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Skip to main contentWhat you decide to pay your sales reps has implications beyond just how much money they’ll make. It can impact your ability to attract and retain top talent, affect sales growth, and reflect on your company’s brand.
Pay positioning—which, put simply, refers to how your company compensates people compared to other companies—is a critical step in sales compensation design. And it’s also a key strategy of best-in-class sales organizations.
To determine where you sit in the market, and how you might want to adjust your sales compensation strategy to compete with other organizations in your industry, there are seven key factors to consider.
But first, a little review of what pay positioning—also known as salary benchmarking—is all about.
“In simplest terms, most sales positions earn two types of pay,” says Joseph DiMisa, a Senior Client Partner at Korn Ferry. “Base salary is the fixed portion of pay. And incentive pay—sometimes called a bonus or commission—is the variable portion.”
Together, these two components make up a rep’s total target cash compensation (TTC), or on-target-earnings (OTE), which is the cash amount they’ll expect to receive on their checks if they hit their sales targets.
How you decide to set your sales organization’s TTC will depend on your company culture and management perspective. “Many companies set their pay targets at the median or 50th percentile—right in the middle of the market,” says DiMisa. “Aggressive pay-for-performance-minded companies often pay at the 75th or even the 90th percentile, while others prefer a lower profile and set pay below competitive levels.”
To understand where a company sits, you have to look at quotas. For example, even if a company says it pays at the 75th percentile, are reps meeting those quotas and actually getting paid at the 75th percentile?
“The reverse holds true as well,” says DiMisa. “Companies with a stable, tenured workforce typically set pay targets at a lower level, like the 40th percentile. “They can afford this lower positioning against the market because their sales team turnover has historically been low. The reps are comfortable with the internal equity of pay, and market comparison has not been an issue.”
Low TTCs are typical with a company culture of “winners,” where everyone is considered a top performer who makes quota. However, DiMisa points out that even if quotas are set as if the company sits in the 40th percentile, if reps routinely meet or exceed them, the company actually pays closer to the market rate, in the 50th percentile.
But where does your company sit in relation to the market? And does that position accurately reflect your company culture and compensation philosophy? Is it time to make adjustments?
Sales compensation planning isn’t an exact science—which means sometimes it can feel like you’re taking a wild stab in the dark when deciding how to set it up. But if you keep the following seven elements in focus, you can take out the guesswork and reduce disagreements.
“Focusing on these factors helps take the emotion out of the conversation and forces you to answer specific questions,” says DiMisa. “Then you can determine the pay positioning that aligns with your answers.”
“Typically, start-up companies must pay more to attract top talent due to the implicit risk in a new venture,” says DiMisa. “The more risk, the more reward is expected.” In contrast, older companies with a proven track record are considered less risky. This stability is attractive to employees, allowing sales managers to set lower TTCs in the 40th to 50th percentile.
If your company sets easily attainable business goals, target pay should be at or below the median market pay. Companies with tougher performance goals typically pay more to get those results.
Like the previous point, but on an individual level. If you give your sales reps tough goals, you’ll want to consider positioning your pay targets in the 60th percentile or higher.
“This primarily means margins or profit,” says DiMisa. “If the company is profitable and sells (or services) products that generate a lot of profitability, then it’s more likely to pay for that through higher compensation targets.”
“How abundant is the talent required for the job?” asks DiMisa. “Is it hard to get talented people?” When the pool of candidates is limited, higher TTCs in the 60th percentile and above can help attract and retain the right people.
How stable the sales force is will significantly affect your compensation philosophy. “Are the sales reps a group of ‘hired guns’ who frequently move from company to company, chasing higher pay?” asks DiMisa. “Or are they stable, loyal, and likely to stick it out for the long term?” The former requires higher TTCs than the latter.
The amount of work for which a rep is responsible will also affect the compensation of sales personnel.
If your reps work in teams, the workload and accountability is spread out, lessening the influence each individual has over a sale. “In such cases, target pay may be set lower,” says DiMisa. Conversely, in lean organizations, greater workloads can require higher TTCs in the 75th percentile to reflect greater effort and responsibility.
Where you set your pay positioning will be based on your responses to the question each factor poses. “As you look to set market rates, these seven factors should be considered in their entirety,” says DiMisa, “with greater weight given to the ones that the company considers most important.”
Now that you know how to identify your current pay positioning, you can determine which adjustments to make to your sales compensation structure, if any, to help you achieve your business goals.
Creating total rewards programs to attract and retain top performers is just one of the ways best-in-class sales teams are hitting and exceeding their targets. What else are leading global sales organizations doing to set themselves apart from their rivals? Read our Sales Maturity eBook to find out.
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