May 212009

Treating Employees Like Rats

Rats can be trained to do amazing things. By providing food rewards and/or mild electric shocks scientists have conditioned rats to use a litter box, recognize different languages, and even sniff out Tuberculosis.

Have companies trained their employees to behave like rats? When I think of commissioned sales I can't help thinking about those rats. "Be nice to the next person who calls and I'll give you a treat!" What ever happened to the notion of: "Do a good job for the company's your JOB..., because you take pride in your work..., because you're not a rat"?

The cynic will say: "Behavior modification works."

Sure it works. But with humans the rewards and punishment don't have to be immediate. Paying fair salaries, praising good work, and respecting the opinions of the people you work with goes a long way. Promoting and giving raises to people who've earned them, and dismissing those who don't meet expectations establishes a much stronger, forward looking culture. There are tangible benefits to this type of system as well:

  1. It doesn't generate fights over who gets the credit. It may be annoying when a co-worker claims credit for one of your good ideas, but not nearly so much as if it takes money out of your next paycheck. Well run companies know who their stars are and aren't fooled by the pretenders.
  2. It doesn't provide incentive to cheat the system. Every company with a commissioned sales force can give a long list of frauds employees have perpetrated to make a buck.
  3. It doesn't require the company to create elaborate mechanisms to prevent 1 & 2.
  4. It keeps folks focused on what's best for the company. For example, consider the hostility with which commissioned sales folks greeted websites and in-store kiosks.
  5. It recognizes that there is such a thing as a bad sale: whether it's signing a client who has unrealistic goals, or selling too much computer to a senior citizen who just wants email. The short term benefits are vastly outweighed by the long term consequences to your brand.
  6. Like MBO goals in general: what's right for the company isn't always factored into the goals and usually can't be. The "right" thing isn't always cut and dry, and often changes depending on the circumstances. How many times have you seen companies role out unprofitable promotions at the end of a fiscal quarter just to hit some bogus top line goal? Stupid, but very common.

I will probably be accused of being "old school". Guilty. Undoubtedly, someone will point to case studies showing MBO goals leading to tremendous performance improvements. I don't find that compelling logic. If a company hires poorly and/or manages poorly perhaps retraining staff with immediate carrots and sticks will raise performance levels, but that doesn't mean it's the right way to manage.

By hiring people who take pride in their work -- encouraging them to do what's right for the company, compensating them for consistently performing well, and firing those who perform poorly -- quality people will rise to the challenge.

Clearly, this won't work in every business. Paying fruit pickers by the peck makes sense, as migrant workers can't develop long-term loyalties, and the goals really are pretty easily defined. But I don't think it makes sense to treat professionals like migrant workers.

Indeed it strikes me that much of the commissioned sales/MBO garbage simply serves to "eliminate the need" for prudent management. If employee compensation is based strictly on meeting objectives then management doesn't need to think about hiring, and doesn't need to provide expensive training or supervision. Hire bunches, let them cannibalize each other; the strong survive, the weak quit and the management doesn't need to go through that icky business of firing people.

Maybe this works financially in the short term, but what happens to a company's brand in all that mess? Maybe no one cares anymore? When the goal is simply to inflate a top line and sell the company for a quick profit, maybe reputation doesn't matter.

I prefer to work for a company built to last for generations, and I think customers and clients can tell the difference, too.


