Why Must You Pay Sales People Commissions?
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...actually that's not a bad idea.
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.
I don’t begrudge high salespeople commissions because that means things are pretty good, just don’t let them run the company (see Steve Jobs ‘lost’ 1995 interview with Cringly).
1) until the restaurant goes under
But don't get me wrong, I'm not saying we should try to quantify the efficacy of SW devs more. I had a PM do that once in the form of ticket quantification as a KPI. I had to expend a lot of political capital to opt out from that nightmare.
The key difference between good and bad engineers is that good ones deliver the product/finishes the projects (add bonus points if on time) and bad ones don't. Quality makes much less business sense and is usually only important to the engineer himself and his peers than managers that pay his wage. That's especially true in current "move fast and break things" environment. I have seen a fair share of bad engineers (by this definition) fired, even though they had decent technical skills.
His code was atrocious, but we'd put up with that until the IMAP incident because getting the CEO to understand that his code was bad enough for him to actually be a net loss in performance for the team didn't work until we had to scramble to recover what we could of the corporate e-mail.
Last I saw he was a senior developer somewhere more prestigious than the position he was fired from. Maybe he's improved. Or maybe he's just managing to stay above the threshold they'd fire him for.
A lot of bad developers just learn to fly sufficiently under the radar and hunker down and accept that they probably won't get many raises until they move jobs and can point to X years of service in company Y, aided by lack of willingness at many companies to stick their neck out when it comes to giving bad references (a lot of places I've worked, HR policy has been clear that we were only allowed to confirm dates of employment).
Dats watt we 'ere fer.. we do what's you needs.
Now, I'm not gunna lie to ya, I love ya, why would I lie to ya... what I got 'ere fer ya t'day is da best deal yer gunna see in yer lifes!
So whadda I gotta do ta get you behind this deal ofs a lifetime fer, say, twenty cores on da best DB on da freakin planet for a fraction of what da others would even dream of?
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!!
What say you? We gots a deal? C'mon, you have to only say yes and I'll get my guys all over dis and you will look like a freakkn rock star to your boss for savin da moneys! (Plus I'll be out dere in august and I'll take yous out fer a steak dinner, c'mon that will be our celebrations!!)
/oracle
Isn't that a resume?
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. :) )
It's very hard for me to be so bold as to flatly say, "I designed and built this, and I feel responsible for why it has been such a success." The most I can get out these days is, "I am very proud to see that software still finds value among the other dev teams."
But on the other hand, people can only make decisions based on information that is actually available to them, and so the quiet industrious worker in he corner who rarely pipes up and silently gets the job done but does nothing to make certain his/her contribution is noticed is passed over, because the boss can't magically know that quiet worker is the excellent contributor they are without something imparting that info- good managers will try to understand who's truly contributing in ways like that but even very good managers are frequently subject to imperfect information!
Anyway, I'm glad your advisor told you that, and I'm glad you shared that with me, yours is a succinct way of describing that, I'm almost tempted not to post this reply, as I'm uncertain it adds anything more of value than an emphatic "yes I agree!"
Well, ah, I'm paused at the moment, my wife got semi-unexpectedly pregnant after quite a number of years unsuccessfully trying to do so - she is a salesperson and makes more than me (I was an intern at a genomics startup at the time) so I am being the dad, finishing school, and working on side projects while we map out what we do next - We're planning on swapping roles as soon as I'm finished with school and it's otherwise workable. That does mean I'm focusing more on programming than the data science/bioinformatics side of things, but I'll keep my eyes open for opportunities there too, never know exactly what will happen. Also, the baby is totally amazing, and I adore being his Dad, seriously, I wish stay home dads were a much more common thing than we are, it's freaking fantastic, makes me wish things worked differently to facilitate a pair of parents staying home with anc raising a child as their primary function. :)
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.
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.
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.
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).
That's essentially true for most sales people and traders as well. There are VERY heavy tails -- that one guy at the car dealership who sells 3x as much as his peers, or the trader at Citadel whose trades made over $1bn in a year.
But imagine how the teaching profession would change if 1) the gains could be accurately measured and 2) we assigned payment or prestige to teachers based on (1).
It's definitely not true in most sales positions, particularly the ones that are highly commissions-based.
