Comment by tptacek | Hacker News Reader

Comment by tptacek | Hacker News Reader

I have trouble with a comparison between incentive comp schemes for programmers and sales commissions. One of the biggest problems with programmer incentive comp is the need to align it with business goals --- which is why you'd have to be an idiot to pay per-line-of-code. Programmer comp is several layers of indirection away from company income.

The same is not true of sales comp. Salespeople earn commissions on money they are bringing into the company. It's much easier to measure and while it's not easy to perfectly align incentives (which is why sales teams have spiffs and regions), it's at least possible.

Remember also that the alternative to "no sales commissions" probably isn't "lower paid account managers"; it's "account managers paid nearly as high, but on a salary basis". The best sales account managers can virtually print money; the median sales account manager can't sell bottled water in the Sahara Desert. Most companies that do direct sales need to attract talented sales teams.

But even with a perfect sales team, most products have sales cycles stretching weeks-to-many-months. Which means it can take a quarter or two to see how a sales account manager is going to work out. If you're paying them fixed comp, that's an awfully expensive experiment to run.

I have no idea how well this works with "inside" sales teams ("dialing for dollars" operations); maybe fixed comp makes more sense there.

Having lived through a company with long sales cycles (3-6 months +), they needed to pay sales people for the first 6 months, driving them down to full commission/zero pay after a year. So the experimentation was needed whether they were being hired on salary, or moving toward commission.

This is probably completely different for lower ticket items that have shorter sales cycles (like bug tracking software). But it also speaks to the risk they took, given that they weren't wasting money experimenting on the sales staff. (their effectiveness was quickly apparent).

That's what happens when a company introduces its first successful product, but it isn't the steady state for a sales team, which will bring new account managers on for a long time after the product they're selling proves itself out.

An account manager hired into a 2-year-old sales team that has been making its quarterly numbers isn't going to be eased into commission comp.

Sales only directly links to the bottom line in the vary short term. If SAM up sells a customer on something they regret buying then the company can easily lose out on 20x sales for that short term bump. More importantly if Sally answers a phone call from SAM's client who want's some info but is not buying anything that day then it's hard to structure things she is interested in providing info vs trying to promote an instant sale.

These are real concerns but they just aren't the common case in sales. In the common case, selling someone $50,000 of licenses is a $50,000 win for the company.

Moreover, most sales account managers are intrinsically motivated to set things up for the 20x sale, because they're likely to own the account when the 20x home run comes in.

Most sales teams have spiffs set up to account for the "real estate agent" problem where short-term deal flow trumps revenue maximization.

I agree that managing a direct sales team is a hard problem, but in terms of designing an incentive comp plan, it's hard to argue that it isn't easier than doing incentive comp for developers.

In the common case, selling someone $50,000 of licenses is a $50,000 win for the company.

That actually sounds like a very uncommon case. Even fully client-side software has variable costs in the form of support costs.

Support costs aren't relevant to your parent's example, but they do imply another misalignment of incentives. If a salesperson's commission is based on revenue alone, she'll just as soon sell to a costly, high-maintenance customer as to a profitable, low-maintenance one.

This is also a wrinkle that comes up managing sales organizations, which is why sales account managers often get different comp rates for different products.

Again, just two issues I have here:

(1) Dev incentive comp and sales incentive comp aren't particularly comparable.

(2) Huge compensation for the best sales managers is an economic reality, not a philosophical issue, and if you're not going to compensate variably, you're shifting a lot of risk from the sales manager back onto the company.

How did they transition from a base + commission package to a base only ? Does the salesguy that use to get a higher than average commission now gets a higher than average base ?

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