Are commissions redundant?

Being paid by commission is one of the reasons some people want to work in particular industries: think real estate, sales and recruitment. But there are signs commission-based jobs are now on the way out.

Employees who are paid a commission receive a fee or percentage based on how much they sell instead of a wage based on the number of hours they work. But some businesses are moving away from paying commissions to overcome the negative perception the public has about the practice: that is, people being paid commission are only interested in making a sale, and not in developing a relationship with a customer.

Profusion Group director Cholena Orr says the financial planning industry is one that is moving away from a commission-only structure. “Within this sector, commissions are definitely on the way out,” she says. “The market is leaning more towards offering a higher base. Banks still tend to have a commission structure but their model is more reliant on compliance and other behavioural factors.”

She adds the industry is in much better shape because of the move away from commissions. “It is certainly in better shape than it was in 2005-07,” she says. “With financial planners, the focus is much more around education and there are minimum requirements for this.”

But Hayes senior regional director Peter Noblet doesn’t believe this is a trend that will take off across the board. “There is still a massive place for commission-based roles,” he says. “Companies, especially in sales, want employees to go out and find new business and they feel paying these staff on a commission basis is the best way of getting results.”

Noblet says that contrary to the past, sales people now have a greater role in building relationships with their clients. “Organisations realise repeat business is key to survival so they expect their sales people to build relationships,” he says. “It’s no longer the case that they sign on a new client and then leave them to be looked after by others. If this is the case then these sales people don’t survive long.”

He adds being paid by commission drives desire. “It also demonstrates a sharing of the company’s success and when an employee feels like part of a company, then the retention rate is higher.”

Randstrad human resources director Tiffany says there are fewer commission-based jobs around. “One of the reasons for the change is that there is now a generation coming through that has different ideas about payment,” she says. “And these ideas tend to be based on earning a salary.”

According to Quinlan, Gen Y employees like to be paid a salary and then receive a bonus on top. “We say this generation are risk-takers but they’re not really – they want to know what they will be earning plus more,” she says. “Their attitude tends to be that they come to work so should be rewarded for that.”

But does the pay structure have to be one thing or the other? Mark Novak runs a real estate business on Sydney’s north shore. He says commissions and salaries are two different beasts and as such suit two different types of personalities.

“I have both pay structures in my business,” he says. “The sales people are the ones that I pay commissions to and this is expected by them. It gives them an incentive to go out and sell.”

He says the salaried staff are the ones dealing with roles such as administration and accounts and they are more ordered. “There are two different personalities involved here and it’s rare you’d find both traits in the same person,” Novak says. “We often hear our salaried staff saying to the sales team, ‘I don’t know how you come to work not knowing what you’re going to earn.’ And the sales people answer, ‘I don’t know how you come to work knowing what you’re going to earn.’”

He says you need the two different types of pay structures in his business. “For sales people, the sky’s the limit when it comes to how much they are can earn,” he says. “And this is what gets them up in the morning.”

Many companies still believe it’s difficult to make someone put in that extra mile when the commission is removed.

“Fear is a big driver of success in this industry,” Novak says. “If you are offering people high wages and no commission then it is too easy to get comfortable about not needing to deliver.”

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