cerebrum• 9 years ago

I would be interested in an experiment. Do sales with comission and without and compare the results. Also consider that without having to pay comission you could hire more salespeople for the comissionless model.

I bet that there should not be a significant difference in the amount you are selling.

jlebrech• 9 years ago

coders should get commision

cdevs• 9 years ago

I could go on and on about how my company screws this up. First, even though they get commission they also get large base pay despite a salesmans performance which makes the salesman stop working around making 70k a year, second horrible tracking of what the deal in each contract will cost our company in developer hours and hardware etc etc so they get paid full commission on a $20,000 that ends up being $4,000 revenue. What our company needs is a strict standard but it's a endless loop of oh salesman can make a sale if you can create this so stop what you are building and welcome to the chaos.

osullivj• 9 years ago

I have seen one scenario where engineers get sales commissions: quants in investment banks. Typically in banks traders will get 3% of PnL before costs are stripped out, or 10% after costs. Traditional sector coverage sales will get a volume based commission. This always leads to tension between sales and trading as one is compensated on volume and the other on margin. Etrading sales get sales credits on channel volume, not sector volume, which is often another source of tension. And finally, the quants coding up new pricing models may get sales credits on trades priced with those models. No doubt there are some interesting comp models at automated or systematic trading hedge funds where there's no real distinction between traders and coders, but I have no first hand experience there.

erlend_sh• 9 years ago

I'd rather have a sales person that is as much a part of the team as anyone else.

Daniel Pink's ["To Sell Is Human"](http://www.danpink.com/books/to-sell-is-human/) makes a strong argument against commissions, which is echoed in these articles:

https://hbr.org/2012/07/a-radical-prescription-for-sales

Mitch Little began questioning the received wisdom on sales commissions in the late 1990s, shortly before he became vice president for worldwide sales and applications at Microchip Technology, a large semiconductor company headquartered near Phoenix. He oversaw 400 salespeople whose compensation plan was the industry standard—60% base salary, 40% commissions.
“That made sense 40 years ago, when the Fuller Brush salesman went door-to-door,” Little told me. “But the world of business-to-business sales has shifted fundamentally.” So in an act of sacrilege for a onetime sales guy, Little killed commissions altogether. He established a new plan in which salespeople received 90% of their compensation in a high base salary, and the other 10% was linked to corporate (rather than individual) measures such as top-line growth, profits, and earnings per share.
The result? Total sales increased. The cost of sales stayed the same. Attrition dropped. Retention rose.

http://www.nytimes.com/2013/11/21/business/smallbusiness/for...

The proponents of ditching commissions believe they foster negative behaviors, such as focusing on an individual’s profit over the company’s, emphasizing short-term outcomes and encouraging unproductive competition among sales representatives. Even companies that pay commissions can face costly turnover as representatives chase more lucrative offers.

https://blog.fogcreek.com/why-do-we-pay-sales-commissions/

In the year since we dropped the commission system our sales have gone up. In fact, four of the last five months have been record months. We can’t reasonably say that our record sales were caused by this change, but we can reasonably say it didn’t hurt, and that’s worth having a hard think about in your own company. There is no guarantee that this will work for everyone, but it’s unlikely to be a disaster either.
Our salespeople all estimated that they were spending about 20% of their time just keeping track of what money was due them. There was constant horse trading. And, most worrying, we created a heavy disincentive to do all the service stuff that makes customer service shine. Why would you want a system that sets up after-sales service as competition against new sales, especially if you have a small sales team? Reputation and retention, after all, are both paths to revenue.
Removing commissions has changed the sales team. It has taken their focus off their compensation. They have all that administration time back for more useful things. They take a longer view of the value of a prospect, and are less worried about who is going to buy right now. They feel less stress about taking vacation. They don’t quibble among themselves over accounts. And best of all, they feel more integrated with the company.

MrBuddyCasino• 9 years ago

The Fog Creek link is 404: https://blog.fogcreek.com/why-do-we-pay-sales-commissions/

k__2• 9 years ago

I have feeling sales people have too much leverage in general.

