Greg Guy started working at Air Force One, his family’s Ohio heating, ventilation and air conditioning (HVAC) company, when he was a teenager. By 30, he was the company’s president, and in 2009, at age 34, he succeeded his dad as CEO.
It proved to be a difficult business environment in which to take the reins. The depressed economy had business leaders nationwide wary and in survival mode. Air Force One’s revenue dropped from $15 million in 2007 to $13 million in 2009. The company’s payroll dropped from 80 to 68.
Guy proved he was up to the challenge of leading the company through hard times. He made the difficult decision to close a struggling Indianapolis office while adding field technicians and expanding the company’s building automation service. By 2013, Air Force One had rebounded nicely, along with the national economy, reaching $22 million in revenue.
Still, Guy wasn’t completely comfortable with how his sales team was functioning. The company sells HVAC systems to owners and managers of commercial and industrial buildings. It’s a complex sale that relies on teamwork between sales and non-sales personnel, and it was evident that some of his salespeople were not committed to the team concept. Team members argued about how a commission for a $545,000 sale was split. It wasn’t the first time there had been disagreements over commission splits.
An absence of collaboration
“Crisis may be too strong of a word, but we were in a situation with the sales team where they weren’t happy,” Guy recalls. “People were not sharing information freely. They were not collaborating. Conversations were not happening. In B2B sales, a number of people often participate in a sale, but their instinct to protect commissions was hurting our overall performance.”
In 2010, soon after he had become CEO, Guy read Daniel Pink’s book “Drive: The Surprising Truth About What Motivates Us,” in which Pink argues that workers are not motivated by extrinsic rewards like money, but instead by internal impulses such as autonomy, mastery of new skills and a feeling of purpose. He was convinced that paying commissions was the wrong way to motivate his salespeople, but it would take him a few more years — and a workshop with a Columbus business consultant — to put his conviction to the test.
In October 2013, Guy went commission-free for the company’s three-person sales team at the Cincinnati office — one of five offices the company has around Ohio. “The initial reaction was shock that we would try something so radical,” he says. Within a month, however, tensions had vanished and the sales team was once again “authentic,” the term Guy uses to describe the trust and collaboration required for peak performance. After a full year, the Cincinnati team had booked $2.2 million in sales — 120 percent of that year’s goal.
Between early 2014 and January of this year, Air Force One phased in the commission-free structure in each of its remaining four offices.
Last year under the new structure, the Cleveland office produced 122 percent of its sales goals, up from 99 percent in 2014.
Positive reaction and results
His salespeople still make different salaries, Guy says. Each salesperson’s compensation was determined by averaging what they earned in salary and commissions over the previous three years and rounding up to the nearest $1,000. Guy says the plan has been met with little resistance. He has held on to all but a handful of his 25-person sales team, and none of those who left said their decision was directly related to the commission-free compensation plan.
“Salespeople have a tendency to say they are high-flyers, but when you look at the data, their compensation is pretty consistent,” Guy says. The no-commission salary structure assures them of a constant income in both up and down years.”
Other companies have made the no-commission leap. According to a New York Times report, ThoughtWorks, a software company based in Chicago, placed its entire sales force of 40 reps in 12 countries on straight salary in early 2012. At the time, Craig Gorsline, President of ThoughtWorks, explained the thinking behind the decision similarly to Guy. “We started to realize that commissions were getting in the way of our company’s ability to achieve our mission and purpose,” he told the Times.
ThoughtWorks lost about 10 percent of its sales team as a direct result of the move. “They clearly didn’t like the approach,” he says. “But in the grand scheme, that was O.K. for us. We were then able to use this as a filter during recruiting. We ended up with better candidates, aligned with our overall mission.”
Gorsline says the company’s annual growth increased between 18 and 22 percent in each of the next two years.
A question of authenticity
Fog Creek Software, a New York City developer of project management tools, dropped commissions in 2011. Rich Anderson, general manager at Fog Creek Software at the time, told the Times the decision was made because executives at the company were discouraged that a commission-based pay system they had carefully created to motivate the exact actions they thought would make the company successful proved otherwise. Sales representatives focused on maximizing their own numbers rather than concentrating on the good of the company. And commissions were not enough to retain staff. Between 2008 and 2011, Fog Creek burned through its four-person sales team every year.
The company eliminated commissions and gave each of its sales reps on average a 15 percent salary increase, and put them on a company bonus plan for reaching team goals. The move was well-received. “The chief thing that the sales reps wanted was to be included with the main work
of the company,” Anderson told the Times.
If you structure a fair pay plan in place of commissions, the move will reveal your sales reps’ true personalities, Guy argues. “The tough question is, ‘Do I have an authentic team?’ I challenge anybody who has a strong commission culture on the depth and authenticity of their sales team. Are they really supporting each other? Are they really collaborating? Are they really learning from each other? Or are they more like the United Nations, just coming together because they realize they share a common interest, but not really sacrificing for each other?
“My job as a leader is to get the group to perform at higher levels of effectiveness this year than they did last year. Whatever hurdles I can take out of the way that prevent them from collaborating is going to result in them being more effective. For me, it’s about removing complexity, removing hurdles to collaboration, and trying to drive more authenticity into the team.”
