dynamic management
A Better Offer How sales executives can evaluate a sales-compensation plan DAVE EGLOFF
Sales executives work hard. Their rewards should make them feel motivated, appreciated, and well compensated for that work. Here are some benchmarks and suggestions that will help determine if a compensation plan will make selling a rewarding experience.
LOOK BEYOND THE TARGETED TOTAL COMPENSATION The first thing people see is the targeted total compensa- tion (TTC) and pay mix. TTC is the combination of base salary, on-target commission, bonuses, car allowance, etc. It’s a great starting point – and the tip of the iceberg, and remember, the iceberg reveals only a small part of itself without further investigation.
Pay mix is the split between base salary and variable com- pensation and is expressed as a ratio of numbers with a sum of 100 (for example, 70/30 or 50/50). Pay mix may indicate the nature of work, complexity of solutions, and proportion- ate amount of the rep’s influence and reward on sales perfor- mance. If the offer has more base pay than variable compen- sation, the role could be more consultative, highly diverse in scope, or more complex in terms of solutions. Higher base salary may indicate that there is a larger investment in the rep’s training and growth, whereas a higher commission could indicate that the role is entirely self-funded by sales performance and/or is hyperfocused on closing deals. It’s important to know your industry in this regard. If your offer deviates from the industry norm, this may be an indicator of the role and culture of the company.
6 | MAY 2015 SELLING POWER © 2015 SELLING POWER. CALL 1-800-752-7355 FOR REPRINT PERMISSION.
SALES-COMPENSATION DESIGN IS ONLY HALF THE EQUATION Regardless of how the sales compensation is designed, earning potential is heavily dependent on rates of pay, which is most often a factor of quota attainment. Even the most favorably designed plans will not yield much in commission if the quotas are set too high. It’s difficult to ask simply about quota, since it should be calibrated to a combination of territory, account base, growth potential, market share, etc. Rather than ask solely about quota size, ask about historical quota attainment: • What has been the average attainment over the last three years?
• How many people make or exceed their quota plan? • What is the average attainment of the top 10 percent of reps? In a healthy organization with reasonable quota set- ting, expect approximately 60 percent of reps to make or exceed quota. If less than 50 percent make their quota plan, this is a good indicator of organizational struggle or aggressive planning.
DO A SIDE-BY-SIDE COMPARISON This might be obvious, but don’t accept a job without fully understanding the compensation structure. Require that the organization give you a written compensation plan, and ask when that plan is likely to change. I cannot tell you how often I come across reps who accept a job without seeing the plan document first.
GAJUS /
SHUTTERSTOCK.COM
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