7 years ago
February 21, 2017

5 Common Misconceptions about Sales Compensation

Your sales compensation plan is vital to success, but if you’re compensating your sales team based on common misconceptions, you’ll have problems.

Rhys Metler

There’s no doubt that your sales compensation plan matters. It’s critical to the success of your sales team, to the effectiveness of your motivation, and to the health of your bottom line. But creating the perfect sales compensation plan for your business can be awfully tricky.

And unfortunately, many employers have followed bad advice and assumptions that have hurt their efforts. Don’t make the same mistakes.

Here are some common misconceptions that you shouldn’t consider when designing your sales compensation plan.

1. Turnover Is High Because of Sales Compensation

Does it feel like you have a revolving door of sales people at your business? If so, it can be easy to blame your compensation plan. As such, you might think it’s time to redesign it, to pay more, and to be more creative with your plan in order to improve retention.

But you might be spending more money than necessary and ditching a very effective plan for no reason. The thing is, compensation is rarely the main contributor to turnover in sales. Sales professionals value many other factors above pay. And their decision to leave might be completely unrelated to your commissions, bonuses, and sales incentives.

Instead of jumping the gun, consider what other factors might be at play: there might be dissatisfaction with supervisors or management style, lack of professional development, or insufficient career advancement opportunities that you should fix.

2. I Just Need to Adopt the Industry Leader’s Compensation Plan

There are many ways to compensate sales people. No two companies will offer their sales people the same compensation, nor should they. Compensation is situational. The best plan really depends on your go-to-market strategy, your sales cycle, your selling role definitions, your company’s stability, and your overall business goals.

Simply adopting the industry leader’s compensation package won’t work because the plan won’t be driven by your unique needs and circumstances. It won’t serve your business well.

3. Sales People Will Only Do Things If They’re Incented in the Plan

You might think that you need to include every single little detail in your sales compensation plan. That you have to incentivize your sales people to perform all of their activities. But this simply isn’t true.

There are tons of ways to drive performance, including non-cash rewards and recognition, management supervision, team member pressure, and performance management systems. You don’t have to dish out cash for all desired sales activities. Remember, great sales people are competitive—and they’ll win just for the gratification of winning, even if there’s no money involved.

4. The Plan Should Cost No More Than X

It’s virtually impossible to define a benchmark for the compensation cost of sales. There are myriad variables at play, from different sales deployment models to separate accounting practices, so you can’t compare your cost of sales to anyone else’s in the industry. Pay what you need to pay to see results and measure your salesforce accordingly to see if it’s working.

5. You Cannot Put a Cap on Your Sales Compensation Plan

True, great sales people do tend to dislike a cap on their earnings potential, but that doesn’t mean your plan must be uncapped. The sales role’s ability to influence the closing of the sale should be the driving force behind whether or not a plan is capped. Low-prominence roles don’t require uncapped compensation. Affordability is another factor that should come into play. You need to be able to stay afloat and make a profit, after all. You can’t give it all away to your sales people.

Don’t let these common misconceptions affect the sales compensation plan that you design. These “truths” about sales comp are anything but true. And they have no place in your plan design.

Rhys Metler

Rhys is a tenacious, top performing Senior Sales Recruiter with 15+ 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 daughters, BBQing on a hot summer day and tropical vacations.