Do variable compensation plans damage salesperson health?

First-of-its-kind research examines variable compensation plans and their often-ignored health impact on sales professionals

There are fewer management techniques more common across the global business world than variable compensation for sale professionals. One can find these models in place in just about every industry and geography. Indeed, in the U.S. alone, variable compensation accounts for over 40% of sales income. As most people know, variable compensation is the “at risk” part of salesperson’s income. For example, if a salesperson has a target salary of $100K and a 20% variable compensation rate, $80K is paid out on a fixed schedule and the remaining $20K is paid only if certain sales targets are met.

Now, there is a reason that variable compensation is so common around the world, and it is that it works. The belief that variable pay increases sales performance is supported by both academic research and real-world experience across industries. Interestingly, researchers have for the most part avoided the question of variable compensation’s negative effects until recently. It’s an important question, though: is variable pay only good, or does it come with a cost?  

The answer may be that there is a cost, and it may be much higher than generally thought. Indeed, Johannes Habel (Houston), Sascha Alavi (Ruhr-Universität Bochum), and Kim Linsenmayer (Ruhr-Universität Bochum), recently published the results of new research that gives us an initial view the negative health consequences of variable pay systems. As a framework for the study, the authors adopted something called the Conservation of Resources (COR) model. COR theory was developed in the 1990s and argues that people possess certain resources which they continuously deplete and restore in the course of daily life. Resources come from four categories: objects (e.g., house, phone), conditions (e.g., stable employment, good health), personal traits, (e.g., optimism, hope), and energies (e.g., knowledge).