Recently, I’ve heard a lot of concerns about ensuring on target earnings (OTE) are in line with industry peers. Paying a competitive mix of base salary and variable is critical to attracting top sales talent. The problem is many companies don’t go beyond assessing total earnings. Purchasing compensation data from Radford, PayScale or Salary.com is the first step in determining if your pay levels are comparable with world class, but it doesn’t tell you how to pay your sales reps. If the base-variable mix isn’t right, your best people will leave and your worst people will stay forever.

 

The downstream effect of paying the wrong mix of base and variable is threefold:

 

  1. Can’t attract ‘A’ players
  2. Can’t keep ‘B’ players
  3. Can’t shake ‘C’ players

 

‘A’ Players

The Problem: The best sales reps want the best compensation plans. If your sales compensation model doesn’t allow your top performers to make a killing for world class performance, ‘A’ players won’t be interested.

The Fix: Make sure the leveraged component of your compensation model rewards your ‘A’ players. Your top performers should make 3X to 4X your bottom performers.

 

‘B’ Players

The Problem: ‘B’ players are your developmental bench to become future stars. If your plan doesn’t allow them to earn a living while climbing their way to the top, they will grow impatient and leave.

The Fix: Test your current sales compensation model to determine the excitement level of the plan (see chart). At what point does the leveraged component begin paying for performance in a way that will create excitement for your ‘B’ players.

 

Sales Compensation Model resized 600

 

The example shown here illustrates an issue your compensation model may have in driving excitement as your reps near 100% of their goal. If I continue to improve my performance, yet the upside is relatively small, I’m not motivated to keep pushing for the next level of success.

 

‘C’ Players

The Problem: If your sales compensation model has a healthy base salary, you might think this is the key to attracting ‘A’ players to your organization. Wrong. ‘A’ players want an attractive OTE and are willing to put more at risk for a bigger upside. Big base salaries attract ‘C’ players who live off their paychecks and don’t sell for your organization.

The Fix: Review your sales compensation model to determine if your OTE is at the 60th percentile of your industry peer group. From there, determine if the base-variable mix is in line. Fund the 3X compensation for the ‘A’ players by starving your ‘Cs.’ The ‘Cs’ will leave and go work for your competitors.

 

Want to stop paying your ‘C’ players for poor results? Contact SBI to help your company review your sales compensation models before the start of fiscal 2012 to ensure your base-variable mix is world class.

 

Comments are welcome below and make sure to register for Thursday’s webinar on resource planning, “What should next year’s organization chart look like.”  You don’t want to miss this one if you want your 2012 revenue to grow.

 

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ABOUT THE AUTHOR

Ryan Tognazzini

Works closely with B2B companies to solve strategic business problems so that they will make their number.
Learn more about Ryan Tognazzini >

Ryan joined SBI in 2010 as a Senior Consultant. Since then, he has worked extensively with emerging growth technology companies, including SaaS, enterprise software, systems integrators and OEMs. Additionally, Ryan works alongside numerous private equity investors, performing both sales and marketing due diligence and organic growth initiatives inside their portfolio companies.

 

Among a long list of accomplishments, he developed and implemented a sales and marketing strategy that resulted in the turnaround of a $1B IT integration clients. He executed organic growth initiatives to help a $100M software company achieve 40%+ year-over-year growth in preparation for an IPO. And he worked with a $1B enterprise software client to transform their sales and marketing go-to-market strategy for their cloud and SaaS offerings. Not surprisingly, in 2014 he was voted SBI Employee of the Year by his peers.

 

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