By Veronica Barber
Over the years, I’ve posed the question to senior living organizations, “Have you considered eliminating sales commissions?” and each time I’ve received strong reactions about why this would never work. One time, a group of leaders actually laughed at me and my “unrealistic” views of how senior living organizations should run. That moment was a painful reminder of how our field sometimes lags behind other fields in transformative thinking and innovative ideas.
I began to wonder if there were any senior living providers brave enough to try and eliminate sales commissions. This would certainly take a leap of faith, and it could entail a pretty significant paradigm shift for the entire sales workforce, not to mention any other positions that benefited from sales commissions (e.g., executive directors or other department heads).
Why Eliminate Sales Commissions
Some of you might be wondering what all the fuss is about. After all, the more sales contests we offer, the greater the number of move-ins we obtain each month – right? Well, the reality is this may not be the case at all. A fair amount of research has been done regarding intrinsic vs. extrinsic motivation in adults and intrinsic motivation trumps most types of external motivation, most of the time. Essentially, the carrot and stick approach to motivation only works in certain situations (e.g., the building is on fire!).
Having a new sales challenge each month with more commission money attached to it doesn’t necessarily equate to long term sustainable performance. What often happens is short-cuts take place to achieve the new higher move-in target. Instead of spending time with the slower and more viable prospective residents, the salesperson goes after the quick wins, and brings in people who may not stay or worse the community can’t fully meet their needs, which yields frustration and dissatisfaction by employees and residents. Who wins in this scenario? Only the salesperson. The long-term organizational ramifications of this behavior often result in more commissions paid out and lowered occupancy; not to mention an unstable resident pool, because the residents often have higher needs/acuity levels and yield lower length of stays for the organization.
Companies from a variety of industries with a sales workforce have already made the shift to non-commissioned work because it improves individual, team, and organizational performance, and results in bottom line profits. However, who from the senior living industry would be willing to forego all those “shining” carrots and simply pay their sales team a base wage that incorporated the commission money they’d normally receive throughout the year. One wage, like their counterparts, and one team approach with all the same rules — to provide an extraordinary experience by deeply knowing the residents and creating an environment in which each person can thrive and live life fully.
Watermark Is Ahead of the Curve
A couple of months ago, I was pleasantly surprised to learn that Watermark Retirement Communities, a nationwide leader in senior living (headquartered in Tucson, Arizona, Watermark manages 58 communities in 21 states across the US), had taken the plunge to eradicate all commissions more than three years ago! I was so delighted to hear that a large organization in our field had finally discovered the benefits of being free of sales commissions, monthly contests, and all the tracking and payouts associated with commissions, that I had to learn more. Bill Zachau, National Sales Director, kindly took the time to share Watermark’s story with me. (Notice how Bill’s title isn’t the typical CSO title – just another artifact of a very special culture!)
The story begins with David Barnes, President of Watermark, walking into Bill’s office one day, dropping a book on his desk, and saying, “We should do something with this.” Some of us might be thinking, “Ughhhh, another idea from my boss that I need to act on and now. I have to read this book!” Well that’s not the case for Watermark. David has created a culture of experimentation, and so when he suggests something, it’s in the spirit of discovering a new idea or approach. In fact, Watermark’s company “why” incorporates constant innovation, and new ideas happen daily. David was essentially “inviting” Bill to play with a new book and discover its contents. Bill not only read the book immediately, but as of this writing, he’s read the book seven times! With each reread, Bill learns something new and is so impressed with the teachings and strategies he’s learned that he’s continuously speaking and inspiring his salesforce and other leaders at Watermark on new ways to motivate each other.
Watermark’s leaders not only happily read the book, but they brought in one of the authors, to help guide them on their journey of eliminating sales commissions. The book is Primed to Perform: How to Build the Highest Performing Cultures Through the Science of Total Motivation, written by two ex-McKinsey & Company employees, Neel Doshi and Lindsay McGregor. It teaches us how to deploy a simple motivational model to create outstanding performance results. The total motivation model (i.e., ToMo) includes six performance motives, of which three are direct and positive. These direct motives: play, purpose, and potential are the intrinsic motivators that propel people forward into taking action, and when they can focus on these things at work, their performance increases. For Watermark, this was the strategy they selected to help them eliminate sales commissions.
Notably, Watermark didn’t begin with a plan to eliminate sales commissions. Instead, this became a natural course of action as they better understood the power of intrinsic motivation. Bill wanted to help the sales team stay in the “right conversation” with prospective residents. He realized the importance of sales associates taking the time to discover all there was to learn about each potential resident. By deeply knowing each person and developing an authentic relationship, the sales associates would have more empathy and be better equipped to navigate the emotional journey often taken by residents and family members when considering such a big decision.
As a business, Watermark was very aware that every time it acquired or built a new community, less than 2% of any database they worked from had residents in the “ready to purchase today” mode. As Bill says, “Relying solely on those numbers with quick-win approaches ignores the 98% of people who reached out but have, most commonly, emotional resistance by the senior or their family.” Even though the timing wasn’t right, it didn’t mean that the sales associate shouldn’t invest time getting to know the person and family, and help them to work through their fears or concerns. Watermark realized that the high-pressured sales targets and “incentives” of the month were promoting only one type of behavior, the quick-win approach. Thus, Watermark knew it needed to change the way it was rewarding and incentivizing the salesforce in order to promote the different behaviors.
