I recently met with the head of rewards for a startup technology firm. She's helping structure the compensation package for the company's first salesperson — a key step in the process of building the company's sales organization. The company is in a relatively new industry, one for which few, if any, sales compensation norms exist. Through the hour-long conversation, we spent about 15 minutes discussing compensation design, and the remainder of the call on strategy, culture and alignment. Some leaders get impatient when they ask me about sales compensation practices and I respond with a set of questions around how they plan to grow the business. But they want answers, not questions.
I do this to try to understand the business environment and strategic priorities, and avoid the knee-jerk response: "It depends." When a company is focusing on its first commercial hire, I want to hear leadership's perspective on the type of person who is likely to be successful and how the company plans to enable this person's success. And let's not forget about the success of those who follow.
Top Drivers of a High-Performing Sales Organization
There are two common approaches I observe when companies are rebuilding or reorganizing their sales organization and, often, companies use both approaches at the same time. One approach is to grow the sales organization from the sales leader who will recruit members from his/her former team into the organization. Another strategy is to offer the candidate(s) a ton of upside pay.
Leadership and compensation professionals can have a significant impact when building a high-performance sales culture. Our research finds that senior leadership has the highest relative impact on culture among all employees. Compensation is also on the short list of influential factors, and the mix and magnitude of guaranteed vs. variable pay helps define the company's strategic priorities and risk profile.
Leveraging a sales leader's network can be an effective and sensible recruiting approach, but doing so does not ensure the salesperson's long-term success in the role. Sales leaders have a relatively high failure rate; the average tenure is less than two years. What does this say for the longer-term viability of the leader's followers?
Using a highly-leveraged compensation approach, one with a relatively high share of the target or expected variable total cash compensation, is risky for both the candidate and the company. Candidates drawn to a high-risk compensation approach are more likely to take risks in pursuit of their target pay. Such risky behavior can be inappropriate in some industries like biopharma and medical devices. It can also be out of line with company culture.
While leadership and compensation are arguably the most important drivers of performance for a sales organization, there are several other factors that contribute to building a high-performing culture, including:
- Performance Management: Field salespeople and managers operate to some degree outside of a company's cultural mainstream. Not surprisingly, the extent of sales performance management for many organizations relies almost exclusively on quota achievement and the incentive pay consequences tied to a quota-achievement score. However, high-performing sales cultures use goals as a means to an end, and not as a substitute for performance management. A well-designed coverage strategy and territory- or account-level planning for growth helps articulate how the work gets done. Frequent communication helps management course correct and avoid surprises.
- Tools and Resources: Many salespeople will tell you they spend too much time on administrative work and not enough on selling. Marketing and sales functions have a tremendous amount of data available to understand customer buying habits. Putting the data to work requires automated tools and support resources. From the salesperson's perspective a company's degree of sophistication in this regard says a lot about its effort to support sales. Even small companies can benefit from today's relatively cost-effective analytical tools.
- Learning and Development: There's a misconception that experienced salespeople know how to get the work done and, therefore, don't need regular training and coaching. But the opposite is true. Most markets are dynamic. What worked a few years ago probably isn't as effective today. Professionals with years of successful sales results still need to understand how best to position the latest solution in a buying center that's changed. Our research indicates that salespeople are more likely to be engaged when the company provides learning and development opportunities.
Every company has a unique opportunity when launching a new sales function or revamping the current function. Rather than focusing first on the compensation plan, leadership should consider a broad range of factors that have the biggest impact in building a high-performance sales organization. The first place to start is to define your organization's culture and values, then create the building blocks to support that culture. Compensation is a crucial component of this equation, but one that relies on many other influences.
If you have questions about sales compensation design and would like to speak with a member of our compensation consulting group, please write to email@example.com. To learn more about participating in a Radford survey, please contact our team.