HP loses attempt to deny colossal commission to star sales staffer HP’s Australia tentacle has lost an appeal in which it sought to deny a top salesperson a colossal commission. The case of Hewlett Packard Pty Ltd v Subasic [2021] ACTCA 3 (February 19, 2021) concerns an Australian salesperson who, three years after leaving pre-split HP, claimed she had been short-changed AU$309,750 (US$247, …
Because she probably got the sales by at loss making prices.
I suffered for years as a result of IBM sales people under pricing jobs to make quarterly revenue targets. Then have my team castigated and bonuses reduced when the project made a loss. I don’t blame the sales people as they were under constant pressure from management to sign sales at any cost.
IBMs senior management were asleep during the “turnover is vanity, profit is sanity” lecture.
Sales people should get commission, but it should be linked to the profit on a contract and paid over the length of the contract. That would hopefully stop the kind of contracts which initially look good, but basically screw over the people who actually need to deliver the contract.
Also you need to pay sales people an actual salary - so they are not incentivized to sign any crappy deal just to get a normal income. I am sure large bonus for good contracts will still drive the sales.
I quite agree - but then I wouldnt work for any company that was so stupid as to allow people to sell product at a loss. Well not for long as neither would anyone else. I did work for a company that still gave commission even when the product was returned. Turned out their managers got a cut too so turned a blind eye. It no longer trades. But if HP were allowing those sales and promising the commission without any real oversight they should realise they have to pay that commission. If manangement cant sort out simple problems like that legally then its their bloody fault.
I spent 25 years in presales - the techie working with the sales folks. I have never seen a situation where a sales rep can price a deal at low margin without approval from a long way up the management chain. Salesfolks are often targeted just on revenue but the levels above them have a margin target as well.
I have on two occasions worked with sales reps who had recently joined from HP and were sueing HP for not paying commission. It's been standard practice there for a long time.
got the sales by at loss making prices
That can be difficult due to the approvals required, a bigger problem in my experience are the sales people who throw in "freebies".
At a previous company we often saw support requests from customers who hadn't bought our product. Investigations revealed that in order to close the deal their salesperson had offered them additional software they wanted at no cost, by just including the physical media. The customers thought it was official, and got upset if we declined their support calls. Usually the support organization insisted that we fix the problems anyway, despite our department showing no revenue for the sale.
The result, of course, was that our group had trouble justifying hiring staff and getting R&D resources, despite having one of the most profitable (per sale) software products in the company. We eventually, somewhat reluctantly, introduced a locked license scheme, where the customer needed a key to activate the product. That key was only provided on proof of a valid sale.
That's when we learned that in APAC countries sales were actually shipping 6x the product that we were being paid for. Fixing that made a tidy difference to our departmental bottom line.
Sales people are often a pain in the arse, but a lot of them get screeed over by bosses.
I did a six month stint as a copier salesman in the early eighties, aside from the fact that you were pushed to get clients locked into crappy lease purchase with supplies contracts with very dodgy small print on future pricing.
There was fight over commissions constantly.
I had two huge multiple sales taken off me and handed to the 'National sales' after I had done all the work that the bosses knew about, never even got a thank you, so I went back to the client and recommended a better supplier after walking out of the job.
I also used to work for a large copier/printer organisation, who had incentives like "whoever sells most of model X376 gets a Ducati". So they would sell X376's to companies that needed something smaller, or much mor powerful. The techs would then get the blame because the printers would perform to spec, and not to what the sales droid promised.
Salespeople are largely coin operated and will find ways of maximising their income based on the incentive plans put to them - there is nothing wrong with that. Commission plans need to be designed to incentivise behaviour (and deals) which are in line with company objectives.
I have no issue with salespeople earning large commission payments. Their total pay has a significant risk element to it (often lower basic salary, but higher total earnings potential through commission, easier to fire through 'performance management' as few others have as stark a performance measurement as "% of target achieved").
Moving the goalposts after the fact is wrong, but I have seen it many times - the money 'saved' is offset by higher staff turnover and high achievers probably leaving in disgust at a time of their choosing.
In this case HP got the benefit of the deal(s). Commission should be treated as a cost of sale and paid according to plan.
Disclaimer - I do not work in Sales...
> Salespeople are largely coin operated and will find ways of maximising their income based on the incentive plans put to them - there is nothing wrong with that. Commission plans need to be designed to incentivise behaviour (and deals) which are in line with company objectives.
Exactly this.
We had an issue a little while back.
There was an option on our services that customers could take that was really expensive to manage/maintain (it never turned a profit as a result).
We got a feature out-of-the door that allowed the customer to get the same functionality in a self-service manner, whilst massively reducing our support overheads etc, and reducing the cost incurred to us to peanuts.
The challenge, though, was how to get customers off the old and onto the new come renewal time.
The business didn't want to totally withdraw option A yet, so made the decision to instead make the price very high.