> But imagine how the teaching profession would change if 1) the gains could be accurately measured and 2) we assigned payment or prestige to teachers based on (1).
We can, and we do. The fact is: the gains just aren't that large. If you want to improve student performance, the best place to spend the money isn't by raising teacher salaries.
Unless you can provide a link, I'm pretty sure whatever you're measuring is very different than what OP was talking about.
And stories abound of the very successful engineer, entrepreneur or scientist whose entire life was changed by one teacher.
http://education.cu-portland.edu/blog/classroom-resources/pu... https://archive.fo/DeBGH
A teacher's salary in New York isn't good enough but you can at least afford rent if you're smart. The reason why I tolerate laptop and iPad spending is because I don't know if/how we can cut costs and still get better results. Thus, when I see something that lets students learn without a one on one with a teacher, I imagine it saves money.
From the same page, we see that total expense is 617B or about (617 billion/18 trillion) three percent of GDP. I'll be honest. I have no earthly idea whether this number is too big or too small or if that's even the right question.
There is growing evidence to suggest that having laptops and ipads in class decrease learning outcomes. So you could be paying more for worse results.
Sorry, don't remember enough for a citation, but the suggested causal effect was students just spending even more time on social media, games, and web surfing instead of school work.
And on the other hand, what if the test subjects you mentioned just didn't learn to use the technology responsibly? I'd argue, teachers and professors need to be given computers, in a metaphorical sense, first.
Also, try to get a subbing or student teaching position that will put you with the same group of kids regularly for at least a month to be more sure you can handle the stress of the job.
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.
Of course, combined with the premise of this article, such measurement will incentivize teachers to turn students into sales-people :)
I worked in sales so I could afford to be an engineer later. There were plenty of ex-teachers in sales. They did well.
You're right. I hit the comment button and was going to say you're damn wrong - I have done a lot to increase my pay with each new job. I wouldn't be at work if not for the money. But then I realized you're right too. I don't think about money much at all when I'm a work. I do try to make a good product, and I do worry about bill of materials and production cost, but I don't focus on money coming to me because that's already been agreed upon. Is that what you meant by that statement?
People making statements such as "good products sell themselves" are probably thinking about gadgets like iPhones that don't require "greasy used car salesmen" with high-pressure tactics to close a sale. Yes, the Apple employees at stores are more like order takers than salespeople.
However, many well-engineered products absolutely require salespeople to close the deal. I was recently researching $100k CNC milling machines -- there are several brands with quality engineering and yet they all have salespeople to guide prospective customers about configurations and persuade me to buy. Trying to decide purely based on information posted at the manufacturers website and printed brochures would be unwise. Yes, the general "concept of a CNC machine" sells itself but a particular brand & particular model of CNC does not.
If they get their money back, does the contract negotiator lose their commission again?
This is a metnarrative[0]. It is a thing that people say not because it is true but because it is useful to create a larger narrative that is perceived as useful within the social sphere. Peopl, especially engineers, are socialized to believe it and normed to say it. The result is very simply lower pay for their labor. It is a post hoc justificication.
[0] Sorry to lazy at the moment for a real cite so heres a wiki one...https://en.wikipedia.org/wiki/Metanarrative....A metanarrative (also meta-narrative and grand narrative; French: métarécit) in critical theory and particularly in postmodernism is a narrative about narratives of historical meaning, experience, or knowledge, which offers a society legitimation through the anticipated completion of a (as yet unrealized) master idea
Besides, if there is a fallacy in the OP's statement surely it is not the assertion that teachers don't prioritize money so much as the assertion that engineers do. At least among the software engineers I know (and I suspect the same holds for most people on HN), engineers are as multifaceted in their approach to work as anyone else. Most people would happily trade off non-trivial amounts of wealth for other social values such as work-life balance or work on projects that have personal meaning. The most unhappy workers anywhere are those who can only choose between jobs based on their salary.
https://www.reddit.com/r/nottheonion/comments/6ktzx1/teacher...
And equating teachers to engineers makes no sense, I've met dozens of people in some engineering school to make money.
It's so much more complex than that.
Yes, this is way more complex than my two minute writeup of a small chunk of a 94 page paper.
What? Care to elaborate?
Do you actually believe this or are you just saying something striking to illustrate an underlying principle?
