Disparity in Sales Commissions: Staggering Pay for Superstars Affects Other Performers
The gap between the top paid sales agents and the least paid keeps getting wider and wider. As the top sales reps continue to earn high, there could be dire effects on bottom performers.
Why the disparity in compensation?
According to, “The Economics of Superstars,” a 1980s article by an economist Sherwin Rosen from the University of Chicago, technological changes would create an opportunity for top performers in a given field to enjoy large economies of scale which will lead to better revenues. This theory is applicable to most fields including sales and marketing.
Take, for instance, today’s video calls that could enable sales reps to hold remote face-to-face meetings with prospective clients. The prospects could be on another continent, provided that the product on sale suits them and adds to the sales reps’ bottom line. Unfortunately, not every sales rep will take advantage of such technological developments to improve their revenue base.
In most cases, sales compensation schemes are tagged on volumes. If a salesperson covers a large geographical area, talking to more clients and closing deals, their commission will be higher than the person making less effort. Truth be told, being a sales superstar involves a lot of effort and determination, which could mean being on the road most of your time, something low performers haven’t mastered.
Managerial decisions over time have become so crucial. As the sizes of corporations increase, such decisions are measured in terms of their effects to the company’s bottom-line. Dr. Rosen goes further to explain the phenomenon in his work dubbed “Executive Pay.” Based on this framework, in 1977 top American business CEOs earned more than the average workers in same businesses by approximately 50 times. Thirty years later, the country’s top-paid business chiefs earned approximately 1,100 times the wage for their production line workers.
A study conducted in the 1970s to determine the variation in the pay of the CEOs in the top 10 largest companies and their counterparts in middle level showed that top companies paid their CEOs twice as middle businesses. Fast-forward to the early 2000s, the variation had grown to more than four times. This shows that the gap between the haves and have-nots in corporate world continues to widen.
Salespeople are key drivers of the profits of a company. Their primary role in a company is to generate profits through making sales. Businesses have to keep their top performers motivated to continue bringing in the revenue in a competitive environment. There is also high competition for sales superstars. To keep the best talent and get the most out of sales superstars, businesses have to come up with more lucrative and incentivized compensation plans that end up putting more money into the pockets of performers.
How does this affect the bottom performers?
1. Inequality quells people’s desire to do better
As this disparity pulls superstars to the lucrative opportunities of work, the low performers would just think it’s not worth the effort. After all, the outsized rewards are always in the clasp of superstars.
2. It drives people to enterprises where they would be productively hired
Look at this scenario; it is dangerous and costly for Mexicans to cross the border illegally into the United States. Nonetheless, opportunities in America are relatively lucrative and the hard-working Mexican has higher chances of prosperity here. A Mexican family in America has chances of earning 5 times the income of a household in Mexico.
If one can find pay standards close to their peers somewhere else, why not take the risk? Wage disparity is one cause of job dissatisfaction and can easily see undervalued sales reps glide through your fingertips straight into your opponent’s arms.
3. Can lead to distorted business behavior
The Mexico situation is also a good example of the fact that a reward scheme that has a high dependency on performance has some risks. It can cause sales reps to focus only on aspects that will lead them to a better outcome, and downplay other crucial behavior. In both situations, the comparative prosperity on the other side drives them to overlook the looming dangers. The worst would be if this distortion is to an acute degree, in this case, causing sales agents to find ways to close as many deals as possible without giving a keen thought to customer satisfaction or long-term results.
In conclusion, the disparity in the commission earned between various sales agents will keep getting wider and wider. Technological advancements, business competition, and increased revenue potential for companies have fueled this drift. It is also a capitalistic way of growing the economy which could, unfortunately, stifle bottom performers.