Sales Compensation Blog

Liz Cobb, our CEO was on an audio conference today and the topic of capping commissions came up. One of the callers, who is in HR, had just been told by her Finance department that they needed to cap commissions. Having been in sales my immediate reaction was a "thumbs down" to the phone. But that's just it, there is NO REASON if your sales compensation plans are developed correctly and modeled correctly that you should ever cap commissions. Liz answered the question perfectly, "it's like telling a sales person to stop selling! What good does that do, especially in an economy like today's?"

I was lucky enough to never have a max on my comp plan. I admittedly was never in risk of blowing my number away, I was pretty consistently 80-110% of goal. I think one quarter I hit 120% but that was a great quarter. But of my sales friends, I knew people that would hold PO's or tell customers to wait on purchases if they weren't going to make more money on their deals. And again, what does that do for the company? NOTHING.

Caps on sales commissions don't make mathmatical sense. If you believe sales comp drives behavior, then you are not going to get any revenue you do not reward for. Any additional comp you do pay should be more than offset by the incremental revenue, if it's not than maybe you should look at reducing the commission rate, but that isn't a cap.

But I am curious: Are people hearing this a lot from finance teams?