Designing an effective commission scheme
We are often asked how commission schemes can be made more effective in driving improved financial performance. Here are some of the key considerations:
Commission schemes do not always promote behaviour that is consistent with other objectives or the values of an organisation. Consider including client service targets and other non-financial key performance indicators within commission arrangements.
Commission payments should be sufficiently attractive to motivate staff to achieve challenging targets, but they must also offer a degree of stability so that consultants can meet their financial obligations such as mortgage or rent payments. Quarterly targets are popular, as they allow net fee income performance to be smoothed out over a longer period. However, you will inevitably get staff ’taking their foot off the gas’ once they have met their target, or giving up entirely if their target is unachievable. In practice, a combination of monthly, quarterly and possibly annual targets is likely to be most effective.
Team leaders need to invest time developing their teams, but they are often the company’s top billers and so may only focus on generating their own fee income rather than training junior colleagues. An effective commission scheme therefore needs to strike the right balance between team targets and personal NFI targets for team leaders.
For those businesses that do not operate a 360 model, commission arrangements also need to consider the contribution of resourcers and other support staff, so that it is not just the sales consultant who benefits from meeting targets. You may want to consider targets for the whole company, to encourage a more collaborative team culture.
Because commission schemes can tend to encourage short-term behaviours, owners should also consider long-term incentive plans, including share option schemes, in order to reward behaviours that create value in the business over a longer period of time.