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Are Salespeople Overpaid

Are Salespeople Really Overpaid?

If you have worked in sales performance management for more than 10 minutes, you will be familiar with this question. Why do salespeople make more money?

Or it’s the Sales Engineer who did the killer demo.

Or it’s the other Account Executives who were brought in to work the deal at various stages.

Or it’s the Professional Services team who are now “stuck with the customer and have to work their butts off delivering on those promises that were made in by sales.”

And so on.

There are a million variations on this theme, and you’ll see it in any industry that needs to sell B2B. And the gripes become more pronounced the more “sales-focused” you want or need your business culture to be.

For most B2B companies, it’s not an option. Revenue is king, and new business revenue keeps the kingdom secure and prosperous. You need to attract and retain your sales producers with market competitive commissions for their sales wins.

But the sales support folks are crucial as well. So, are we paying salespeople too much? Is there a better way to design your sales commission plans? Is it possible to please everyone?

If this story is all too familiar, here is how I think about this problem...

First, people management needs to be done by managers, not by compensation plans. Pay can be a sensitive issue, and that will still be the case even with the “best possible” compensation plans. Different people see the same thing differently.

It is up to their managers to help them keep everything in perspective. As a manager, you need to navigate the rough waters and communicate clearly and confidently on the underlying principles of pay for performance.

Ok, but let’s assume that there is room for improvement in the commission plans. Here are some areas to consider:

Determine who really influences the sale vs. who “works” on the deal

Are we giving too much credit to the Account Executive? It depends on how much they affect the outcome of a deal. Often we think of salespeople as “hunters or farmers.” Hunters typically influence the results of a sales opportunity more than a farmer and should be compensated accordingly.

Similarly, a support person whose work contributes to the sale, but who does not actually influence the decision, should not expect a large variable component in their compensation. It is important that everyone understands their commission checks' relative size hinges on how much they actually influence the buying decision.

Then, provide clarity for bid teams

Once you’ve determined relative importance in the sale among the team, make it crystal clear for everyone involved. Large bids can be a minefield for Pay-for-Performance. There’s often a team of five or six people working full time on an RFP for months (sometimes across multiple financial years).

There will be a bid leader. It’s up to sales management to determine who plays the pivotal roles and set the commission plans accordingly. By the way, often, the large deals demand the involvement of the C-Suite at many steps in the process. It’s worth considering how crucial is their role and whether that detracts from the case for a big payout.

Finally, if a lot of people influence the decision, a team-based plan may make sense

If you have many people in the mix, all of whom influence the buying decision, it may be better to put a stronger weighting on team performance in everyone’s plans. Team plans credit all sales people for all sales or a category of sale (e.g. “all sales of product x”) made by any member of their team.

Typically, the team will be their immediate team of salespeople (e.g. 5-10 sales people). The payment mechanism isn’t necessarily different from an individual plan, but the rates will naturally be lower. For example, “earn 1% of all team sales” as opposed to “7% of your individual sales”.

Finally, when should we just pay a flat bonus or a fixed salary?

For many roles, it does not make sense to conjure up a fancy commission plan. Assess the costs versus the benefits of managing a sales incentive compensation scheme for non-salespeople. The benefits are significant and include reduced fixed costs, aligning revenues to expenses, more leverage to attract top performers, and a more motivated and focused sales force.

The costs are not trivial, though; administration costs, risks of overpayments, and the cost of managing the plan policy. If the business of measuring performance for a sales role is becoming so challenging that the benefits are questionable, it may make sense to move to a fixed salary model.

Then again, you might want to consider the software options now available (like Performio) to help you manage these challenges.




David Marshall - Founder

David Marshall

David Marshall has spent his entire career immersed in the world of sales compensation. As a sales comp professional, he found the existing Incentive Compensation Management platforms diabolically difficult to use. He founded Performio to provide sales compensation professionals with a powerful sales comp solution that was also easy to use.

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