When designing a sales compensation plan it is important to consider differences between types of sales positions and the impact they have on influencing and closing sales.
The following article highlights variations in sales pay mix and issues to consider when deciding how much compensation to tie to cash incentives. It includes excerpts from the 2009 Culpepper Sales Compensation Design Survey on sales pay practices of technology and life sciences companies.
Pay Mix
An employee’s pay mix describes how different types of compensation are allocated. Pay mix and the types of cash compensation used can vary considerably by sales position.
Table 1 shows variations of different types of cash compensation that can comprise a sales employee’s total targeted cash compensation, looking mainly at technology and life science companies. Note that:
• Most sales employees have a guaranteed base salary with the opportunity to earn bonuses or commissions.
• Sales managers, sales reps, and product specialists are more likely to receive commissions than those in other types of sales positions. In general, commissions are most effective when paid to employees responsible for closing sales and to employees responsible for selling high-priced products or services.
• Bonuses, in lieu of commissions, are typically more effective when it is difficult to measure the impact individual employees have on sales. Examples include indirect sales, sales support, reps selling low-priced products, and reps selling through distributors.
Table 1. Cash Compensation Combinations by Type of Sales Employee | |||||
Base Salary | Base Salary | Base Salary | Base Salary | Straight Commission | |
Sales Executives | 2.4% | 44.1% | 26.4% | 26.4% | 0.7% |
Sales Managers | 0.4% | 21.3% | 46.9% | 31.4% | 0.0% |
Sales Reps | 0.9% | 10.6% | 60.8% | 26.1% | 1.6% |
Sales Product Specialist Overlay | 9.2% | 34.2% | 41.7% | 14.9% | 0.0% |
Business Development | 16.1% | 51.4% | 22.2% | 10.3% | 0.0% |
Pre-Sales Tech & Engineering Support | 18.8% | 38.1% | 33.2% | 9.4% | 0.5% |
* In addition to a guaranteed base salary, guaranteed cash allowances for automobile and/or housing allowances are common for some sales positions, particularly in Europe and Asia. |
It is rare for technology and life sciences organizations to have a commission-only sales compensation program with no base salary or bonus. Some straight-commission plans are ineffective and inappropriate for companies that need sales reps to sell products and services created and owned by the company. Straight-commission plans are more appropriate for sellers that work as independent agents and have ownership of their accounts.
Base Salary to Incentive Pay Mix
Base salary to incentive pay mix can vary considerably by type of sales position (Table 2). Note that:
*Employees closing sales and sales management typically have the most aggressive pay mixes, with a higher percentage of their compensation at risk than other sales positions.
*Direct sales reps selling to new accounts, on average, have the highest percentage of compensation tied to cash incentives (i.e., bonuses and/or commissions).
*Pre-sales technical and engineering jobs and business development have the lowest percentage of commission tied to cash incentives.
Table 2. Average Base Salary to Incentive Pay Mix (Technology & Life Science Companies) | |
Sales Position | Average |
Sales Executives | 66 / 34 |
Sales Managers | 65 / 35 |
Direct Sales: New Accounts | 59 / 41 |
Direct Sales: Existing Accounts | 62 / 38 |
Direct Sales: New & Existing Accounts | 59 / 41 |
Direct Sales: Inbound Telesales | 72 / 28 |
Direct Sales: Outbound Telesales | 69 / 31 |
Direct Sales: Inbound & Outbound Telesales | 70 / 30 |
Indirect Sales | 67 / 33 |
Sales Product Specialist Overlay | 73 / 27 |
Business Development | 80 / 20 |
Pre-Sales Tech & Engineering Support | 83 / 17 |
A higher incentive component should be considered when:
• The selling is focused on pursuing new accounts.
• The selling is primarily direct.
• The position requires a high degree of skill.
• The price of the product or service is relatively high.
• Internal career opportunities are limited.
A lower incentive component is usually advised when:
• The selling is primarily indirect (to dealers and distributors).
• The selling is primarily a team effort.
• The company or product is in a start-up mode.
• The sales cycle is very long.
• Advertising is a strong factor in influencing sales.
• Internal career opportunities are relatively high.
Data Source: Culpepper Sales Compensation Design Practices Survey of 276 organizations. Survey Dates: May 5, 2009 through August 5, 2009. Breakdown by Industry Sector Group: Technology 76%, Life Sciences 11%, Other 13%. Participant Breakdown by Number of Employees: Up to 100: 25%, 101 to 500: 22%, 501 to 2,500: 28%, 2,501 to 10,000: 17%, Over 10,000: 8%. Participant Breakdown by Ownership/Corporate Status: Public 49%, Private 48%, Non-Profit 3%. Participant Breakdown by Primary Sales Channel: Direct Sales 81%, Distributor/Wholesaler 7%, Government 4%, Original Equipment Manufacturer (OEM) 3%, Retailer 3%, value-Added Reseller (VAR) 2%. Participant Breakdown by Country: United States 92%, Canada 3%, Other 5%. |
Culpepper and Associates conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs.
Reposted with permission
Culpepper Pay Practices Surveys, September 2009
Related Articles:
Compensation Is Not the Only Tool in Your Sales Toolbox, SHRM Online Compensation Discipline, May 2009
Small to Mid-Size Businesses Shift Sales Comp Strategies, SHRM Online Compensation Discipline, April 2009
For Sales Personnel, Incentive Targets Lead to Bigger Bonuses, SHRM Online Compensation Discipline, October 2008
Companies Fail to Communicate Comp Plans to Sales Managers, SHRM Online Compensation Discipline, June 2008
Complex Compensation, Global Operations Challenge Sales Force Performance, SHRM Online Compensation Discipline, July 2008
Sales Compensation Planning for HR Professionals, SHRM Research, June 2007
Related Multimedia:
SHRM Video, Compensation for Sales Managers, June 2008
Quick Links:
SHRM Online Compensation Discipline
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