It’s where I get if I’m thinking about moral justice instead of incentives/the economy. I’m not saying my proposal is workable. It’s just my observation that the last decade has been a tale of two cities for millenials. My friends who are “good at math” have been living in a different economy from everyone else.
It also sounds like you're basically proposing we give people free money. That could be a fine thing to do, but then why not give it out explicitly, instead of holding wages fixed?
The effect is an especially big deal in math, because it is so cumulative. One of the worst things that can happen to a student is to have a bad math experience (whether it's the teacher, the other kids in the class, or whatever) one year, and then have future teachers never go back and cover the same material. That leaves students with permanent gaps in their knowledge, which hurts them later on.
Some nations tried that idea last century. It lead to war, famine and 100 million deaths. Aiming for utopia is a noble idea, but the results have been horrific thus far.
Like most utopian economic visions, it’s hard to get there from here, but it seems like it’s well matched to your stated labor market ideals.
Rewarding teachers who have best highest test scores, for example, is a pretty good way of disincentivizing good teachers from helping less gifted children.
Sales people work their comp plan, especially if they're good. They tend to know what they're making and what the market pays.
They tend to leave for one of 3 reasons. 1: Product isn't competitive anymore 2: Comp plan has changed 3: Company is failing / run out of funding / has pivoted and fired their entire sales team.
Source: I recruit salespeople for a living.
In the UK at least, they have changed the measurement to one of progress in a basket of subjects. Students are measured as they leave primary school, and the secondary school is rated on how much different their grades are to their predicted grades.
I don't know how they game that system here though, there will always be a way
[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).
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.
http://www.mercurynews.com/2017/01/05/california-schools-ear...
And anyone who can't will be, and should be, outsourced.
Know. Your. Value. To. The. Business.
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.
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.
It's when they started targeting the mass market, getting funding, removing features their early adopters loved (eg. wiki syntax in Confluence) that they needed a sales force. But that was necessary for their plan to scale. They're still not huge ($600 million is excellent but not Red Hat).
Here's how that works in concept, for example:
Microsoft didn't hand-sell every individual copy of Windows 95 at every individual retail location. They did sell, big time, at the macro level however, which made the micro sales possible. That's how AWS works, Amazon captures the macro, the micro takes care of itself for the most part. If you're AWS and you capture dozens of impressive start-ups and enterprise players, the headlines and blog posts that are written as a consequence will micro sell as a consequence to countless smaller businesses for you. Not to mention, Amazon simultaneously pushes AWS at small businesses in numerous subtle ways, including on their site (which of course happens to be a giant advertising platform that reaches every business owner in the US).
But AWS also often start as a $10/month product, and then one more, and one more. I think that's a huge portion of their success - it's easy to ramp up the cost slow enough and in small enough steps to not trigger any major approvals until it's "too late". People usually move off AWS first when if it gets to be enough of a cost pain-point to make higher ups take notice.
Isn't that the point of cloud computing? So you don't have to worry about datacenter capacity until it becomes a major cost center?
You can sign up and AWS without any customization. Even if you spend $10k/month on AWS, you don't really need to talk to AWS to create a custom deployment (from what little I know of AWS - might be wrong).
But if you're talking about a solution that requires customization, or if you want volume discounts, you will want to speak to a salesperson.
We sell out software to the big banks and we don't have a single salesperson in our team. Everyone call us. The reason for this is that we have been in national newspapers with awesome articles, which is great marketing.
I'm sure we could do even better on the international market with a sales team.
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.
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.
One that's bucked this trend lately has been atlassian, they're a 5 billion dollar company without a sales team that operates in a space that typically requires sales teams. Transparent pricing is a huge part of their success.
I heard they have a huge partner/reseller network though
> How did the salesperson contribute
> to building the product?
I note as well that Uber was selling rides quite a time before they had any kind of real engineering backend.
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.
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.
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.
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.
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.
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.
I didn't have to buy an MRI machine to start doing my thing. I just had to register a domain name and sign up for a Stripe account.
Incidentally, there's a lot of room to build a successful software business with an effort between zero and "work every waking hour"/"put [your] life savings on the line". I built the products I live off in the downtime between contract gigs, when the surf wasn't working and conditions weren't right for climbing. With two digit hosting expenses for the first several years.
