10 Quirks in Market Pricing Sales Jobs

August 17, 2017 Chris Kelley

 

Salary survey data for 2017 is starting to come at you from a wide variety of survey sources. Before you go hog-wild with conducting your benchmark job analysis though, you should take the time to carve out the market pricing of jobs in the sales organization. Market pricing sales jobs can be a bit tricky.  Many of the guiding principles we cover in our recent white paper on implementing a market pricing methodology still apply, but we’ve come up with a list of ten quirks that can make market pricing sales jobs worthy of special attention.

  1. Job Matching

When matching your benchmark jobs to salary surveys, we typically recommend looking for a ‘70% match’ based on the job duties.  While there’s still merit to that guideline when job matching for sales jobs, there are so many more attributes to the different types of sales roles that you have to dig deeper.  Many of us will frequently refer to sales jobs informally as either ‘hunters’ or ‘farmers’.  Hunters focus on developing new business opportunities with new customers. Farmers focus on selling to existing accounts. Both are important, but the skillsets (and ways to incentivize!) are vastly different.

Even after knowing the attribute of sales focus for your job compared to the survey source, you also need to take into account other attributes like:

  • how the customers are segmented – sales reps handling large accounts vs. small accounts, vs. government accounts, etc., all face their own unique challenges
  • sales cycle time – deals that typically take 6 months or more to close behave differently than deals that can move more quickly and require a different type of sales staff
  • product focus – the depth of knowledge required for handling unique product vs. a broad portfolio can be vastly different

The point here is that not all sales jobs are the same and when benchmarking, you need to ensure your survey benchmark jobs are reflecting the variations in the sales role attributes.

  1. Peer Groups

For most professional level individual contributor roles, companies are fine using the “All Companies” scope cut of survey results, so long as the participant profile in the survey is reasonably close to the relevant labor market.  For sales jobs, it’s not quite as simple.

We often see the relevant labor market for sales jobs being defined more so by the industry and/or products or services being sold. Understanding where your sales talent worked previously is a good indicator of the type of selling role you are benchmarking.     

  1. Pay Mix

Market pricing evaluations for benchmark jobs in most other parts of the business can be focused on base pay and then setting short-term incentive targets based on salary band levels.  However, sales jobs require you to dive deeper into the analysis of total cash compensation. You need to fully understand how the mix of pay works for each of your sales jobs.

Account Manager Pay Mix Targeted and Actual 

The key observation from the chart above is the difference between target and actual in pay mix for the Account Manager role. In this scenario, the actual incentive pay awarded is less than target. You would want to look at this type of data over a multi-year trend of data.  Typically, we’d look at three years of data before drawing any firm conclusions.

  1. Plan Mechanics

If you’ve ever had to design a sales compensation plan, you certainly aware of myriad of choices you make regarding plan mechanics. You decide on plan design features such as:

  • Whether commissions are paid on first dollar sale vs. percent quota attainment
  • If some percentage of quota attainment is required, how much?
  • Should you impose windfall (bluebird) caps?
  • What metrics are used?
  • And many more

When it comes time to analyze the competitiveness of your pay package for your sales staff, you should not just be looking at pay levels, but also you should be assessing the competitiveness of your plan design. Even you elect not to make changes to your plan design, understanding the difficulty of earning sales incentives under your plan vis-à-vis the labor market peers may influence how you want to position your targeted pay levels.

  1. More on Metrics

The metrics you use in the design of your incentive plan are such a critical issue; it’s worth calling this out as its own special consideration for when you are market pricing your sales jobs. The metrics (or performance factors) you use should align to the business objectives you’re trying to achieve.  That being said, there are some best practices regarding choice of metrics that can help you ensure your plans.  People usually want to know how many metrics (Hint: <=3) and which performance factors are most prevalent.

 Sales Compensation Metrics Used

  1. Assessing Pay by Tenure

In many sales environments, it takes a fair amount of time for newly hired representatives to get up to speed. This is understandable since it takes time for new sales personnel to learn the industry and the products or establish rapport with clients. Most organizations (79%) of organizations reported having some form of special consideration for how the sales compensation plan will treat employees during their first ten months of employment.  The types of special considerations we see include:

  • Guaranteed minimum pay
  • Modified quota
  • Temporary supplemental pay

These pay arrangements though can have an impact on the survey results. You may want to look at the impact of the reported pay data with new hires excluded.

  1. Quota

Setting quotas that you expect your sales staff to hit is where all the pieces of the sales compensation plan come together.  It starts with having a philosophy around how realistic are the quota goals supposed to be.  While most companies strive to set realistically achievable quotas, some companies will set high quota goals to create a ‘stretch’ mindset when they are pushing for significant growth. Others will set low quotas where essentially they expect all sales reps to reach.

 Quota setting philosophy…how much stretch is in them there goals

Analyzing what % of population is achieving

  1. Other Elements Related to Pay

You also can’t ignore the impact things like recognition awards or automobile policies can have on your ability to remain competitive.  For example, if your field sales representatives spend hours each day driving to prospects ’ locations throughout a territory, they’ll be taking into account what other companies are offering for type of car purchase/lease programs or what the mileage reimbursement rate is.

Sales Compensation Recognition Award Types

The majority of companies also provide some form of additional recognition each year for their sales organization.  Typically, only higher performing sales team members receive these types of awards, but they do have a motivational impact even to the non-recipients.

 

  1. Comparing Incumbents to Market Data

All your analysis into the market competitiveness of the pay for the sales organization also will have a completely different focus as compared to the market analysis you do for any other functional area.  Typically, when we start to layer in incumbent data for other functions, we’re looking at individuals where market adjustments might be appropriate.  However, when analyzing sales incumbents, we are also looking at elements of the sales compensation plan design that may need to be adjusted. 

Much of the focus will be on the competitiveness of the actual total cash paid to individuals.  One of the biggest challenges is to ensure you maintain a holistic perspective of the entire sales team. We don’t want to necessarily adjust the whole sales compensation plan just because the total pay earned for the top performers is less than the targeted market positioning. Lagging behind in pay for the top performers may drive you to modifications of certain features, but not typically the total plan.

The review of compensation for the sales team will often times involve a collection of stakeholders not typically involved in reviewing pay in any other functional area.  Because of the interconnectedness of sales compensation with so many other areas of the business, alignment of the sales rep’s motivation and the goals of Marketing, Finance, Sales Operations, HR, and the overall company will be critical.  Aside from the compensation department, we typically see the following departments requesting industry data on sales compensation:  

  • Sales Leadership
  • Sales Operations
  • Finance
  • Marketing
  • HR
  1. Using a benchmark survey specifically for sales compensation

Most of the mainstream benchmark salary surveys contain pay data for various sales roles, which can provide you with an interesting data point.  However, you’ll want much more than that. As you can see from the list of what we’ve called quirks above, you’ll need to be able to go much deeper into the pay analysis for sales jobs.

The pay data by job is important, but insights on plan design and practices are essential. To do sales compensation market pricing well, you’ll need to use a survey source like Aon Hewitt’s Sales Compensation and Practices Survey.

To learn more about how you can start using one of the leading salary survey sources for your sales organization, visit our Sales Compensation and Practices Survey web page and request the participation materials.  If you’d like to speak with one of our Sales Force Effectiveness consultants, click here.

 

 

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