Should Procurement Professionals Earn Commissions?

Unpacking the Complexities and Risks

Tim Jenkins recently sparked a significant conversation on LinkedIn with a provocative suggestion: If salespeople receive commissions for revenue generation, shouldn't procurement professionals also be rewarded similarly for cost savings?

While Jenkins’ query appears straightforward at first glance, the discussion it ignited among procurement experts revealed multiple layers of complexity. Is procurement truly analogous to sales, and if not, how can procurement professionals be fairly incentivized?

The Appeal of Commission-Based Incentives

Tim Jenkins' original argument is compelling in its simplicity: procurement teams generate considerable financial savings and operational efficiencies for businesses. Yet, unlike salespeople, they rarely receive proportional recognition. Several commenters enthusiastically supported Jenkins’ perspective. For instance, procurement professional Joseph Muraca humorously remarked, "I would have retired as a wealthy man years ago!"

Antoni Missima echoed this sentiment, highlighting that procurement often drives significant, long-term savings and operational improvements that substantially impact the bottom line. Mohammed Omer expanded this view by articulating specific benefits such as stronger cost-saving incentives, alignment of compensation with performance outcomes, and fostering an entrepreneurial mindset.

The fundamental appeal of commission-based rewards lies in their simplicity and directness: clear incentives yield clear results. Chris D. illustrated this vividly through his consulting firm's model, where professionals earn compensation directly tied to validated savings. His approach promotes accountability and tangible, measurable outcomes, an appealing framework for incentivization.

The Risks of Misaligned Incentives

Despite the attraction, Jenkins’ idea quickly highlighted significant risks and criticisms.

Several commenters raised concerns about incentivizing the wrong behaviors. Rudy de la Garza pointed out that procurement professionals might aggressively pursue short-term cost reductions at the expense of long-term supplier relationships and quality. Indeed, Dogan Aktas shared a cautionary tale from his previous industry, where aggressive cost-cutting damaged key supplier relationships, ultimately leading to higher overall costs.

Procurement consultant Anna McGovern argued forcefully against commissions, stating, "It can incentivize short-term cost cutting at the expense of long-term value, quality, and supplier relationships, the exact opposite of what world-class procurement aims to achieve."

Furthermore, Abdul Ahad raised concerns about bias and potential conflicts of interest. Commissions could lead procurement professionals to favor suppliers based on personal preference rather than objective assessment criteria. The ethical ramifications, therefore, can't be ignored.

Mike Wynn provided a stark example of potential corruption, recounting an experience where procurement personnel artificially inflated costs to ensure they met bonus-linked savings targets. Such practices clearly demonstrate how easily a commission-based model could be manipulated.

Defining "Savings": A Fundamental Challenge

Another central issue that repeatedly emerged was how to define and accurately measure procurement savings. Richard Scott succinctly challenged, "Define ‘savings’." Shannon Clarke elaborated, emphasizing that savings in procurement aren't merely reduced prices. They encompass improved lead times, enhanced supplier quality, process efficiencies, and reduced operational downtime—benefits not always clearly reflected in financial statements.

Marc Roth provided a nuanced solution, proposing measurement based on a combination of "value pipeline" and "value realization," which includes product innovation, cost avoidance, sustainability, and process improvements. These broader KPIs, validated by cross-functional stakeholders, could offer a more balanced approach than simple cost-saving commissions.

Ethical and Long-Term Value Considerations

Multiple experts argued passionately for a more holistic approach to incentivizing procurement. Paul Alexander warned against a purely cost-focused model, advocating instead for rewards linked to broader organizational goals, such as achieving sustainability targets like Net Zero.

Similarly, Mario Bruggmann noted procurement professionals often prioritize company interests over personal gain, suggesting procurement personnel might inherently differ from salespeople regarding monetary motivation. He recounted personally declining a lucrative bonus because it contradicted the company's long-term interests.

Jamie Levy provided further insight by noting that, in practice, bonuses based on savings often end up either discretionary or tied to factors beyond procurement's control, ultimately undermining morale rather than motivating exceptional performance.

Real-Life Case Studies: Successful and Failed Implementations

Practical experiences shared in the discussion provided valuable insights. Andrew Croston shared an example from an R&D company where a specialist was explicitly paid based on savings delivered. In this case, substantial compensation was awarded, highlighting the potential upside. However, Scott Dance offered a cautionary tale from a greenfield role where high bonuses for savings ultimately encouraged a detrimental "race to the bottom," sacrificing quality and strategic integrity for short-term financial gains.

Striking the Right Balance

The conversation inevitably circled back to striking an optimal balance. Stuart Ramsay provocatively asked if procurement professionals would accept salary reductions when costs increased, highlighting the double-edged nature of commission-based compensation.

Nick Williams suggested a straightforward solution, advocating bonuses based on a blend of savings and overall procurement outcomes. His uncomplicated approach emphasizes that incentives should reward comprehensive performance rather than singular metrics.

Pankaj Tuteja and Tim Jenkins himself both suggested broader KPIs that incorporate stakeholder engagement, innovation, supplier relationships, and sustainability alongside financial savings. This more rounded evaluation system could incentivize procurement professionals toward strategic alignment rather than tactical cost-cutting.

Reflecting on the Big Picture

Ultimately, Tim Jenkins’ provocative question underscores a deeper organizational challenge: the persistent undervaluation and lack of recognition for procurement professionals. Dorothy Brady captured this sentiment poignantly, expressing a desire for procurement to be valued as highly as sales.

Procurement's role is complex, strategic, and deeply interwoven with operational efficiency, risk management, supplier innovation, and long-term value creation. Therefore, simple commission-based incentives might not fully capture procurement's true worth. Instead, what might be needed is a robust, holistic incentive framework that reflects procurement's multifaceted contributions.

Concluding Questions

As this discussion shows, incentivizing procurement isn't just about financial compensation - it's about recognizing procurement’s strategic value within the broader organizational context.

How can businesses better quantify and reward procurement's multifaceted contributions beyond simple cost reductions? Is there a comprehensive incentive model that successfully aligns procurement’s objectives with broader organizational goals? These are critical questions procurement leaders and business executives must consider.

What do you think? Should procurement professionals receive commissions, or should incentives be structured differently to better reflect the diverse value procurement teams create? Share your thoughts below.