11 Responses to "Treating Employees Like Rats"
Bryan Simonson says:
Everything in this post is SPOT ON! Of course, you forgot about the part where weaker/honest salespeople lose commissions to their fraudulent counterparts, and then ask for a salary to go along with their commission. You want to help the honest guys, so you give in. But now EVERYBODY is making more money, regardless of their sales performance or level of integrity... ...effectively defeating the purpose of the entire system. How do you like that? I'm pretty young to be old school already. :-P
Along similar lines, the Boston Globe had an interesting long article in March on this: Ready, aim ... fail: Why setting goals can backfire The argument is not that goal setting doesn't work - it does, just not always in the way we intend. "It can focus attention too much, or on the wrong things; it can lead to crazy behaviors to get people to achieve them," says Adam Galinsky, a professor at Northwestern University's Kellogg School of Management, and coauthor of "Goals Gone Wild," a paper in the current issue of a leading management journal. Hattip: Matt at 37s
Marc Adelman says:
I'm curious to know what inspired this conversation. The question posed regarding which compensation model really works, leads to an even deeper question; "What are the defining values of your company?" You closed with, "I prefer to work for a company built to last for generations, and I think customers and clients can tell the difference, too." This instantly brought to mind the books written by Jim Collins, "Built to Last" & "Good to Great". "Good to Great" is a must read for anyone with the entrepreneurial bug in them. I will now cut and paste a few concepts from this book that I think can further illustrate you point. Here are some building blocks to creating a successful company that is built to last: 1. The Hedgehog Concept: The founding principles and strategies of your company being balanced and dedicated to the following 3 things. a. Do what you can be the best in the world at. Don't aim to be the next McDonalds, find your niche - what you can truly be the best in the world at (gourmet kosher slider joint) and dedicate 100% of your business to that goal. b. What drives your economic engine: Have clear insight into the single economic denominator (profit per x) that has the greatest impact on your economics. c. What you are deeply passionate about: Focus on activities that ignite the passion of your company. 2. Get the right people, in the right bus, sitting in the right seat. 3. Build a culture full of self disciplined people who take disciplined action. If you have self motivated, self disciplined employees, sitting in the right seats all dedicated to the big picture of the Hedgehog concept (core business principles), then compensation model almost becomes an afterthought. Anyone can make a quick buck, but is that really success? Is that a career or a good year? I completely agree, that I would rather be part of a company that is built to last, then a company just focused on the mad rush for more money. Everyone wants more money, but that is not a business model. Rewarding employees with the MBO model works quarter to quarter, but not year to year. It attracts people who want more money at any cost rather then people who want personal success and the need to positively contribute to the big picture.
Bryan and Marc, thanks for your comments (you too, Alan!). I'm a big fan of Jim Collins, have read his books and heard him speak. Getting the right people on the bus is the key to success, not just in growing the business, but in creating the kind of environment in which people want to work. In the last month I've heard three different people say something to the effect that the only way to get sales people to sell is to pay them commissions, and the higher the commission the harder they'll work for you. Hearing it made me want to scream, but I blogged instead. Thank GOD we don't hire people who think that way!
Marc Adelman says:
Thanks for sharing the spur in your side that inspired this!
Marta Turek says:
My father always said that I am too honest and ethical for the business world. Maybe if more bosses / management folk thought along the lines of this post, I'd fit right in :)
Marc Adelman says:
A follow up thought - I have a few friends in the corporate sales world. They share a similarity that I think extends past them individually, to more broadly defining the corporate sales world as a whole. They both have been monetarily successful but have worked for 3 companies in a 6 year period. Since the value of a salesperson is sustained in this vacuum of endless bloated potential, the Salesperson always feels that they can make more money. Regardless of what they are selling and how they are selling, they believe in almost a mythological sense, that they are always just scratching the surface of the money the feel they can make. Why is this so??? Because of BMO. High commission structures and the superstars at the top that make everyone else believe that they can all make the same kind of money, if they where to only have a better commission structure. I often wonder why a company can't value a salesperson like other employees of the company. Hopefully every employee adds some kind of intrinsic value unique to his/or her position. If he or she performs well within that position, then he or she should be paid appropriately for the value they are providing to the company. If they are not performing well and contributing value to the company they should be let go. Other non sales employees are evaluated more on this scale then a reward for top line dollars made for the company. Ok - here is the longest run on sentance I might ever write: I think if a sales person received a salary and bonus structure that reflected the employer's valuation of the sales persons contributions to the company; one that might hit the low end of the average $ amount of a salary + commission structure for that position, minus the intense peaks and valleys of the salary + commission structure, then salespeople might buy into the big picture of the company more then they are buying into the exaggerated potential of possible earnings. The Salesperson might be more willing to grow a career rather then endlessly chasing a potential "better...more $$$" opportunity. It might also allow the salesperson to truly shift from a deal maker to relationship creator and sustainer. From the false jargon of winning friends and influencing people to helping solve client pain. For some reason this conversation stuck in my mind this weekend, so I had to share.
Thanks for your kind words Marta. There are certainly many different paths to financial success in business. The one we chose is probably not the most lucrative and not the quickest path, but we think it is the surest: Provide a valuable service for a fair price. It's hard to go too far wrong if you follow that simple recipe. George
Marc, I agree. There is another insidious effect of commissioned sales, in that all credit is given to the salesperson when much of the credit belongs to the people in fulfillment and customer service. Our Director of Marketing is quick to point out that most of our sales come from word-of-mouth referrals. When companies call us out-of-the-blue and say "We heard you guys are great, we want to work with you" why on Earth would the salesperson get a commission? Seems more like our client service folks should get the commission, but then that ignores our IT team who build the tools our CS folks use to do great work... Bottom line, it's a team effort and individual rewards can be damaging to the team spirit.
Ryan Pryor says:
I like your style sir. Part of why I'm freelance these days is a number of bad corporate experiences like the nightmares you describe. no, thank you...


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