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Sales Compensation Plans in a Changing World

Sales Compensation Plans in a Changing World

Ananya Mallya
Ananya Mallya
September 17, 2021
5 min read

The world has been changing enormously over the past two years. And that’s still an understatement. We’ve gone from hour-long commutes to Zoom meetings in bed — and now back in many parts of the world.

This April, 3.8 million Americans quit their jobs with another 3.6 million set to quit in the next month. The scenario is no different in the sales world, with sales leaders reporting dwindling numbers of salespeople within their teams.

Many reports say the Great Big Resignation is upon us.

The Great Resignation in Sales

Yep, it is exactly what it sounds like. It may not be a surprise that after the onset of Covid, many people are choosing to leave their jobs. It is estimated that 1 in 4 employees have considered quitting their job.

How has Covid affected salespeople?

Well, besides the fact that salespeople are regular people with the same hopes and fears as any of us, they have faced additional occupational hazards in recent times. 

Sales is a profession that thrives on connecting with people—listening to them, meeting with them, understanding their problems and building trust. So, it’s no surprise that when salespeople have been forced to work remotely, away from the people that their work survives on, their work is greatly suffering. Sales leaders need to be prepared for a dramatic change in the way sales teams work.

As Forbes puts it, “Significant numbers of sellers used the time at home to reconsider career paths and life choices. Though these sellers may have done well working remotely, they have little interest in returning to their offices. Why spend all day on Zoom in a cubicle when it’s possible to do the same in a place the employee wants to be, namely, home.”

For obvious reasons, the Great Resignation might be the biggest challenge faced by sales leaders in meeting their carefully planned sales goals.  

As Dave Egloff, Gartner VP Analyst, writes, “This term describes the mass exodus of employees leaving their current job. According to the US Department of Labor, June had over 10 million jobs created and nearly 4 million professionals quit their job. It’s fair to say that the labor market is tight.” Dave actively advises chief sales officers and heads of sales operations on topics including managing, assessing and optimizing sales compensation programs.

What does sales compensation have to do with it?

Yeah, we wrote this line with the hit number “What’s love got to do with it” in mind. And the truth is, it has a lot to do with it.

Sales comp plans have always been a hot topic and even more now with the changing expectations of sales folks in a post-ish Covid world.

What is the usual sales compensation structure?

According to Gartner, “Sales compensation is the amount paid to salespeople based on their performance against predetermined targets. Compensation can be salary, commission, incentives or a combination of these payment types.”

As all sales folks know, sales compensation varies by company but often includes a base salary, commission and additional incentives. 

Here is an example of a sales compensation structure provided by CompGauge.

As you can see, commissions from sales quota have a major stake in the compensation a salesperson receives. Due to the pandemic, a lot of companies decided to lower their commission by lowering the percentage of sales quota or capping their commission beyond a certain point. 

SaaStr Founder Jason Lemkin believes that there is no good reason to cap commission, "At least, not until you are at $20-$30 million ARR or more, and maybe much higher. If you cap this too early, you are limiting your revenue per lead."

Is it perhaps time to move to more balanced, less variable sales comp plans?

We asked some of the most well-regarded and experienced sales leaders what they thought.

George Leith, Chief Customer Officer, Vendasta

“I believe that commission is what drives a great salesperson. I don't know if I have a full answer. But I do believe that sales leaders need to look out for whether the compensation plan you’ve decided on is leading to the behavior that you're looking for.

And by the way, just expect somebody to gamify the system. I think it's so funny when we roll out a comp plan and some managers are super surprised when some smart rep figures out a way to game the system. Just anticipate that they will when you’re going into it and look at it and say, how would I game a fight?”

Calvin Peterson, Founding Member and Head of Mentorship, Revgenius

“One of the things we recommend, regardless of company size, is to re-evaluate compensation every six months and figure out how to have reps hit higher on quota. Beyond that, it's also about commissioning smarter. Bringing quota to a more attainable level will have a better psychological impact on reps.”

Kevin ‘KD’ Dorsey, VP of Sales, Patient Pop

“We need money. We want money, but not as much as people like to think. This is a big miss for how we see a salesperson’s motives.

Money does not really change the behavior of most people, especially for a significant period of time. Money isn't motivating people to be better at their jobs. And that is something that I think we need to really think through and address, as an industry.

A lot of the time people say things like, “Salespeople are coin-operated.” And the funny thing is I think people forget how coin-operated machines work. Does anyone ask, “Do I turn the knob and then put in money or do I put in money and then turn the knob?”

Coin-operated is quite literally not how we pay our salespeople. We say, give us the gumball and then we'll give you the money, right? That’s why I think we're in for a reckoning.

Pradeep Sridar, VP of Sales, Wingman

“I generally try to be broad-minded when it comes to sales commissions. There’s never a right answer or a single framework to do it right. Generally speaking, sales leaders should think about whether the plan helps the reps/business when crafting it.

Another important aspect is to think about your prospects and measure if your compensation plan is tuned to make them successful as well. Once all three pieces of the puzzle are perfectly balanced, you achieve your sweet spot of driving the right behavior through your commission plan. Of course, it should be expected to break in two quarters, so you should revisit it again.”

What does all of this mean?

You can see from these snippets that there’s a conflicting view on what drives a salesperson. 

Commissions can motivate salespeople to work harder to hit their quota. But on the other hand, commission-heavy plans could put your sales team on the insecure (and flighty) mode.  

Whatever you choose to change (or not), a good way to make sure your salespeople are onboard with your sales compensation plans is to discuss it with them.

And by the way…

If you’re sure that your comp plans are in place with what your team wants, Jeff Riseley’s words could hold the key.

“Early on in my career, I was only in it (sales) for the money. I was only in it for the life outside of work. And as a result, that was a very weak purpose. A weak purpose is not going to protect you from those stresses that we face on an ongoing basis.

A better way is to adopt an altruistic mindset where you're showing up each day to try and better the lives of the people around you.

More importantly, it’s trying to genuinely make an impact and improve the lives of the right customers and the people that you're selling to on an ongoing basis. That’s a much deeper way to connect with your purpose every day.”

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