Point/Counterpoint: Sales Commissions vs. Wages

By Gordon Hecht and Rich Lindblom

In their second round of retail debates, YSN pundits Gordon Hecht and Rich Lindblom lock horns over the age-old compensation question of commissioned sales vs. hourly pay or salaries.

Rich Lindblom: When you get right down to it, everyone is the same.  It’s in our human nature to want to be rewarded and recognized for our efforts.  And because of that I am a big proponent of paying your sales staff on a commission basis.  It’s a great way to promote a healthy work atmosphere and to incentivize and invigorate your sales staff at the same time.

Gordon Hecht: Rich, I’ve spent much of my career working for incentive-based pay.  You might say I was born on commission.  And for most of the last 50 years it was an effective way to motivate and reward retail salespeople.  But in our retail world things constantly change. The last 20 years have been a rollercoaster of valleys and peaks for consumer goods.  Add to that the current employee shortage and there’s never been a better time to consider restructuring pay to hourly with some added team incentives.

The Debate Team: YourSource columnists Rich Lindblom, left, and Gordon Hecht met for the first time at the 2021 BrandSource Convention.

Rich: Hear me out, Gordon. Paying your sales staff a commission allows you to do a lot of creative things with both your inventory and your product mix.  If you have a dog piece of inventory, put a spiff on it.  In my store, if I really wanted to get rid of a particular piece of merchandise, I would price it at my cost plus $50 and give the entire $50 to the salesperson.  And believe me, the bigger the commission the faster it would sell.

Of course, another way to use commissions is to increase your margins.  By paying your salespeople a percentage of the gross profit on the product, they make more when you make more.  What a concept.

Want to get creative? How about paying commission on a graduated scale — the higher the margin is on a deal, the higher the percentage of commission goes. Want to push a certain brand or product line more than another?  Put extra commission on that brand or product and your salespeople will sell more of it. Or better yet, reduce the commission on the brand you don’t want to sell. You can’t accomplish that with an hourly wage or annual salary.

Gordon: Having the assurance of a steady income will help attract new employees and retain current ones, which is critical to retailers right now. Many job candidates and current employees are risk averse; between declining foot traffic and supply chain issues, even top salespeople are concerned about uneven commission paychecks.  It’s feast or famine out there, but their monthly bills stay the same.

And speaking of recruiting new employees, due to big-box shutdowns the market is flooded with former Sears, Penney, Kmart, and other retail workers. They are used to working retail hours and with retail customers.  Many have great customer service skills and know how to execute a retail sales plan. However, they are used to that hourly wage, and most would not consider applying for a commission-based job. Wouldn’t it be great to have 10 or 12 of those experienced people knocking on your door for a job right now?

Rich: Without an incentive to sell the right product at the right price, your salespeople will take the easy way out, the path of least resistance, and that is to let the customer choose what product they purchase instead of the other way around. 

The true measure of a great salesperson is to be able to sell the customer the product the salesperson wants to sell, while leading the customer to believe it was their decision.  By adding a commission to certain products, you’ll quickly be able to identify the great salespeople from the ordinary.

Gordon: Moving to an hourly-based sales team helps you avoid the “apple pie syndrome” once you finally hire and train people. You know what I mean: When you expand your sales team, your existing veterans complain about “cutting each piece of the pie a little smaller.” Meaning more salespeople results in fewer “ups” per sales associate.

With hourly pay, adding new sales team members means less work per person and more people to pitch in on mundane tasks like tagging and store recovery, a welcome result for most sales associates.

Also, budgeting store operating costs become easier as well when your staff is paid hourly. Payroll moves from a sliding scale to a fixed amount. Store owners can more easily manage that fixed amount, which is important when it mixes with other variable expenses like advertising investment, fuel and energy costs, and continued inflation-affected expenses.

Most of all, consider the effect of hourly pay on the shopper experience. My experience as a retail sales associate and store manager has been that salespeople lay claim to each incoming guest to the point of “That’s my customer! Everyone else stay away!” The perception of the shopper is that one person is hovering over them and everyone else is ignoring them.

Hourly pay with the addition of a team performance bonus results in everyone on your sales team working together to provide good customer service. Plus, your retail store will be able to promote “No commissioned salespeople” in their customer service pledge.

Rich: Don’t get me wrong Gordon, I’m not saying compensation should be 100-percent commission based. Because straight commission compensation can create a predatory climate for your customers.  Let’s face it, no one wants to be preyed upon by a vulture-like salesperson hungry for their next commission check.  Personally, I have always been a believer in a base wage or salary, plus a commission package to go along with it.

Gordon: Sales will always be an incentive motivated occupation. Change your bonus to a sales team or perhaps an “all-player” bonus. Include performance measurements like exceeding sales budget, reducing returns, and accessory sales. Be prepared to pay out a jackpot that everyone shares in equally.

Rich: Like I said, it’s in our DNA to want to be recognized and rewarded.  If you can find fun and creative ways to pay commissions to your salespeople, you will not only make more money, but you will also have a happier and more pleasant workplace as well.

Gordon: Happier employees, easier recruiting, manageable expenses, and improved shopper experience. That’s what you get when you pay by the hour instead of by the sale.

Rich Lindblom was a longtime BrandSource member and Maytag Leadership Council officer who sold his family business after more than four decades in independent retail. His debate partner Gordon Hecht is a business growth and development consultant to the retail home furnishings industry. Write them at egvrich@gmail.com and Gordon.Hecht@aol.com.