Beware of the Sales Compensation Surveys

Mandatory Criteria in Sales HiringFrom time to time you will be in a salary negotiation with a sales candidate when they pull out a salary survey as evidence they are worth the compensation they are asking for. So how much weight do you place on salary surveys?

The answer depends on a few factors:

  • Was the survey conducted in the same geography as your open position? National level surveys are virtually useless as cost of living and subsequently pay rates can vary drastically amongst various cities.
  • When the survey performed? During a recent salary negotiation, a sales candidate referenced a survey completed in 1997. What the candidate failed to acknowledge was that in 1997 college grads were receiving Porsche’s for signing bonuses and companies with no revenues were being sold for 8 or 9 figures. The fact of the matter is that these benchmarks don’t apply to today.
  • Does the survey show relevant detail? Often salary surveys talk about “junior” and “senior” sales professionals, but fail to reference the quota associated with the roles which ultimately dictates what a sales person might expect to be paid.
  • Does the survey reference salaries by sector? It goes without saying that some sectors pay better than others due to margins. The going rate for your market sector may be higher or lower than what shows up in a cross sector salary survey.
  • Does the survey consider supply and demand? If you have an excess of qualified talent interested in your open position, this gives you the upper hand in negotiations, otherwise you may have to pay a premium to get the person you want regardless of what a salary survey says.

Custom salary surveys can be a useful and inexpensive way to find out what the market is paying sales professionals who might be eligible for your open positions. If you are interested in references to reputable consultants who perform salary surveys, drop us a line and we will get you connected.

To your success!

Eliot.

More on Addressing Sales Compensation Challenges: The Markets are Dropping. Is Sales Compensation Dropping as Well?Commission Plans that Backfire

Outcomes by Design – Hunter vs. Farmer Sales Compensation Plans

The hunter vs. farmer categorization for sales roles is a crude way to segment the sales function, but it is often a useful distinction, particularly when it comes to comp plan strategy.

While new business development roles and existing account management roles both share the goal of generating sales, the roles are fundamentally different and such should is the strategy behind compensation (see Improve your Hiring Record by Learning to Spot Real Hunters and Farmers).

The Profiles

Just as the roles are different, so too are the characteristics of the different individuals that usually excel at hunter and farmer roles. Hunters enjoy the the novelty of pursuing new accounts and the excitement of the chase, and while they are likely to be impervious to rejection and it may be this trait that tends to make them a bit more mercenary than professionals in other sales roles. With a more risk oriented personality and appetite for excitement they also tend to like larger more leveraged comp plans and is fairly common to see a total packages which pays 50% or more in in commissions when target sales are achieved. At a high level, the account manager works at a different pace, is more nurturing and relationship oriented and drives customer loyalty. They typically have a longer attention span, are less money motivated and more security oriented. They will often trade-off total compensation for a higher base and 60/40 or 70/30 plans are more typical for account manager roles.

Outcomes by Design

What specific outcomes you want depend on your sales strategy and goals. To this end, the compensation plan is a very powerful tool for driving the behavior of your sales team. While everyone enjoys commission cheques, sales rewards and spiffs, the rewards need to be tied to the actions you want to see in your team. For instance, comp’ing your business development team on trailing business and business from existing accounts will diminish their focus on acquiring new accounts. If the strategy is to enter new markets, the commissions will need to be sufficiently high to justify the additional effort required to break new ground – otherwise reps will stick to what they know will put commission in their pockets. By the same token, if you want your account managers to truly service existing accounts, look for ways to compensate them not only for sales, but account growth. The variable compensation options are endless, but must all be tied to the sales plan.

The Total Compensation

Opening new accounts or sectors is tough work. It is not the kind of work that everyone enjoys or is even suited to performing well. For this simple reason, there are fewer great hunters than farmers and the laws of supply and demand dictate that hunters get paid more across the sales profession. Keep this in mind if you are trying to attract reps from other companies.

To your success!

Sales Contracts – Critical Elements


More on Sales Compensation Design: More Comp Plan Advice from Engage SellingQuestion on 100% Commission Plans

Question on 100% Commission Plans

We recently responded to the following question on Linkedin:

Sure seems like nobody wants to work for commission only anymore.. selling software … Anybody know why? Its a job.

Great question and I agree with the other posters here – this is a rough economy and people know that in many companies, the sales aren’t going to come easy or often.

That said, there are many sectors where 100% commission is the tradition and in this economy many employers feel they have leverage in offering full commission positions.

It looks good on paper and you can certainly find people to work for 100% commission, but there are some caveats, especially if it is not the norm in your sector to pay 100% commission:

- offering a salary, even a below market salary, implies a company has some degree of staying power
- offering a salary helps share the investment required for a new hire to learn about your business (a salary is and should be below the target income that a rep wants to make to create incentive, so the new hire is not making what they want while they learn your business – they are investing as much as the company)
- offering a salary demonstrates commitment to the new hire
- candidates who have options will place a lower value on a company offering no base salary – it is an emotional reaction, not always logical
- Anyone who can get a position with salary will likely go for it, so even if you hire someone on full commission, they may end up taking the position because they need a job, but continue to search for a better position
- you will not be able to hire the top performers in the industry or the best qualified unless all of your competitors pay no base salary and you are hiring from within the industry (…and building a team of B or C players and other company’s castoffs, is absolute suicide for the sales leader/owner – messed up leads, pissed off customers, higher turnover, wasted management and training time..and on)

If paying 100% commission is not the norm in your industry, you can still find great people who will work for 100% commission – there is a certain type who are convinced they can sell your product, will be attracted to a highly leveraged comp and will take the risk – it just may take you a very very long time to find that special person and in the meantime, you are passing up good profitable sales that would otherwise have been won by your company.

Sometimes paying a small base salary can make a world of difference in terms of finding a productive sales professional in a decent timeframe…and then you can focus on building your sales instead of hiring.

Good luck,

Eliot.

More on Sales Compensation Design: Salespeople Want Commissions, not ‘Community’Sales Comp Plans 101 – 5 Basic Things to Know

Sales Compensation Plans that Lead to Results

Now that Q2 is over, and you are focused on the new quarter, you might be expecting more results from your sales effort. Assuming you have right people on your team, you may be looking at ways you can get each of your reps to sell more.

The comp plan is one of your best tools to engineer better results. To make sure our clients get the best results from their comp plans, we provide the following advice.

1. Connect the Comp Plan to the Sales Plan – You want new accounts? Sales of a new product? Make the team’s activity roll up to your plan.

2. Compensate Activities and Results – Activities precede results, so incent the right behaviors as well as the revenues to increase the odds of success.

3. Pay Regularly – Let the reps taste the payouts often to reinforce the value of the effort; pay infrequently and they will forget the importance of the plan.

4. Keep it Simple – if the reps can’t remember the plan or there are too many conditions, it won’t achieve the desired impact.

5. Within the Rep’s Control – If the rep cannot directly control the outcome that leads to compensation, they are likely to get frustrated or ignore the incentive.

6. Don’t Overpay – Set a minimum threshold for incentives to kick in so you don’t reward terrible results (not uncommon to see the bar set at 75% or more of plan).

How many of these are you doing? If your comp plan meets 5 or 6 of the criteria above, you are likely enjoying good control over your sales team’s behavior. We wrote a post on how to include these elements in your sales contracts here. If you haven’t integrated 5 or 6 of these into your compensation plan, it probably feels like you are herding cats.

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