Almost every company I worked for had a sales CEO. God, they are software companies! All the successful software companies have engineers as CEOs...

erikb3• 9 years ago

Engineering is about providing a tool/service that fulfills a customer need. But in the end it is not about making customers happy, as most engineering focussed blog posts would suggest. In the end it's about getting this very rare ressource called money in amounts big enough to pay your regular costs (for instance your engineer) while maybe even making a profit.

In some regards the battle for money and solving customer problems are interdependendent and can happen together by coincidence, but they are not necessarily connected. For instance a few months ago I was forced to pay a four digit lawyer bill (could've been bigger) in exchange for the lawyer actually telling me face to face he's not willing to work for me, after signing the contracts. Still can't do much about it.

What the sales people provide as value is a high spirit of competition for money, together with an acceptance for how immoral and shitty this world is. And these two skills are also valuable for climbing up the Ladder. The desire to live in a comfortable fantasy world of people helping each other all the time is not good enough. Therefore most of the CEOs are managers or sales people and not engineers.

And your companies, while maybe being shitty in the engineering department, may have still made more money than some engineering lead corp.

aj72• 9 years ago

A couple of things I learned in a career in sales and engineering: 1. Salesmen make most of their money pushing and closing on a hot product with a true advantage. This is easy big money, and it's a lot lot of fun. During this mode, when they come to town, they screw the secretaries in the marketing department (back then.). This mode can't last; market saturation and the competition intervene. The company is wasting a lot of money during this period on commissions, but the good times can build some loyalty in the sales force, but not much. Top salespeople leaving for the competition when this period ends is common. During this period, the sales manager should fire at least one salesperson who is above quota, but who is slacking off and not making the one extra call. That salesperson doesn't get it, and a rookie with a good understanding of the sales material can do great in this environment, and for cheaper. 2. Sales greatness is measured by stolen sales. By this, I mean that if looked at objectively, better specs/price, or historically, customer is used to buying from company, in many sales situations, one company starts out with an advantage. A great salesperson can reverse that advantage, and in doing so, outcompete his counterpart. THIS is why you pay a commission. 3. A salesperson is different from anyone else in the organization. He has to look the customer in the eye and ask for the order. And deal successfully with what follows. The people in the Apple Store are not salespersons, and are not paid as such. Imagine: 737 vs A320. Capiche? 4. Salespeople have contempt for engineers, whose heroics make them rich. Bad salespeople don't hide this effectively, and get fired. 5. Good salespeople know: "The customer is the star." Not his product, not his company, and not him.

chayesfss• 9 years ago

Problem is, only 1 in 10 or less salespeople are any good. Most are just there to try and get some easy inbound leads and close those off. Very few will actually try and do some work around finding projects, different ways into a company. It's ridiculous that salespeople will get 10-15% of a deal when they typically don't know jack shit about the technology. Honestly I think todays new companies would be wise to allow companies to sign up directly and save themselves 10% of the price. Yes these same companies would have to bolster their corporate staff to ensure redlines are done, etc but the world would be a great place.

sjg007• 9 years ago

Well you have commissions or stock options. I think you get one or the other. Then again the best sales people probably get both.

Spooky23• 9 years ago

Two reasons -- you don't want to pay salespeople who don't sell anything, and you want to attract salespeople with technique and a book of business that makes them sell more.

The best salespeople I typically work with have built a relationship with the clients. I take meetings with them because they do not waste my time and they understand my company's needs. I'm more likely to take a call from company X if I know the rep from past business.

On the counter-side, I've run into many, many salespeople who bounce around and suck. They focus on doing the dance and checking boxes in Salesforce instead of actually selling product and dump their internal corporate drama on the customer. They bounce because they miss their quota and get canned.

jondubois• 9 years ago

Sales people have it the best; they are partially responsible for creating market bubbles by overpromising results/features in order to get sales... Then when the bubble which they created reaches popping point, stock prices collapse and companies go bankrupt; engineers lose all their stock options but sales people are fine because they already got their commissions. Overpromising allows them to get all the upside and none of the downside.

