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Overpaying Sales Reps

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Company leaders and business owners are often worried about overpaying sales reps. This is  especially true for the CEO’s who didn’t ascend to their leadership position through the sales ranks and who are not overly sensitive to how sales compensation is earned. The concern is legitimate if one were to look simply at the outgoing commission cheques on some sales teams, but chopping sales compensation based on number crunching is risky business since it enhances the possibility that sales morale will be affected and sales output will be disrupted. A bigger picture view on sales investment versus return is always more prudent, but there are also several ways for employers to approach sales compensation to ensure that sales reps are paid fairly for their contributions but not overpaid.

If a company’s sales reps can afford to drive Porsches, then the company’s leaders should be ecstatic…if the sales comp plans have been set up properly

Attracting the best sales talent in the business will require that an employer offers not only great career opportunities but also market or better compensation to its sales team. However, there are several important ways to mitigate overpaying sales reps.

1. Don’t employ reps who can’t sell – The notion of sales people who can’t sell sounds silly, but there are lot of them and many companies employ them. One of the key ways to ensure the return on your sales team far outweighs the investment is to employ people who actually meet or exceed sales targets. This is not the case on many sales teams where reps that consistently under perform and are effectively paid a salary for attendance rather than performance.  Under-performing sales staff are expensive on many levels including lost opportunity, management time, damage to company reputation – they need to be replaced with sales professionals who can and will contribute to company success.

2. Tie compensation to the right results – If the sales people are earning high commissions, it should be because they delivered on their goals which in turn should be explicitly tied to overall sales, profit and company goals. Then if the sales reps are happily cashing their commission checks, the company has also enjoyed strong results and the sales compensation will have a positive ROI.

3. High rewards for high performance – Top performing sales people should receive (and will expect to receive) superior compensation for their superior results. Compensating them in-line with their expectations can often be challenging, but since profits are often not linear as revenues and sales increase, the value of an high producing sales person cannot be understated. To ensure the top sales reps are highly motivated by compensation plans that don’t create problems for the finance department, employers can leverage accelerator mechanisms whereby the sales rep earns increasingly higher commissions on incremental sales above certain thresholds.

4. Put in Place Reasonable Parameters – We are not talking mechanisms that cap commissions here – these don’t help a company become an employer of choice and attract top sales talent – we are talking about managing the risk that reps will take advantage of their compensation plan by manipulating the time timing of contracts or chasing windfall deals. These are easily managed if the compensation plans include clauses that allow the sales manager to review unusually large deals or quarterly numbers that weren’t entirely a result of the sales reps efforts and adjust the compensation to a rate that is fair for both the company and the rep – but tread carefully here – the rep will feel entitled to earn full commissions on the deals they have closed and you never want to lose a top seller.

To your success!

Connect:

Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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