Sales Commissions as a Moral Conflict Essay

Running Head: ETHICS OF WITHHOLDING INFORMATION

“In an environment where over 50% of income is earned by commission, is it ethical for a salesperson selling technology to be used in a manufacturing environment, to withhold information that new technology will be available in less than three months which make the equipment financially obsolete and will therefore significantly negatively impact the buyer’s ROI of the proposed purchase, so that he can make a sale and receive his commission?”

December 10, 2008 The payment of sales commissions has been a source for comedic routine and of buyer angst since the first commission was paid. The discussion of commission is important to marketing because one of marketing’s primary purposes is to help a company sell its offerings, and commissioned salespeople are a significant cog in that process. Unlike salary or hourly wages where there is no direct relationship between activity and financial impact to the company, commission directly rewards the contribution of the employee to the employing (or principal) entity.1 In theory, commission is straight-forward pay for performance. In reality, commission may prompt sales concept mentality which creates the issue of focus of this paper. In selling equipment used manufacturing, the seller often provides data on capabilities of equipment to help justify purchase, including data on cost and potential revenue available over time through the use of new equipment. Some replacement equipment renders existing equipment financially obsolete, defined as an inability to produce and sell at a profit. It is common for salespeople to have knowledge of replacement offerings before they are announced to the public, and may be identified as confidential and not for distribution. However, this awareness becomes part of the salesperson’s knowledge from which he will base ethical decisions. Borrowing a term from the financial markets, we will say this inside knowledge creates “imperfect information” between the seller and buyer. A major role of marketing is to understand the needs of prospective buyers and feed this information back to R&D so that new variations or generations of offerings can be developed. This practice reflects a market orientation on the part of the company. “Market orientation (MO) refers to the organizationwide generation, dissemination, and responsiveness to market intelligence (Kohli & Jaworksi, 1990).” A market-driven organization is one which has a “superior ability to understand, attract, and keep valuable customers (Day, 1999, p.5).” It is this information exchange to understand customer needs that creates an ethical issue for technology salespeople who become aware of upcoming products before they are announced to the public. In other words, during the sales process, did the salesperson make untrue comments about the capabilities over time of the equipment being considered? This would be a clear ethical violation. More germane to this paper, did the salesperson fail to disclose information about a soon to be available alternative—an example of imperfect information? This is a “sin by omission” where information was available that was not provided to the buyer. Roman and Ruiz (2005) state “unethical sales behavior is defined as a short-run salespersons’ conduct that enables them to gain at the expense of the customer” (p.440). Salespeople are often compensated for their success when in the same transaction the buyer ends up with a purchase that does not provide their anticipated financial return on investment (ROI). In situations where this is due to inaccurate analysis or forecasting on the part of the buyer, the buyer is responsible for the non-achieved ROI. We are looking here at the situation where the buyer does not achieve his anticipated ROI due to imperfect information. The last scenario is very possible in manufacturing environments and foreshadows the question of whether commission

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