Your Head of Sales asks you to review the sales compensation plan, specifically the mix of base and variable compensation commonly known as pay mix, to ensure the sales force is properly incentivized to achieve revenue targets. No big deal right? They just need some direction from you on how to adjust the pay mix to motivate sales reps and drive the right behavior to grow sales. Here’s what could happen next:
Scenario 1 (Bad): Just increase the variable pay as a percentage of total compensation. Sales reps will become hunters and revenues will increase….right? Wrong – this could cause your best reps to leave the company because base pay became too low for the length of the sales cycle. Oh, and by the way, sales didn’t increase because reps didn’t have enough accounts to target for new business and they actually drove customers away with aggressive sales tactics.
Scenario 2 (Good): You ask sales leadership the following 5 questions to get a better understanding of the world of the sales reps, which will help you evaluate whether or not you need to adjust pay mix or if there are other factors you can help the Head of Sales identify.
How long is the Sales Cycle?
Longer sales cycles typically require more of a consultative approach and involve more stakeholders. Reps don’t get paid as often, obviously, so they need to have enough base pay to manage their household expenses and enough up-side to stay motivated.
Hint: Shorter sales cycles = higher variable pay
How much Personal Persuasion is required for a sale?
For products or industries that require a high-touch relationship, sales reps need to excel at building relationship and persuasion. More persuasion means more sales savvy. This particular skill set will need to be compensated appropriately.
Hint: Higher personal persuasion = lower variable pay
What is the Number of Accounts that each rep has?
The more accounts, the more opportunity. So, the harder the rep works to contact people at all of these accounts, the more revenue they will bring in. Reps want to be compensated for working harder.
Hint: Higher number of accounts = higher variable pay
How tailored is the Sales Message?
A tailored message requires more time in planning as well as creativity. This type of skill set is typically found in sales reps who want to be compensated for their unique ability to connect with various clients.
Hint: More tailored sales message = higher base pay
Is the product complex to sell?
Complex products typically require more buyers, more sellers, and a longer sales cycle. It also takes longer to train the sales reps, so you want them to stick around. Go a little lighter on the variable pay as a percentage of total comp with complex products.
Hint: Simpler products = higher variable pay
The Bottom Line
There are a lot of variables that go into a good sales compensation plan. Aligning the plan with your corporate sales goals and the desired behavior required of the sales role is the key. Having the wrong plan in place can cause turnover and a decline in sales. Use the graph below as a guide for Pay Mix with your upcoming project.
Need to back-up your sales compensation pay mix opinions with data?
Aon’s Sales Force Effectiveness Practice works with organizations to identify, prioritize, and capture profitable revenue growth opportunities. We combine deep data sets, scientific rigor, technology innovations, and consulting expertise to provide your organization with a competitive advantage that is extraordinary. Contact us to learn about Aon’s Sales Compensation & Practices Survey + Complimentary Readout Session.