
Learn new skills, connect in real time, and grow your career in the Salesblazer Community.
Join nowLearn new skills, connect in real time, and grow your career in the Salesblazer Community.
Join nowSuccessful plans keep employees fired up and focused, aligning company goals with individual performance.
by Amy Plante, Lead Specialist Solutions Engineer, Salesforce
November 22, 2024
One of the top reasons people choose a career in sales is the enticing nature of sales compensation plan. Unlike many other professions, sales roles offer a unique blend of flexibility and the potential for impressive earnings through high commissions and variable incentives.
Due to the performance-driven culture around sales, many companies do not offer their sales teams flat salaries.
That's why it's important to understand the different kinds of compensation, why variable compensation plans are so popular both in and out of sales organizations, and how they are used strategically to motivate sales teams.
What you'll learn:
Variable compensation is any part of a salesperson's pay that isn't guaranteed. Base pay — salaried or hourly — is guaranteed, but variable compensation is based on performance. In sales, this typically comes in the form of sales commission.
Salespeople typically earn commissions based on their roles. Pre-sales roles, like account executives and sales development reps (SDRs), earn commission based on the deals they close or the revenue they generate. In contrast, post-sales roles, such as account managers and customer success professionals, earn commission through upselling, cross-selling, and renewing contracts.
Other types of variable compensation include bonuses, which are paid out depending on whether or not salespeople and the company hit certain targets. Equity and spot bonuses are also forms of variable compensation.
Discover the power of automating commissions with Salesforce Spiff, and easily create incentive programs that scale.
Variable compensation is important because it motivates behaviors. By aligning company goals and quotas with individual performance, companies can incentivize the right behavior, including:
There are different types of variable compensation plans that change depending on roles, targets, and company structure.
Many compensation plans – especially for salespeople – include all three of the above types of variable compensation, with each serving its own purpose:
Designing variable compensation plans requires a lot of thought and buy-in from across the company. In fact, there are entire teams dedicated to designing comp plans and ensuring their effectiveness.
It's a continuous process that requires collaboration from HR, finance, and sales. HR must set benchmarks, finance aligns the plan with company strategy, and sales works to ensure that the goals are realistic.
For example, finance might want to increase multi-year deals, and in doing so, will propose extra incentives like higher commission. But sales teams, being in the market and knowing the customer, can push back and tweak the goals until they're more achievable.
One of the roles that is uniquely responsible for aligning these goals and crafting compensation plans is that of a sales compensation manager. Typically, these roles marry a background in finance with sales experience, require a lot of data analytic skills, and involve continuously revisiting and updating compensation plans. It can be challenging to design comp plans, not least because of the amount of coordination, but also because the tools used to craft them can be as messy as spreadsheets or as complex as enterprise-level software. Having the right tools, however, makes the job a lot easier, which results in effective, easier to understand plans.
Simplicity is key. The more complicated the plan is, the less likely it is you will understand the behavior you are supposed to drive.
Sign up for the Salesblazer Highlights newsletter to get the latest sales news, insights, and best practices selected just for you.
One of the most important factors of managing variable compensation plans involves modeling and simulating plans before implementing them. The following best practices outline the steps before, during, and after to ensure the best possible outcomes.
Set clear objectives. Define what the compensation plan aims to achieve — are you trying to increase revenue, multi-year contracts, or customer retention? Do you want to do more upselling or cross-selling? Objectives clarify the design of compensation structures, and give teams a north star to follow that supports the company's strategy.
Overly complex compensation plans confuse sales reps and can make it challenging to prioritize the right behaviors. Limiting the number of components ensures clarity. With a base pay set, variables can be mapped out. You might offer a 5% commission on sales, with that percentage increasing as deal sizes increase.
Before rolling out new compensation plans, it's important to model different scenarios using historical data to ensure that plans are good for motivating employees and sustainable for the business.
Companies that are just starting out and lack historical data should engage with a partner that models out the previous year's plans to see what that cost is.
Regular reviews are crucial; consistently adjusting plans ensures they're still aligned with company goals and are encouraging the right behaviors. For this reason, compensation plans should be flexible and informed by performance data and feedback.
For variable compensation plans to be successful, employees need to understand how their pay is calculated. Keeping communication channels open and maintaining straightforward documentation can prevent confusion, while paying commissions accurately and on time builds trust between sales and finance teams. It's also a good idea to give sales reps real-time access to their performance data, usually with the help of dashboards in their sales tools. Above all, make sure you are transparent about compensation changes.
Learn new skills, connect with peers, and grow your career with thousands of sales professionals from around the world.
The success of variable compensation plans can be measured with two metrics: Employee satisfaction and company performance.
It would be inaccurate to argue that variable compensation comes with intrinsic pitfalls. However, like all aspects of business, mismanagement and unrealistic expectations can result in poor variable compensation packages. Avoid these potential issues:
Variable compensation plans are relevant to all sales teams, as the majority of sales reps are paid out between a base salary and variable incentives. To be effective, compensation plans must be aligned with business goals and thus should be simple, data-driven, and frequently reviewed. By setting clear, achievable quotas informed by real-time insights, sales teams can stay motivated and successful.
Is outdated commissions management hurting your growth? See how to quickly create automated incentive plans that motivate your reps.
Try Sales Cloud free for 30 days. No credit card, no installations.
Tell us a bit more so the right person can reach out faster.
Get the latest research, industry insights, and product news delivered straight to your inbox.