Employers, to compensate the employees, sometimes chose the system of commission over the system of salary. There are a few but huge drawbacks in commission-based system that was noticed especially in real estate business, banking, car business and other alike.
In the commission based system, the employee develops the idea that their employer is not dedicated to them. This thought originates because commission based system reward workers deal-wise. If the deal isn’t locked there, then the employee won’t get paid for all the efforts made by him to crack the deal. The commission based business is beneficial only when a deal is locked. And, when the employees are not paid well for their whole efforts, this questions the employer’s dedication towards them. Employers always look for the executives who can convert for them. If the current executive fails to do so, the employer looks for another one for better profit.
Short Term Thinking Approach
In the commission based business, the executive and representatives are remunerated and gauged for the recent deals they have locked. The recently locked deals work as an inspiration, but it also encourages short term thinking approach as it makes the executives work only for the deal closing and they go for simple and less competitive deals just to increase deals count. For instance, as author Thomas N. Ingram, et al. writes in his book “Sales Management — Analysis and Decision Making,” that a sales executive won’t go for hard deals. He goes for short, easy, and simple deals.
Executives working under a commission-based business are profit focused. They risk the security of the monthly fixed income for the more profitable earning. As Andris A. Zoltners, et al., writes in his book, “The Complete Guide to Sales Force Incentive Compensation: How to Design and Implement Plans That Work,” working on a profit based payment method, a sales executive keeps the customers he gained under his shed and he looks for the right time to escape the company and take the customers along with him for future dealings.
Worker Retention Issues
Since there is no fixed salary the executives get each month. It becomes difficult sometimes to meet the financial requirements, bill payments, installments, fees, etc. Hence, to avoid such situations, some executives might change their mind and shift to fixed salary scheme so they can meet their monthly financial requirements easily. And, when they make such decision, an employer has to bring someone else in to complete the team.
Commission based executives are left on their own to get the clients, approach them and lock the deals. Their self-serving practices develop a noncooperative behavior in them, vital managerial skills, and recordkeeping, and other skills that the salary executives who work in an office environment possess.
Real Estate Industry Representatives support the commission based system.