The only downside is that sales gets more competitive at the peak of the bubble; so it's harder to get those big commissions.

basseq• 9 years ago

"Sales is the highest paying hard work and the lowest paying easy work."[1]

With sales, you want to pay for performance and pay for outcomes. And with sales, it's easy to measure quantitatively and simply. Good sales people love it and make good money—bad sales people don't get paid and/or leave.

This is the ideal world. As a employer and an employee, you wish all your departments could be measured and rewarded like that.

Not everyone is cut out for sales, and that's fine, but the model works and works well. Examples where it doesn't work well (e.g., over-promising, over-paid) are companies that have poorly balanced incentive commission plans.

[1] https://www.nasp.com/article/FF282761-5D6C/sales-is-the-high...

madshiva• 9 years ago

Totally wrong in my point of view. If you have a good product it will sale by itself, only poor product need aggressive sale people to sell them.

It's not about who is selling, but what are you selling?

My father is selling product, did a very nice job, but because he did too much result, get is commission removed or downsized but yeah the commission is the solution...

lunchables• 9 years ago

I guarantee your sales people never sell enterprise software for fun.

And I guarantee you your programmers aren't working on your enterprise software outside of work. Conversely, your sales people are practicing the exact same activities (social interaction, manipulation, etc) outside of work on their personal time.

edc117• 9 years ago

Sorry, but disagree. I guarantee you many passionate software developers are working on their development skills - learning new frameworks, building personal projects that carry into their day to day work, and yes, sometimes even developing something the company can use 'for fun'. Are there developers that don't? Sure, same as there are sales people that don't.

Edit: As another post says, it's because sales people are only one step removed from the revenue-gaining process - they are often directly responsible for closing a sale, so they can easily claim credit.

ghostbrainalpha• 9 years ago

Saying they practice social interaction and manipulation for fun outside work, so they shouldn't receive extra incentive is possibly the worst argument I have ever seen on Hacker News.

A prostitute would gladly sleep with a star NBA player for free, so should she/he not be compensated for sleeping with an aging/overweight and smelly client?

I enjoy playing high quality video games in my free time like Zelda. Should I not receive composition for bug testing the latest mind numbing Bejeweled mobile game crap at my job?

What I am saying is this... everyone interacts with other human beings. There is a large range in the quality of those interactions. Businesses must incentive heavily someone to make them actively seek out the most difficult and profitable of those human interactions.

Because someone chooses to interact with another human in their free time does not mean they shouldn't be paid for it.

QuantumGood• 9 years ago

Agree that value is derived from all contributors to a project, but the value/income from a project is gated most at the level of the sale.

Projects can be created but not sold, or sold poorly, deriving little to no value for the organization. But great salespeople can even sell projects that have not been created (not always a good thing).

Also, where does the money come from to pay someone? With a sale, it's clear: The salesperson went out and harvested money directly. With everyone else, it's derived through politics, formulas and philosophies.

mherrmann• 9 years ago

I recently read the author's book "The hard thing about hard things". I understand many people here will be familiar with it. To those who aren't, I recommend checking it out. It finally made me "get" VC and what it's like to work on VC-backed startups. (I'm bootstrapping my companies.)

hashkb• 9 years ago

I agree, I think, but the points are made so badly I cringed as I read. Every point is made by begging the question. It's dripping with pro-sales bias. There's no content here, just preaching to the choir.

The_DaveG• 9 years ago

Solid article, there is a middle ground that is missing, that or a base plus bonus of the team. Some of the best sales teams I've ever know work based off a bonus for the whole company meaning they have a huge incentive to help the other members of the team get better and collaborate for the betterment of the company.

This will create the best sales team, but will not attract the top X% of sales people.

Why Must You Pay Sales People Commissions?

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