Every month I receive a variety of questions from salespeople and their managers. These come from a variety of sources - my live seminars, the monthly phone seminars, questions that are sent into my newsletter, and issues that arise in the course of my consulting work. Out of all of these, I select those that I think have the most universal application, and respond to them here.

Questions and Answers

Our president recently suggested that we penalize the salespeople for not meeting their goals by taking commissions away from them. Do you have any thoughts?

Wow. My initial reaction is that it sounds so harsh. Put that way, and you are liable to lose 90 percent of your sales force, just on the principle of it.

But, let's spend some time thinking about this.

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If you mean that you want to take back money that you have already paid, I can't imagine that you could, or would do that. So, for example, you paid a salesperson $20,000 in commissions during the year, along with a salary, and now, at the end of the year, you are saying that you are penalizing him for not making goals, and "Please give us $2,000 back?"

My guess is that is illegal. I certainly do not recommend it. As the employer, you are expected to take some risks with every employee. The $20,000 that you paid the salesperson was paid. It's his, not yours.

So, that's probably not what you meant. Maybe this is the scenario: You have set up a salary and commission program. Let's say the commissions are 4 percent of sales, paid on every dollar of sales. The salesperson has a goal to do $500,000 in sales. He actually does $400,000. The next year, you reduce his commission rate to 3 percent of sales, thus "penalizing" him for not meeting his goals.

I have less of a problem with that, but I'd like for you to build in some incentives, as well. How about something like this: A 3 percent commission rate on all sales up to $400,000. A 3 ½ percent commission rate on all sales between $400,000 and $500,000. A 5 percent commission rate on all sales over and above $500,000?

That protects your risk, but also gives the salesperson an incentive.

In general, I believe it is your responsibility, as the employer, to take the risk of a salesperson that underperforms. Rather than attempt to take money away from him, I'd rather see you work with him to help him become successful. If he can not, then terminate him from that position, and search for someone more suitable.

Once you set up a compensation plan, you are, I believe, obligated to meet the terms of that plan. That doesn't mean that you can't change the plan. But it does mean that you can't decide, after the fact, to reinterpret the plan. If your plan is flawed, then change the plan for all future work, but pay for work up to today according to the plan that you set up.

There is one place where I think it is legitimate to reduce or deduct something for the salesperson's commission. That is in the case of a sale wherein the commissions are paid, and then the invoice is not being paid by the customer. In that case, I think it is perfectly appropriate to reduce the salesperson's commissions by the amount that you have already paid him for the sale that, in reality, didn't happen. That's different than charging him some of the costs for the inventory that was shipped, etc. I'm only talking about the sales commissions he was paid on that sale.

Readers, feel free to comment on this.

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