There are very few absolutes in sales. What works in one situation might not work in another, and structures that are all wrong for one company might be perfect for the next. That said, there is one practice that is universally crippling to every organization, regardless of industry or context: capping commissions.
Organizations cap commissions (that is, they refuse to pay salespeople more than a certain amount, regardless of exceptional performance) for a variety of reasons. Most of these boil down to the idea that if salespeople achieve higher earnings than other employees, it could cause internal conflicts. That might occur. However, capping commissions will definitely result in the following repercussions:
It's pretty obvious that a salesperson who knows that they can't receive compensation above a given number won't push too hard for deals above that range. But capping commissions actually does more damage than that. Besides dampening the urge to push for big deals, caps also establish a culture where sales teams feel constrained and unrewarded for giving their best performance. The unspoken message is that an ambitious effort won't be appreciated, so why try? It sets the expectation at the outset that your team can't achieve beyond a certain point, which makes it all the more likely that they won't.
Fewer High-Performing Sales Reps
In addition to muting the ambition of the existing sales team, capping commissions actively repels top performers from considering a career with your sales organization. Fantastic sales people will be attracted to environments where there is no ceiling to what they can achieve. Why join a company where they will be guaranteed only limited success? These people--the ones who could potentially contribute the most to your business's growth--will instead be attracted elsewhere, to positions where they can push their abilities to the limit without feeling like their efforts are going to waste.
Less Capacity to Grow as a Business
A recent study I conducted in partnership with sales expert and author Steve W. Martin found that 79 percent of sales managers with no compensation cap reported meeting or exceeding quota last year, while companies that capped commissions were less likely to hit their goals. Fewer sales means fewer customers and ultimately less revenue for the business. With less money, there's less room for growth, which makes it harder to keep talented employees happy. Uncapped sales teams have been proven to routinely perform better than commission-capped organizations.
Why Commissions Are Worth It--Even If It Means Internal Imbalance
Sales is naturally a performance-driven field. That means less job security and a consistent high-pressure environment. People who are drawn to sales are the ones who have confidence that they will perform well. Part of that means working without limits. Capping their ability to beat expectations removes a major incentive.
For sales leaders or CEOs worried about perceived unfairness, consider this: salaried employees know that their pay (even though it's more-or-less a flat sum) is tied to their performance, not what their co-workers make. While the stakes are higher with commission-based pay, the same principle applies. Workers get paid for their individual performance, rather than what the person next to them makes.
If you want a profitable business, you need to invest in a motivated, successful sales team. Capping commissions is a surefire way to ensure that never happens. To unlock limitless business success, you must avoid caps at all costs.