Framework: Sales Compensation Plan

General advice

• Construction: When in doubt, let people exceed during early days- don’t stress about overpaying for performance. Consider MBO and variable plans not 100% tied to revenue. 50/50 plans doesn’t always work
• Commission Operations: Provide visuals, calculators so it’s an open conversation on expectationsPay expense reports and commissions as quickly as you can align payment schedule between sales rep and customer. Prepay to give sales reps consistent earnings
• Set Expectations: Review annually and extend career laddersForecast 2-3 years plans when possible. Set expectation that quota, targets, and OTE will go up as business matures

Most Importantly: KEEP IT SIMPLE! Don’t confuse COMMISSION PLAN with PERFORMANCE MANAGEMENT. You don’t need an incentive (commission) for every behavior you want. You can set expectations in your performance management document on minimum acceptable performance.

Sales compensation terminology

• Base salary: guaranteed base income
• Variable compensation: commissions (income based on performance)
• OTE (on-target earnings): total compensation including base + commission @ 100% year 1 target
• Commission rate: percentage/dollars paid on closed revenue
• Commission plan: document that explains commission operations
• Accelerators: elevated commission rates for exceeding revenue goals
• SPIFs: Sales Performance Incentive Fund are good for driving short term incentives and behaviors
• MBO: management by objectives (Peter Drucker concept). The idea of using objective-based goals as opposed to revenue-based goals to align commissions. Good for early sales learning curve and leadership hires.
• Draw: loans against future expected earnings/commissions Recoverable: Rep has to pay it back in event of termination. The outstanding draw amount accumulates from month to month. Non-recoverable: Rep does not have to pay it back in event of termination. No accumulation. More like an elevated salary for a defined period of time.

Determine total compensation levels

Market benchmark:

What other alternatives does a person with this skill set command?

First, like most other verticals, what a candidate may command in the market in alternative options often set the bar for comp. So if you’re looking to hire someone from a big company or name brand logo, or get a passive candidate to change in the middle of the year, you’re going to pay a premium on marketing benchmarks as the market is very competitive.