Study Notes: People Management

Motivation in practice - commission

Commission is a payment made to employees based on the value of sales achieved. It can form all or part of a pay package. Commission is, therefore, a form of “incentive pay” (see also performance-related pay, bonuses).

Commission, like piece-rates, is a reward for the quantity or value of work achieved. In most cases, the employee is paid a flat percentage of the value of the good or service that is sold.

The rate of commission depends on the selling price and the amount of effort required in making the sale.

For example, commission rates could range from 5% where the product sells easily (e.g. household goods sold door-to-door) to 30% where the effort is substantial.

Advantages of Commission

The main advantage of commission from an employee’s point-of-view is that it enables high performing sales people to earn huge amounts.

The main advantage to the employer is that the payroll cost is related to the value of business achieved rather than just the amount produced. After all, businesses exist to sell goods and services for profit – not just to make things (piece rates simply reward amounts produced, not sold).

Disadvantages of Commission

There are several drawbacks with using commission payments:

• Sales people may cut corners to make sales (e.g. not explain the product or service in enough detail to potential customers). This was a major problem in the recent pensions mis-selling scandal in the UK

• High commission earnings enjoyed by some of the sales team may be resented elsewhere in the business – particularly if the sales actually depend on a team effort

• It is difficult to change what proves to be an over-generous commission structure without upsetting and demoralising the sales team

• Once commission payments have been made, the sales force may lose some motivation until they begin to focus on the next payment (which might be up to 12 months away)

As a result of the above disadvantages, most businesses that use commission as an incentive payment method offer a basic pay plus a moderate commission level. In this way, if sales and profits justify the change, the commission rate can always be increased slightly.

Recent research suggests that the use of commission is reducing in comparison with the growth of other incentive payment methods.

HRM Strategy

HRM introduction  HRM objectives  HRM influences  Hard & Soft HRM  

Organisational Structure

Org charts  Delayering  Span of control  Centralisation & decentralisation  Matrix structures  

Motivation at work

What is motivation?   Theory - Maslow  Theory - Herzberg  Theory - Taylor  Theory - McGregor  

Financial motivation  Pay Package  Time rate  Piece rate  Commission  Performance pay  

Share options  Job rotation  Job enlargement  Delegation & empowerment  

Recruitment & Training

Recruitment intro  Internal / external  Job descriptions  Interviews  Job analysis  

Job advertising  Person specification  Training - intro  Induction training  On-the-job training  Off-the-job training  

Workforce planning

Workforce planning  Flexible working  Benefits & issues  Labour supply  Workforce roles & workload  

Annual hours  Job sharing  Temporary staff  Teleworking   Flexible hours  

Communication

Overview  Barriers  Benefits  Employee Representation