We ended up with something like
Option A: $20,000/yr
Option B: $1000/yr
However, crucially, the business didn't exclude either from the sales commissions. So Sales, of course (quite predictably), started selling customers on the benefits of Option A because it significantly increased their commission payments.
Sales commission is a useful tool when wielded properly, but it has to be carefully managed to ensure it results in benefit to the company, rather than just more sales on paper.
All rules shape behaviour, often the shape that you get isn't the one that you want because its people you are shaping and people tend to be quite clever things. Spotting gaps and advantages is what caused human evolution afterall.
When you design rules you need to think carefully what shape you could end up with, it might fix one problem but cause 4 more.
I always cite the moment when F1 said "you must have a minimum of four wheels"... thinking they were banning motorbikes or three wheelers.... subsequently changed to "you must have four wheels" after a six wheel design wiped the floor with the competition. It's a basic example, but one that is a good one.
The Tyrrell P34 six-wheeler achieved 1 win and 9 other podiums in 1976 (from 13 out of the 16 races), with Tyrrell finishing the constructors' championship in 3rd place. The following year they had 4 podiums in 17 races (and ended 5th in the constructors' championship). One of the reasons for abandoning the project was the lack of development on the custom tyres which were necessary. I'm not sure that qualifies as "wiped the floor with the competition".
Are you thinking of the Brabham BT46-B "Fan-car", which used a massive fan to suck air from underneath the car and increase downforce? I thought it was banned after 1 race (where it won easily), but Wikipedia states that it was withdrawn by the team principal (one Mr. B. Ecclestone) who feared political fallout from the other team leaders would weaken his influence on the sport.
(Original AC again - too late to edit) A better example would be Brawn GP's single season in 2009. They won six of the first seven races with their double-diffuser. Once other teams had designed their own versions, results fell away, but they still won the constructors' championship. (Why am I banging on about the constructors' rather than drivers championship? It's what determines the prize money).
Brawn GP was the descendant of Tyrrell (Tyrrell became/were bought by BAT, then Honda, then Brawn, then Mercedes).
Years ago our international company introduced a bonus scheme that everyone was eligible for. The UK marketing arm got a small bonus of about 3% in line with their sales results. But the R&D division (because it reported through a different route where world-wide sales of the products were very successful and there was no cap) got something like 20% - pissing off the marketing people who worked in the same buildings enormously. How we laughed! The following year there was a cap...
This happens every day. Top sales people are often screwed by their employers as they climb higher up the sales ladder.
We only hear about the higher profile cases, but I've heard so many stories from sales people AND seen it personally in companies I've worked for. Reward on merit does not exist in America.
>Top sales people are often screwed by their employers as they climb higher up the sales ladder.
And then they quit and go and work for a competitor, with the existing client list, knowledge of the flaws and margins on the previous firms products and a deep motivation to fsck over their ex-employer
And thus capitalism triumphs...
There's always the lottery element though. A great salesperson one year may be significantly less great the next, or vice versa just through chance. The boss not seeing it as pure merit isn't unreasonable.
Now, retrospectively changing the employment contract, that is unreasonable.
It doesn't matter. Sales accept the lottery element to their compensation.
The wider team can have a bad year but one deal lands on someone's lap and they make a fortune. It's fair because it could have happened to anyone and those other sales people can hold onto the dream. Most people lose money in a casino, but you won't go back if they don't pay you when you finally have a good day.
HP paid buttons (other than substantial lawyers fees) for dragging this out 10 years for one of the few who was able to stick it out. Most give up, most who read this will give up when it happens to them. Companies understand the maths. Small losses in court are wins.
Not a new practice, I think. We got screwed out of a commission on a system sale many years ago.
HP was trying to get companies to buy the PA-RISC version of the HP 3000, and offered a 10% commission
on the total sale to any outside software vendor whose product was (a) purchased at the same time,
(b) cost $10,000 or more, and (c) the customer certified it was critical to the purchase.
So, we priced our compiler (the *ONLY* third-party compiler at the time, and still the only
one that compiles "SPL" to PA-RISC (or to C)) at $10,000. We had a software development company
purchase a 3000/930 (?) strictly for developing PA-RISC products, and they needed and bought
our compiler ... and wrote us the certification it was critical.
HP stiffed us.
(We were used to that ... got stiffed by DEC once, too, in a different manner :)
A former boss (& owner) informed us one time that it was not fair for him to pay us the same even when business was slow. His idea was that our pay would be temporarily reduced at times.
Me being the senior technician, I was always expected to speak up as a "representative" at times like this which I didn't mind doing because I didn't particularly like the guy and I'm pretty sure he felt the same.
So I said, "Seems fair, but since the issue here is fairness, I believe I speak for all of us when I say that we will look forward to when business is better than usual since that will mean our pay will be increased above normal according to the same scale it was reduced."
He looked a little shocked then angry but didn't say anything. The pay reduction plan never got implemented. A wonder I never got fired but I didn't. I eventually quit after he insisted one time that we charge customers for work not performed.
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