How Hard Could It Be?: Sins of Commissions

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He led me to a windowless back office with a handful of shabby cubicles. Instead of using a cash register and a bar-code scanner, he typed my credit card number and the information on the bar codes manually into some kind of mainframe terminal. He insisted on taking down my address information, too. The process took forever. The guy kept making mistakes and having to go back to the previous menu of options. At one point, he wandered off to get help. And when he was done, he asked me if I wanted a bag. Of course, I said. He wandered off again to find one.

This was not a normal retail experience, I thought to myself. And then it dawned on me: This wasn't a retail experience at all -- this was a corporate sales department. My guy had been hired to sell computers and peripherals to business accounts, and he likely got paid on commission, unlike the cashiers in the front of the store. He was probably supposed to cold-call corporate purchasing agents all day. When he couldn't make a living doing that, he got in the habit of going into the adjacent store, grabbing a real, live retail customer, and misrepresenting his or her purchases as a corporate sale.

Net result: The customer was annoyed by the longer checkout, CompUSA probably paid a commission it shouldn't have, and time and effort were wasted.

But wait -- the story gets better. The iPods were kept in a locked cage so that nobody could steal them. So my corporate sales rep took me with him to find his manager, who had the key. But the manager was busy mediating an argument between another sales rep and a customer, which I watched, amused. The customer wanted to return the extended warranty on a large purchase she had just made. The manager acknowledged that CompUSA's returns policy covered an extended warranty (which, as everyone knows, is almost all profit for a retailer). Still, the salesperson objected.

At first, I thought that the customer had been duped into buying a warranty she didn't want and was trying to return it, so it was unclear why the clerk was giving her such a hard time. But then I realized that the argument was over the fact that the salesperson had given the customer a discount on the merchandise, paid out of his own pocket. In exchange, the customer had agreed to buy the extended warranty, which would have resulted in a nice bonus for the clerk. Now she was returning the high-margin warranty while happily pocketing the discount. The customer had double-crossed the sales clerk!

So, this was my retail experience: Instead of buying the exciting new products I wanted, I was hurled into a mass of people scamming one another -- and all because of stupid, perverse commission systems that seemed like good ideas to the M.B.A.'s back at corporate. Well, CompUSA is gone now -- the remaining assets and the brand name were bought by a competitor -- but I'm confident plenty of retailers will continue to push extended warranties and bottles of silicone spray. Let me know how that works out.

At my company, we were worried that the same thing would happen if we paid salespeople on commission. I had a recurring nightmare of salespeople gone crazy, going to ridiculous lengths to make sales and ruining Fog Creek's hard-earned reputation as a friendly, win-win kind of company.

But we soon realized that commissions weren't the only management tool at our disposal. We simply established as a rule the idea that gaming the incentive plan was wrong and unacceptable. Employees generally follow the rules you give them -- and if they don't, you can discipline them or, in extreme cases, dismiss them. The problem with most incentive systems is not that they are too complicated -- it's that they don't explicitly forbid the kind of shenanigans that will inevitably make them unsuccessful.

Joel Spolsky is the co-founder and CEO of Fog Creek Software in New York City and the host of the blog Joel on Software.

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