It’s Not About Sales Commissions
Watermark also realized that economic rewards were lowering performance and that they needed to reward people differently. Bill wanted to create an environment where the Job itself was the reward. The Primed to Perform book stressed the need to allow employees to play, instead of focusing on the external motivators (i.e., commissions). So, they took the plunge and began to eliminate the commissions. They did a three-year look back of typical commission earnings per year and then determined what the new “all-in” base salary would be going forward for each sales associate.
At the first community, they tried this different philosophy with, Bill informed the newly promoted sales director that they would not be paying her a commission, but instead an “all-in” salary. The response from the sales director: “Wow! You trust me.” The newly acquired entrance-fee community revenue doubled twice in the first two years (from $2 million to almost $8 million), with very little capital expenditure investments. The main ingredient, they changed the culture of the team and began coaching differently. Instead of a target to get eight more sales, they would say, “Come up with eight new ideas of how to get more face-to-face visits.” Associates were told to play with their ideas, and not worry about failing. They took the pressure of the numbers away and just focused on building an incredible customer experience.
In fact, Watermark no longer uses occupancy targets as its primary measure of success. Instead, they measure the experience each customer has with them. As Bill says, “When you focus on occupancy, the entire experience changes, and although we embrace performance metrics, we don’t manage by them. Instead, we focus on providing extraordinary service to every person and don’t worry if they move in or not. When we follow this methodology, it results in higher occupancy and rates.” Watermark now spends far more time with prospective residents who are not ready to make a move-in decision. They get to know them and develop a strong relationship in order to truly understand them and build trust. When the resident finally moves in, they have a comprehensive understanding of who he is and what’s important to him.
What They Discovered
Watermark quickly learned that the “win” wasn’t the sales commission check. Instead, it was the success of the residents. When you get to know someone, their fears, their desires, and when they are ready, help them choose a senior living community and then see how they have a breakthrough moment in their life – that’s the win. By shifting how leaders engaged with sales associates, Watermark’s sales team began engaging with prospective residents differently.
For instance, Saturday barbecues at the communities don’t happen as often, since there’s no longer the push to get prospective residents to the community. The focus is on getting to know the person in any environment that is comfortable or practical for him/her. Visits may occur at a coffee shop, or in a person’s home (e.g., surrounded by other family members, including the family dog resting happily on the salesperson’s lap). There is no set approach that sales associates follow, they simply try to make their engagements meaningful for everyone involved.
Although a few sales associates were not comfortable with a non-commissioned environment, most associates happily made the shift, which ultimately brought the team closer together. Gone were the competitive days of sales targets and monthly contests. Sales teams were now motivated to find creative and innovative ways to engage with prospective residents, with a focus on customer experience. Some communities have even started new rituals for celebrating when a resident moves in like ringing a bell to celebrate the person’s arrival at the community. Bill also instituted a company-wide practice of announcing when a new resident signs a contract to move-in; the salesperson sends out an email to all associates announcing the new person and shares a little about him/her. It’s a celebration of life focused on the new resident, as opposed to associate accolades for meeting a sales quota.
During an eight-month transition, Watermark eliminated all sales commissions. This was the easy step. The more challenging organizational shift was changing the way top leaders coached sales associates and getting the Executive Directors to understand and support the paradigm shift. With any organizational change, in order to create sustainable change, everyone needs to embrace the new way of doing things, which takes time. However, in the first two years of implementation Watermark’s company-wide occupancy increased 2 points, and they are continuing to see promising results.
For Watermark leaders, the new sales approach seems much better. It also appears that sales associates are equally committed to this shift in focus, and had this to say about the non-commissioned environment:
- “It has been such an amazing experience since we have transitioned and implemented non-commissioned sales in our community.”
- “It makes our team stronger and we view our prospects as people again and not necessarily as a number.”
- “This has led to increased sales, happier and thriving prospects as well as our sales team members.”
- “Being non-commissioned allows us to work consistently in the best interest of our prospects and not for our own personal gains or benefits.”
Bill also shared his recent success with a new community, in which he personally participated and handled many of the sales responsibilities. This community had a 25% higher market rent and was a high-end luxury product with dramatically more expensive community fees. The result of the new sales approach: Watermark significantly outperformed lease-up pro forma projections, and pre-sold 80% of units prior to the opening. As Bill would say, instead of receiving a commission or a bonus, he made a bunch of new friends, who just happened to make a purchase, and that’s the Watermark “Why”. More specifically, Watermark’s “Why” is Creating extraordinary and innovative communities where people thrive. In this case, everyone, including Bill, was able to thrive, minus the pressure, and the results were outstanding!
What About Your Organization?
Watermark is at the beginning of this commission-free culture and while it will take a few more years to fully see the benefits of making a shift like this, I firmly believe it’s a change all senior living providers should make. Even if you do it simply to eliminate the hours spent on creating new contests each month, or tracking and calculating monthly commissions, you should nevertheless do it. Think of what you could do with those freed-up labor hours. But more importantly, how can you shift your culture to one of “playing” and being free to try new things without the pressure of the numbers being the main focus. This is not to say that the numbers don’t matter, all organizations need targets and goals. But think how powerful it is when each employee is empowered to find the balance between being mindful of the numbers and the ability to experiment/play with the goal of creating exceptional customer service.
For most of our organizations, our missions are all about the experience of our customers and a commission-based sales approach doesn’t seem to fit in a culture of working together for the best possible experience of the resident. For those of you who already are living this new truth and understand that intrinsic motivation is what it’s all about, please share your stories and how you too made the shift to a commission-free culture.