3 years ago
January 6, 2015

The Fundamentals of Sales Compensation Design – How Much Should You Pay?

SalesForce Search outlines the basic principles and design considerations for developing your sales compensation plan.

Rhys Metler

In this series of articles, SalesForce Search will outline the basic principles and design considerations for developing your sales compensation plan. 

 

Determing the level of pay for your sales team

A critical element when developing your sales compensation plan is determining ‘how much’ to pay your sales reps, managers and executives. When determining the appropriate level of pay, there are three key factors to consider:

  • Your organization’s pay philosophy. Does your company strive to be a pay leader or follower? Some companies aim to pay their sales team above market compensation in hopes of attracting and retaining the top sales talent available. Others look to pay base salaries at the 50th percentile (the market median), with high upside potential. And, surprisingly, many companies do not give this any thought at all and design their sales compensation plan without first defining what their pay philosophy is. However, it’s very important that your company’s leaders define the pay strategy prior to developing your sales compensation program.
     
  •        External market comparisons. When you define how you want to pay your sales team relative to other companies, you need to look at the market data. Several consulting firms publish compensation reports that show average salaries and commission levels for a wide range of sales jobs across various industries. Using this data you data, and based on your desired position compared to other companies, you can determine how much to pay your sales team. By utilizing market compensation data, you can ensure your sales compensation plan is competitive with the market and will attract the right level of sales professionals.
     
  •       Internal equity. Once you’ve defined your pay philosophy, and consulted the available external market data, you need to consider what other jobs within your organization are being paid. You need to make sure levels of pay are fair and align with the skills and experience required and levels of contribution each job makes to the company. Ask yourself this: is it okay if a sales representative earns more than a manager or Vice President in your company? Some companies would say no, but others would say that sales people who generate high levels of revenue should be the highest paid employees in the company. Whatever your decision is, when designing your sales compensation plan it’s important to look at the compensation of each job together, rather than in isolation.

Rhys Metler

Rhys is a tenacious, top performing Senior Sales Recruiter with 11+ years of focused experience in the Digital Media, Mobile, Software, Technology and B2B verticals. He has a successful track record of headhunting top performing sales candidates for some of the most exciting brands in North America. He is a Certified Recruitment Specialist (CRS) and has expert experience in prospecting new business, client retention/renewals and managing top performing sales and recruitment teams. Rhys enjoys spending quality time with his wife, son, and two daughters, BBQing on a hot summer day, tropical vacations and cottaging.