The Cobra in Your Commission Plan

People respond to what you actually reward, not what you wish you were rewarding.

There is an old story, possibly more legend than history, about the British colonial government in India. The city of Delhi had a cobra problem, and the government decided the way to solve it was to put a bounty on dead cobras. Bring in a cobra, get paid. Simple.

It worked at first. Then it kept working a little too well. The number of cobras coming in started to climb in ways that did not quite match the cobra population on the streets. Eventually someone figured out what was happening. Locals had started breeding cobras to collect the bounty.

The British canceled the program. The breeders, now stuck with cages full of suddenly worthless snakes, did the only economically rational thing. They released them.

Delhi ended up with more cobras than when the program started.

The story gets pulled out a lot in policy circles, and for good reason. The British were not running a cobra elimination program. They were running an incentive program, and the people responding to it were doing exactly what the incentive told them to do. The cobras were never the problem. The bounty was.

My own version, just with sales commissions

A while back I was in a role where I had taken on responsibility for our sales organization. We had an outside sales and business development team paid on straight commission, with the same rate on every dollar that came through the door. Revenue was revenue. The team was working hard. Their commissions were getting paid. From a distance, it looked like the system was functioning.

But the company was not actually going anywhere.

We had customers across multiple industries, at very different sizes, with very different profit profiles. Some were strategic. Some were transactional. Some were profitable. Some, honestly, we would have been better off without. And the sales team had no way of knowing which was which, because we had never told them. Every account paid the same commission, so every account got the same attention.

It took me longer than it should have to see what was actually happening.

The team was not unfocused. They were perfectly focused, on exactly what we were paying them to focus on, which was any dollar from any customer. We had built our own version of the cobra bounty. The behavior we were getting was rational. It was the program that was off.

What we did about it

The first thing was to actually look at our customer base. I pulled three years of data and scored every customer across five characteristics. Annual revenue volume. Recurring revenue potential. Pricing sensitivity. Industry type. Loyalty.

When you sort customers that way, patterns show up fast. Some segments were genuinely high value, the kind of customers we wanted more of. Others were heavy effort for thin margins. A few were actively pulling us in directions we did not want to go.

That gave us a four-tier system, with a clear definition of which customers belonged at the top and why. From there I built a strategic sales plan with a single mission statement: double down on our top tier, and find more like them. Focus, in the actual strategic sense, not the motivational poster sense.

Then I rebuilt the commission structure to match. Higher payouts on the tiers we wanted the team chasing. Lower on the ones we did not. The math worked out so that motivated salespeople could earn more than they had been earning before, but they could only do it by selling the right things to the right people.

The results showed up faster than I expected, because the team was not unmotivated and never had been. They just finally had a clear signal about where to spend their energy. Once we sent that signal, they responded to it exactly the way you would expect rational people to respond.

The lesson worth keeping

If your team is producing results you do not love, the first place to look is almost never the team. It is the system you have put in front of them.

People respond to what you actually pay for, what you actually promote for, what you actually recognize in a room. They do not respond to what you say you value. They respond to what your incentives tell them you value, and those two things are not always the same.

The British were not solving a cobra problem. They were running a bounty program. Their cobra population told them exactly what their bounty program was actually doing.

The outcomes you are seeing are the results your system is designed to produce.