Yesterday, I had a lengthy discussion with a friend, an entrepreneur, who sought my advice on handling a new hire they were considering. Given my friend's history with employee compensation, it quickly became clear that we were revisiting a familiar issue.
"Derrick," they began, "this new employee is set to earn more than anyone else because they'll be paid on commission per project. If we have no projects, they won't get paid. My business is transparent, and they’ll have to wait until the next customer comes along."
At first glance, the strategy seemed logical—compensation directly tied to performance. However, the role this employee was expected to fill was critical to the business. This is where our perspectives diverged.
Despite the additional perks of free housing and meals, I strongly advocated for providing at least a retainer. My reasoning was rooted in several key concerns:
Stability and Security: A key position demands stability. Without a retainer, the employee might feel insecure, which can impact their performance and long-term commitment to the company.
Attracting Top Talent: Talented professionals in crucial roles often seek financial security. A commission-only model might deter top candidates who value a steady income.
Motivation Beyond Money: While commissions can be motivating, they should complement, not replace, a stable income. Employees in key positions need to focus on long-term goals, not just short-term gains.
Employee Loyalty: Providing a base salary or retainer helps build trust and loyalty, ensuring the employee feels valued and supported by the company.
However, there are situations where a commission-based pay structure can be highly effective. For roles that are directly tied to sales, such as sales representatives or agents whose primary responsibility is to generate revenue, commission-based compensation can drive performance and align the employee's interests with the company's goals. In these cases, paying on commission rewards high performers and encourages a competitive, results-driven environment. It’s essential, though, to ensure that the role is designed to thrive on such incentives and that the employee has the tools and opportunities to succeed within that framework.
Our conversation is ongoing, but these points form the foundation of my argument. Paying solely on commission might seem cost-effective, but for essential roles, it's a strategy that often falls short
About the author
Dr. Jjuuko Derrick, is a pharmacist with a keen business acumen. Having dedicated much of his career to engaging with business owners and employees, he brings a unique blend of pharmaceutical expertise and business insight to the table. As an entrepreneur himself, he is passionately committed to leveraging his technical skills and entrepreneurial experience to foster the growth and development of multiple businesses. Driven by a mission to make a meaningful contribution to the business landscape, he stands ready to empower entrepreneurs with the knowledge and tools they need to thrive.
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