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9/4/2013 - Study suggests commissions are better than bonuses

Sales appear to improve for companies when sales reps earn commission instead of bonuses.

With September here and the staff members back from their summer vacations, it can be difficult for workers to feel that same sense of motivation that they had prior to taking time off. In order to incentivize a sales force to strive to produce a superior product or service, a new report suggests that companies may want to alter their payment schemes.

According to a recent analysis published in the Journal of Marketing Research, business activity improved by 24% when sales representatives were paid by commission rather than through bonuses.

George John and Om Narasimhan, professors of economics from the University of Minnesota and the London School of Economics, respectively - the study's lead researchers - explained why commissions are a win-win for business owners and employees.

"Under commissions, if you sell more, you earn more whereas earnings are capped under bonuses," said John.

Narasimhan added that companies also make out well in the end because commissions are paid out gradually rather than all at once, compelling workers to be productive on a consistent basis.

However, before changing a company's payment scheme, it may behoove owners to review their business insurance policy. By going to commissions, workers may feel more inclined to work longer hours rather than take time off, so coverage may need to be adjusted to accommodate more people being on the clock.

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