Microchip Technologies Eliminates
Sales Commissions Mitch Little started to question the conventional wisdom on sales commissions in the late 1990s, shortly after he became vice president for worldwide sales and applications at Microchip Technologies, a large semiconductor company based near Phoenix, Arizona. He managed 400 salespeople whose compensation was based on the industry standard- 60 percent base salary, 40 percent commissions. In what might be considered an act of sacrilege for the former salesman, Little discontinued commissions altogether! Under his new plan, salespeople received 90 percent of their compensation in a high base salary and the other 10 percent was linked to corporate (rather than individual) measures such as Microchip's total revenues, profits, and earnings per share. The result? Total sales soared-and the cost of sales remained the same. Attrition dropped and retention rose. Today Microchip is a $6.5 billion public company, and its revenues have jumped 46 percent over the past two years. It still maintains its commission- free 90/10 system-not only for the salesforce but also for virtually everyone who isn't an hourly worker, including the CEO and Little. Its alternative compensation scheme is one reason why Microchip has long been one of the top-performing firms in the semiconductor industry, ringing up 86 consecutive quarters of profits.
Discussion Questions
1. Why do you think this compensation system worked so well at Microchip Technologies?
2. Would such a compensation package work in all industries? Why? Why not?