Sales and marketing are the organic growth engines of our SBI 100 companies (ranked by their total B2B sales population). Your shareholders and your CEO depend upon you, their sales and marketing leaders, to make the number. Your performance greatly impacts company value and shareholder returns.
After decades of cost cutting in supply chains and operations, productivity growth for large enterprises has flattened out. Since the Great Recession, many Fortune 500 companies have turned to acquisitions and stock buybacks to drive growth in earnings per share. That may be an appropriate strategy to drive total shareholder return in an era of cheap capital and slow demand growth. But it’s not a sustainable strategy for creating shareholder value.
If after reading this article, you need more help, download SBI’s 10th annual workbook, How to Make Your Number in 2017. Consider requesting a workshop to meet with a compensation subject matter expert.
Investors prefer real, topline growth. Companies that consistently grow organic sales are rewarded with the highest price-to-earnings multiples and stock valuations. This makes the revenue growth number your company’s No. 1 goal. One back-of-the-envelope example (below) shows how you and your sales organization could create $2.6 billion in incremental value, or $2.63 per share.
Sales compensation is the fuel that fires top-performing organic growth engines. What makes it so effective at driving results are two principles: risk sharing and pay for performance.
Salespeople are risk takers. They place significantly greater portions of their compensation at risk in order to earn outsized returns for their success. As with any investment, greater risk yields potential for greater returns. Conversely, missing the number comes with consequences that non-sales employees do not share.
With three to four times as much compensation at risk as their corporate peers, salespeople are the second-highest earners, trailing only their legal counterparts. With upside earnings potential of two to three times their on-target variable earnings, top salespeople can easily surpass their legal counterparts and earn as much as some VPs.
These premium rewards for topline growth and a greater risk/return compensation philosophy continue up the management chains. Focusing on the executive level, our research indicates:
- Top sales executives lead by example, with the greatest percentage of at-risk cash compensation
- Top sales executives are among the highest-paid executives in these companies, trailing only the CEO and CFO.1
With greater levels of at-risk compensation tied to the topline growth they drive and the corresponding upside earnings opportunities, top sales executives’ cash compensation may exceed $1 million. In addition, top sales executives are likely to receive stock-based variable compensation in their executive pay packages.
This presents a unique earnings opportunity, as only CEOs have more potential to impact their company’s value and the value of their stock holdings.
So how do you make the most of this earnings opportunity? By beating your number. You put your earnings on the line each year, and your results are the most important metrics in the company. Your company’s value depends upon your performance. When you hit or exceed your number, you (and your highly performing sales organization) create enormous value for your shareholders.
You earn among the highest cash compensation packages plus stock rewards for your results. Your performance increases the value of your company’s stock, which in turn increases the value of your (and your peers’) net worth.
The next time you defend your sales organization’s variable earnings, use these insights to demonstrate what a good investment it really is.
Download our 10th annual workbook, How to Make Your Number in 2017. It’s the guide top sales leaders use to contribute to revenue growth in a consistent, predictable way.