Over the past 12 years, our team at Sales Talent Agency has been asked a lot of questions on the topic of sales compensation. Below is an amended transcript of a presentation given by Sonya Meloff on the top 5 most popular questions presented by MaRS Discovery District at the Mastering Talent: Startup Compensation event. For the full article, click here.
Do sales people care only about money?
Of course, salespeople do care about money, however, their needs are far greater. The true hierarchy of needs for a sales person includes much more. Specifically, they need: a clear value proposition, proof that their company has been able to help others, engaged support, realistic targets, a simple compensation plan, and a ‘big picture’ vision. Salespeople view themselves as expert problem solvers, and ultimately, they must believe in their own company’s unique ability to solve a critical problem. Being able to identify and close a sale with a customer is an incredibly valuable and rare skill to do successfully, and as result, salespeople care deeply that they are being compensated appropriately.
What is the right balance of base and commission to pay?
95% of salespeople that we meet have a combination of salary and commissions or bonuses. There are 3 levers that you can use when structuring a compensation plan – salary, performance-based variable and equity. There are pros and cons of every possible structure, however the best compensation plans are a thoughtful balance tied directly to what the sales person is responsible for. This is why having clearly defined role expectations is critically important as it must align with the overall business objectives. Additionally, the timing of when and how to pay commissions is also a balancing act. The best plans pay salespeople their commissions the pay period after the company has successfully collected payment from the customer. This keeps salespeople happy and engaged.
Am I paying enough?
You will know that you are paying enough if you are able to attract and keep good people. Period. Remember that the best salespeople are paid above the industry average because they deserve it, so don’t make the mistake of benchmarking your compensation on what the average is making. It is also important to keep an open-line of conversation with your sales team. If you have a real star in your midst, be prepared to have that discussion around salary resizing. At any given moment, salespeople typically feel that their base salaries should increase between 11-36%. Since we published The Definitive Sales Salary Guide – salaries in some categories have jumped 20%+. The market salary for sales positions is rapidly changing, don’t ignore it.
Should commissions be capped?
If you are going to incentivize people through a commission-based structure, you shouldn’t cap it. One of the most important compensation factors for salespeople is that their income should be uncapped to allow them to truly earn as much as their skill and drive allows and reflect the value they bring to the organization. The understanding of an ‘at risk plan’ is that employees are willing to accept a lower base salary in return for the potential to earn upside potential for overachievement. While it’s prudent to use caps for no-risk compensation plans, you should never use them for sales plans.
What are the best SPIFFs?
A SPIFF is the practice of paying a small, immediate bonus for achieving a goal and act as a great way to motivate salespeople to maximize revenue for your business. SPIFFs are used as a quick ignite or power boost to complement a long-term sales strategy. Any SPIFF program should be built to have immediacy and little administrative burden. If they take too long to achieve, they can be forgotten. SPIFFs should be well thought-out and you should have a good understanding of your expected ROI before launching it. Keep them short, infrequent and the cost should not exceed more than 5% of your incentive budget. In addition to SPIFFs, you may want to consider implementing accelerators, or overachievement commissions. This compensation variable kicks in after quotas are met. Once your employee has surpassed their quota, they then become eligible to earn an increased commission rate for any additional revenue generated.
I hope that this article has provided you with insight on how to motivate and retain top performing salespeople to your organization. According to experts, a better sales compensation plan is the secret sauce to boosting sales. If you can attract a top performing sales rep to your team, it’s the best asset of a company and you’ll be a rockstar all day long.
If you have other compensation questions, contact us today!