The pros and cons of performance-related pay investigates the benefits of having a variable element to remuneration.

There’s nothing new about having a variable element of pay to boost the motivation of staff, whether it is a commission, annual bonus or some more complex arrangement. John Pooley, joint chief executive and founder of call centre business The Data Partnership, says performance-related pay is a crucial part of how the company works.

‘Providing employees with the incentive of a 10 per cent commission rate has been particularly successful,’ he notes. ‘Having been a salesman myself, I know that I wouldn’t have thrived without that kind of motivation. And if you do your job properly, closing a big deal can be extremely lucrative.’

Not everyone agrees. Rupert Lee-Browne, chief executive of currency exchange firm Caxton FX, says that since the company was founded nine years ago, it has never paid account managers commission. ‘In our market it would be normal for customer-facing people to receive commission, but from day one I saw it as a conflict,’ Lee-Browne says. ‘It means the customer won’t be served as well as they would be by someone who doesn’t care if they do the transaction there and then.’

It’s not just for the customers’ benefit. ‘What you are doing by associating performance with pay is creating a competitive environment,’ he argues. Instead, staff are offered more opportunity to develop their career, with 15 per cent of staff receiving a promotion – and a pay rise – during 2010.

Changing behaviour
David Leyshon, MD of recruiter CBSButler, agrees that paying commission can be counter-productive. After leading a management buy-out at the company in 2003, he set about changing its culture. ‘People were very focused purely on their month’s commission. Initiatives to improve customer service or roll out new sales projects were a challenge,’ he recalls.

The solution was a new system of performance-related pay, in which 40 per cent of individual commissions were placed in a bonus pool, and awarded to staff for their success in areas such as problem solving, teamwork and customer service.

The results were dramatic, says Leyshon, with customer satisfaction levels rising from 70 to 93 per cent, employee satisfaction up from 60 to 90 per cent, and rapid increases in revenues and profits too. ‘This has improved our culture: there’s more respect, and softer skills have come to the fore. It has made the organisation easier to manage,’ Leyshon concludes.

See also: Sales commission structure for UK small business – Examining the different sales commission structures you can use

Alan Dobie

Alan Dobie

Alan was assistant editor at Vitesse Media Plc (previous owner of before moving on to a content producer role at Reed Business Information. He has over 17 years of experience in the...

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