Compensating Salespeople

Hire the Best - Use for Web applications, emails, etcRecently, a client created a new position and asked us to conduct a search to help them fill the position.  Since this was a new position, and I’m in tune to the marketplace, they asked for my input on how to compensate for this role.  I’ve designed numerous compensation plans for my clients and for my own company.  Here is the advice I gave my client.

There are several principles to keep in mind whenever you design a compensation plan for a sales role:

  • Compensation drives behavior.  Since this is true, be clear on the behavior you want.
  • Longer sales cycle require longer draws or base salaries.  Do you know the length of your sales cycle?
  • Keep it simple. Paying on gross or net or in the form of bonuses or commissions does not matter.  What matters is that your salesperson can easily figure out if they sell X they get Y without going through a complicated calculation.
  • Don’t put a cap on what they can earn.  Do I really need to explain why?
  • People get complacent when they hit the income they perceive they want or need.  Since this is true, your compensation plan should prevent someone from becoming permanently complacent.
  • Your compensation plan should be self-correcting. It should automatically adjust the amount they earn when the salesperson is over or under-performing.

A lot has changed in how we sell today and at the same time, people who sell have not.  These principles have stood the test of time and should factor into how you design your sales compensation plan.

How to Structure the Base Salary

compensation planThe next point I made to my client is that a base salary it is not an entitlement.  Success in selling comes down to daily behavior – how you operate.  That daily behavior leads to generating the revenue needed.

We compensate salespeople for how and what they do by paying them a base salary and we reward them on the result (e.g. closing deals) with commission.  If they stop the daily activities, the revenue won’t come.

For a new sales hire, be sure to explain “why” the base salary portion of their compensation exists and what it pays for.  Do the same for the commission portion.

If you fail to explain the “why” on the base salary, they will come to believe that it is tied to nothing… they get the base salary for showing up and the commission for closing deals. When they get to that belief… and all the successful ones do… it will lead to roller-coaster revenue generation from good months and bad months in sales.  This inhibits your ability to project and plan.

I have learned it is best to explain the difference and the importance of each form of compensation prior to employment.  It won’t prevent what I described from happening but it gives you the ability to state, “Just like I informed you before we hired you the reason for the base salary is… therefore we need you to be doing… ”.  I have learned that the true professional salespeople will respect this because that was the understanding prior to them accepting the position.  They won’t like it but they will respect it and get back to doing what they are paid to do.

In order to attract “A” player salespeople, you have to be attractive.  Being able to present a well thought-out compensation plan is part of that attraction.

For a list of items that I compensate a salesperson for as part of their base salary, click here.