Definitely don't let fears like the ones you expressed above stop you from doing it.
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.
His motivation for doing so was a conversation with his previous boss that included the quote "because I went out and got a lease on a building".
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.
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!
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?
I was challenging the fact that, as you say : "Labor is a market like any other.". I don't think it is like that because behind each job there's a life.
Moreover, on the fact that engineers and sales persons should have the same salaries, yep that's what I think. I don't see why sales works should be more compensated. I understand that the way it is compensated (bonus for sales) is the way it works, but in the end, I don't see why it should pay more than engineering (here I consider a context where the sales person and the engineer are both employees).
The two roles are equally important to me, just different skills.
Labor is a market. It's a shockingly inefficient one, but it's definately a market.
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!
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.
*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...
It goes like this VP agrees to do these projects in 2018 at X amount. VP gets the highest possible cost for X. VP cuts projects and/or project budgets down to bare minimum. Now he can say he saved whatever amount and is a hero for saving so much let's give him a fat bonus.
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.
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.
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.
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.
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.
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.
"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."
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.
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...
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.
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."
As W. Edwards Deming said, "A bad system beats a good person every time."
But from experience in a few different companies, one of which involved me directly working with a decent-sized sales team, adverse selection is empirically a major issue.
Among the things I feel like I've learned is that the sales people who are most engaged with the product space and can converse most intelligently about the product you're building are not necessarily the people who are best at actually driving revenue, and that a fledgling product for which the numbers don't exist to guarantee a pretty steady stream of commissions will drag very intelligent-sounding ineffective salespeople out of the woodwork.
There seems to be a species of salesperson that has evolved to sell executive management on continuing to pay them while blaming the rest of the company for their inability to close deals, rather than selling prospective customers on a product. I've had the misfortune of working with some of them. At the time, they even had me on their side! It's really quite creepy in retrospect.
I'd go way out of my way to avoid attracting the sort of salesperson who is driven by anything other than transactionally closing deals as quickly as possible, just to avoid the possibility of having to work with someone like that again.
What if there was no commission job available as an alternative?
Commmunism would be wonderful if it weren't for basic human psychology.
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.
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.
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.
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.
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.
> I don't buy that sales
> skills are so much more
> difficult to find or are in
> higher demand than software
> development skills
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.
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.
> 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.
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.
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.
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.
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.
This has a name in sales - "sandbagging".
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.
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.
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).
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.
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.
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.
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.
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...
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.
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.
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.
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.
Those who do are called founders. It sucks, but the reality is that if you aren't an owner, you don't get rewarded.
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.
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.
Of, say, nonprofit labor-of-love side projects, which they sometimes end up leaving their for-profit CEO gig for, sure I do.
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).
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".
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
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.
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.
I don't know a huge amount about engineering salaries, but my guess is they're actually pretty similar across the board (although engineers start a lot higher).
I've done sales recruiting for about a year. I've only ever talked to one guy who's made more than $1m in a year. He was on a base of $125 or $150k. Last year he made $750k, and the year before that $1m.
But if you're a rep who's truly making $1m+ a year, you probably aren't planning on jumping ship anytime soon.
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.
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.
[1] http://www.techrepublic.com/article/apple-posts-huge-gains-i...
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.
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.
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.
This will create the best sales team, but will not attract the top X% of sales people.
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)
Commission can encourage a short-term attitude that doesn't consider the long-term relationship with the customer.
I bet that there should not be a significant difference in the amount you are selling.
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.
The only downside is that sales gets more competitive at the peak of the bubble; so it's harder to get those big commissions.
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.
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.
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.
No idea if that will change now that a PE firm bought them.
Almost every company I worked for had a sales CEO. God, they are software companies! All the successful software companies have engineers as CEOs...
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.
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.
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.
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...
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.
I hope you don't manage engineers.
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.
is the operative phrase.
Your fallacy is conflating engineering work and an individual engineer's scope on said work.
Projects can fail, engineering teams can face delays - all common things. But an individual engineer is very unlikely to lose his/her job over it, in contrast to a sales person missing on his/her quarterly number repeatedly.
Are engineers less likely to be held accountable for missing goals due to external factors? That depends on the organization, but that's an entirely different claim.
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.
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.
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.
(Please read The Gervais Principle.)