Temporary guaranteed compensation is a topic that often comes up in our work. It sometimes scares employers who are accustomed to paying sales people based on performance.
So should you include guaranteed compensation in your offer to a prospective sales hire?
The answer depends on several factors:
If a prospective candidate is selling at quota for another employer, it likely took them time to ramp up and build full selling momentum.
Switching jobs and having to rebuild that momentum will impact a candidate’s commissions and income for some time. If the person is currently earning more in commissions than when they join your company, this represents a big disincentive.
Switching jobs also means leaving a well known environment for one that is unfamiliar. This translates into risk which great sales people will want to mitigate. Furthermore, the longer they have been with one employer, or the more successful they are, the higher the risk they assume when changing jobs.
While you may be offering better long term upside and other non-financial rewards, there is nothing more enticing to a candidate than a large base salary. This type of financial commitment is a sign that an employer is ready to invest in the new hire and ensure that they are happy and productive.
What kind of guarantees should we consider?
The most common way to entice a great sales person to join your company is a draw. A draw is paid on top of base salary for a set period of time while the new hire develops their sales funnel and starts to convert sales at a full rate.
There are two types of draws:
- Recoverable Draw – the sales person is paid a guaranteed level of commissions during the post hire start-up period. Depending on what the sales person earns in commissions during this period, additional commissions are paid to the rep or the rep owes commissions to the employer.
- Non-Recoverable Draw – similar to the recoverable draw except the rep can earn additional commissions during the start-up period. Commissions, however, are never owed back to the employer. This type of draw is the most attractive to a new hire.
Draws represent an effective method for an employer to recruit top sales talent. To mitigate risk, we encourage companies to be selective about who they hire, and make sure there is a comprehensive on-boarding program in place. Choose the right person, invest in them and make it work.
To your success!
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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